NRI Property Sale: The tax regulations for NRIs (Non-Resident Indians) selling property in India have gotten trickier and, in many instances, pricier. Adjustments to long-term capital gains (LTCG) might result in NRIs shelling out more in taxes on property sales than they did previously. The earnings from NRIs selling property in India fall under the taxable category of “capital gains,” which varies based on how long the property was owned.
If the property is owned for over 24 months, it qualifies as a long-term capital gain. Conversely, if it’s owned for less than a year, it counts as a short-term capital gain. The primary reason NRIs are facing steeper taxes is due to the ‘Tax Deducted at Source’ (TDS) rule outlined in Section 195 of the Income Tax Act. TDS is typically set at 1% if the property value surpasses Rs 50 lakh. Buyers acquiring property from NRIs face TDS at much higher rates, depending on the nature of the capital gain.
LTCG will be taxed at a rate of 12.5%
When a property is sold after being held for more than 24 months, it is classified as a long-term capital gain (LTCG). For properties bought on or after July 23, 2024, LTCG is taxed at a flat rate of 12.5%, without any indexation. For properties bought before this date, the tax rate could be 20%, with indexation benefits, depending on the relevant rules. Short-term capital gains are taxed at a higher rate, aligned with the individual’s income tax slab rate, capped at a maximum of 30%.
Heavy TDS will be deducted
In addition to taxes, the most significant hurdle is TDS (Tax Deducted at Source). When an NRI sells a property in India, it’s essential to deduct TDS before making any payment to the buyer. This rate can usually fall between 20% to 30%, depending on how long the property was held and the type of capital gain. Often, this TDS surpasses the actual tax obligation, temporarily tying up a large chunk of the NRI’s funds. For instance, on a property sale worth Rs 1 crore, the TDS deduction could exceed Rs 20 lakh. Adding surcharges and cess can further inflate this amount.
Additionally, NRIs are required to file an income tax return after selling a property. This return must show the actual capital gain. If excess TDS is deducted, they can claim a refund. Tax regulations also offer some relief. NRIs can claim capital gains deductions under sections 54, 54F, and 54EC of the Income Tax Act. Following the recent budget and tax changes, experts believe the tax structure for property sales has become more complex for NRIs.
The removal of indexation benefits could increase the effective tax burden in many cases, while TDS rules remain as stringent as before. Overall, NRIs selling property in India will now need to approach tax planning with greater care than ever before. Without timely investment, proper documentation, and an understanding of tax rules, they may end up paying more tax than expected.
