Taxability of Long-Term Capital Gains on Immovable Property for NRIs (FY 2024-25)

Non-Resident Indians (NRIs) owning immovable property in India must be aware of the tax implications when selling their property. The NRI capital gains tax rules differ from those applicable to resident Indians. This article provides a detailed yet easy-to-understand explanation of long-term capital gains tax (LTCG) for NRIs, focusing on the financial year 2024-25.

For NRIs selling immovable property in India, the classification of capital gains depends on the holding period:

1. If the property is held for more than 24 months, the gains are classified as long-term capital gains (LTCG). If transfer occurred before July 23, 2024, LTCG is typically taxed at 20% (plus applicable surcharge and cess). However, a significant change was introduced for property transfers taking place on or after July 23, 2024. For these transactions, the long-term capital gains are taxed at a reduced rate of 12.5% (plus applicable surcharge and cess).
2. If the holding period is 24 months or less, it is considered short-term capital gains (STCG) and taxed at applicable slab rates. STCG is added to your total taxable income in India and taxed at the applicable income tax slab rates for NRIs. These slab rates can escalate up to 30%.

TDS on LTCG: The TDS rate for transfers before July 23, 2024, was typically 20% plus any applicable surcharge and education cess. For transfers occurring on or after July 23, 2024, the TDS rate has been set at 12.5% of the total sale value, along with any applicable surcharge and cess

TDS on STCG: If the sale results in STCG, TDS is generally deducted at 30% (plus applicable surcharge and cess).

Important Considerations:

1. TDS Certificate: The buyer provides Form 16A as proof of tax deduction.
2. Lower/Nil TDS Certificate: NRIs can apply for a lower TDS certificate (Form 13) from the Income Tax Department to reduce the TDS burden.

Exemptions on LTCG for NRIs

NRIs can claim tax exemptions on LTCG under certain sections of the Income Tax Act, 1961:

Section 54 – Reinvestment in a Residential Property:

NRIs can reinvest the capital gains in another residential property in India within 2 years of sale or construct one within 3 years. The new property must be held for at least 3 years.

Section 54EC – Investment in Capital Gains Bonds:

NRIs can invest up to Rs. 50 lakhs in specified bonds (e.g., REC, NHAI) within 6 months of sale. The bonds must be held for 5 years to claim exemption.

Section 54F – Reinvestment in Residential Property (For Sale of Other Assets):

If an NRI sells any capital asset other than a residential property, the entire sale proceeds can be reinvested in a residential house.

Step-by-Step LTCG Calculation

• Determine the Holding Period: First, ascertain how long the property was held from the date of acquisition until the date of sale. If the holding period is more than 24 months, the gain will be considered Long-Term Capital Gain (LTCG). If it is 24 months or less, it will be Short-Term Capital Gain (STCG).
• Calculate the Net Sale Price: Determine the full value of the consideration received from the sale of the property and deduct any expenses that were incurred solely in connection with the transfer. These expenses can include brokerage commissions, stamp duty paid on the sale deed, and registration charges.
• Calculate the Cost of Acquisition and Improvement: Identify the original purchase price of the property and any costs incurred for its improvement (additions or alterations that increased its value). For LTCG on properties transferred before July 23, 2024, you need to calculate the Indexed Cost of Acquisition and Indexed Cost of Improvement using the Cost Inflation Index (CII) notified by the government for the respective financial years. The formula for indexation is: Indexed Cost = Original Cost * (CII of the year of sale / CII of the year of acquisition/improvement). For LTCG on properties transferred on or after July 23, 2024, indexation is not applicable.
• Compute the Capital Gains: Subtract the Cost of Acquisition and Cost of Improvement (or the Indexed Cost of Acquisition and Improvement for LTCG before July 23, 2024) from the Net Sale Price. The resulting amount is the capital gain.
• Apply the Applicable Tax Rate: Based on whether the capital gain is STCG or LTCG and the date of transfer (if LTCG), apply the relevant tax rate as detailed in Section IV. For STCG, use the applicable income tax slab rates. For LTCG, use 20% (with indexation for pre-July 23, 2024 transfers) or 12.5% (without indexation for post-July 23, 2024 transfers).
• Add Surcharge and Cess: Calculate any applicable surcharge based on your total taxable income in India for the financial year. Then, add the health and education cess (currently 4%) on the total of the tax and surcharge.

NRIs must adhere to RBI’s repatriation rules when transferring sale proceeds abroad:

• Funds must be credited to an NRO account first.
• Up to USD 1 million per financial year can be repatriated under FEMA guidelines.
• CA Certificate (Form 15CB) and Form 15CA filing are mandatory for remittance.

To avoid paying tax twice (in India and the country of residence), NRIs can utilize DTAA agreements between India and other countries. This allows for tax credits or exemptions on capital gains.

1. Claim exemptions under Sections 54, 54EC, and 54F.
2. Apply for a lower TDS certificate to reduce upfront tax deduction.
3. Leverage DTAA provisions to avoid double taxation.

Understanding the tax implications on NRI property sales in India is crucial for effective tax planning. By using available exemptions, lower TDS options, and repatriation rules,

NRIs can optimize their tax liabilities and ensure compliance with Indian tax laws. For professional guidance, consulting a tax expert or CA can help navigate the complexities of NRI