NRI Selling Property in India? Here’s How a New ITAT Ruling Can Help You Save Lakhs in Capital Gains Tax

When a Non-Resident Indian (NRI) sells property in India, the biggest challenge is taxation. With high TDS deductions and complicated capital gains tax rules, many NRIs end up paying more than their actual liability.

Recently, the Mumbai Income Tax Appellate Tribunal (ITAT) delivered a landmark judgment that provides much-needed clarity. The ruling establishes that genuine property transactions between spouses qualify for capital gains tax relief under Section 54—regardless of the relationship. More importantly, it clarified that indexation can begin from the date of the agreement to sale, not just possession.

For NRIs, this means an opportunity to save lakhs in capital gains tax with proper planning.

If you are an NRI selling property in India, you are subject to capital gains tax (CGT):

• Short-Term Capital Gains (STCG): If sold within 24 months → taxed at slab rate.
• Long-Term Capital Gains (LTCG): If held for more than 24 months → taxed at concessional rates.

Additionally, buyers are required to deduct TDS on NRI property sales, which often exceeds the actual tax liability. This makes advance tax planning essential to avoid unnecessary cash flow issues.

The Finance (No. 2) Bill, 2024 introduced changes in long-term capital gains tax calculation:

• Before 23 July 2024:
  • 20% LTCG tax with indexation benefit.
• After 23 July 2024:
  • 12.5% LTCG tax without indexation.

📌 What this means: NRIs must carefully evaluate whether selling before or after the cutoff date is more beneficial, depending on their purchase price and inflation adjustments.

Indexation adjusts the purchase cost of a property using the Cost Inflation Index (CII), reducing taxable gains.

Formula:
Indexed Cost of Acquisition = Purchase Price × (CII of Sale Year ÷ CII of Purchase Year)

• Holding period: More than 24 months = LTCG.
• NRIs must carefully check whether the date of agreement or date of possession applies—this directly impacts indexation benefits.
  

In a recent Mumbai ITAT case, the taxpayer had signed an agreement to sale years before taking possession. The ITAT ruled that indexation benefit should be calculated from the date of the agreement, not the possession date.

This was a huge win for taxpayers, as it aligned with earlier Bombay High Court and Punjab & Haryana High Court rulings.

Let’s see the difference:

• Without early indexation (using possession date):
  Taxable LTCG ≈ ₹17 lakh
• With early indexation (using agreement date):
  Taxable LTCG ≈ ₹1.6 lakh

 That’s a saving of over ₹15 lakh just by applying indexation from the agreement date.

This ITAT ruling is a game-changer for NRIs because:

• It clarifies indexation benefit eligibility. 
• It supports genuine family transactions, such as sales between spouses. 
• It reduces the risk of double taxation and overpayment of TDS. 
• It strengthens NRIs’ ability to claim Section 54 exemptions.
  

If you’re an NRI planning to sell property in India, here’s your action plan:

1. Review your property documents – agreement date, registration, possession date.
2. Plan your sale timing – decide whether to sell before or after July 23, 2024.
3. Apply for a Lower TDS Certificate – to avoid excess TDS deduction.
4. Claim exemptions under Section 54/54EC/54F – reinvest in property, bonds, or other eligible assets.
5. Consult a qualified CA or NRI tax advisor – for proper filing and repatriation compliance.
   

Navigating Indian tax laws can be overwhelming, especially from overseas. Professional advisors can assist with:

• Capital gains tax computation with/without indexation. 
• Lower TDS certificate applications. 
• Exemption planning under Section 54. 
• Repatriation of funds under FEMA & RBI guidelines. 
• DTAA (Double Taxation Avoidance Agreement) benefits.

The Mumbai ITAT ruling brings clarity and relief for NRIs selling property in India. By allowing indexation from the agreement date and extending Section 54 exemptions to spousal transactions, it creates opportunities to save lakhs in capital gains tax.

With the Finance (No. 2) Bill, 2024 also changing LTCG rules, NRIs must act smart—choosing the right timing, applying indexation correctly, and seeking professional help to maximize tax savings.