“Synopsis”
Selling property or investments in India as an NRI? You’re likely to face long-term capital gains (LTCG) tax. Until mid-2024, NRIs could reduce their tax burden using indexation, which adjusts the purchase price for inflation. But with the Finance Act, 2024, the rules have changed. This guide explains what LTCG means for NRIs, how indexation has been impacted, and what strategies you can still use to save tax legally.
1. What Is LTCG for NRIs?
LTCG arises when you sell a capital asset—like real estate or unlisted shares—after holding it for:
- More than 24 months (for real estate and unlisted shares)
- More than 12 months (for listed shares and equity mutual funds)
For NRIs, LTCG is taxable only on income earned or accrued in India.
Relevant Law:
- Section 2(42A) – Defines long-term capital asset
- Section 112 – Tax rate on LTCG
- Section 48 – Computation of capital gains
2. What Changed in 2024?
As per the Finance Act, 2024, effective from July 23, 2024:
- LTCG tax on real estate and unlisted shares was reduced from 20% to 12.5%
- Indexation benefit was removed for NRIs
- Resident individuals and HUFs can still choose between 20% with indexation or 12.5% without—but NRIs cannot
Legal Reference:
- Section 112(1)(c) – Flat 12.5% LTCG rate for NRIs
- Section 48 (amended) – Removal of indexation for NRIs
3. What Is Indexation and Why It Mattered?
Indexation adjusts the purchase price using the Cost Inflation Index (CII) to reflect inflation. This reduces taxable gains.
Formula: Indexed Cost = (Original Cost × CII of Sale Year) ÷ CII of Purchase Year
Example: A property bought in 2010 for ₹50 lakhs and sold in 2024 for ₹1.5 crore would have an indexed cost of approx. ₹1.04 crore. Without indexation, the gain is ₹1 crore; with indexation, it drops to ₹46 lakh—cutting your tax nearly in half.
4. Can NRIs Still Use Indexation?
Only if the property was sold before July 23, 2024. For sales on or after that date:
- NRIs must pay 12.5% LTCG tax
- No indexation allowed, even for older properties
- No option to choose between 20% with indexation and 12.5% without
5. TDS on Property Sales by NRIs
- TDS is deducted under Section 195
- 12.5% on LTCG (post-July 23, 2024)
- 30% on STCG
- TDS is on the entire sale value, not just the gain
- Apply for a lower TDS certificate (Form 13) if eligible
6. Exemptions Still Available to NRIs
Despite the loss of indexation, NRIs can still claim exemptions:
a. Section 54 – Reinvest in a residential property
- Reinvest capital gains within 2 years (or construct within 3 years)
- Exemption capped at ₹10 crore
b. Section 54EC – Invest in NHAI/REC bonds
- Invest within 6 months
- Max investment: ₹50 lakh
- Lock-in: 5 years
c. Section 54F – Reinvest full sale proceeds (for non-residential assets)
- Must not own more than one house at the time of reinvestment
7. What About Inherited Property?
- NRIs can use fair market value (FMV) as of April 1, 2001, as the cost of acquisition
- But indexation on FMV is not allowed post-July 23, 2024
- This increases taxable gains for long-held properties
8. Should You Sell Before or After July 2024?
If you sold before July 23, 2024:
- You could claim 20% tax with indexation
- Likely lower tax if the property was held long-term
If you sell after:
- You pay 12.5% flat tax
- No indexation, even if you held the asset for decades
Conclusion
The Finance Act, 2024 has reshaped how NRIs are taxed on long-term capital gains. While the flat 12.5% rate may benefit short-term holders, the removal of indexation hits long-term investors hard. NRIs no longer have the flexibility to choose the more favorable option, unlike resident taxpayers.
That said, all is not lost. You can still reduce your tax burden by:
- Timing your sale strategically
- Using exemptions under Sections 54, 54EC, and 54F
- Filing Form 13 for lower TDS
- Claiming DTAA relief where applicable
In 2025, smart tax planning is more important than ever. Don’t just sell—structure your exit. And always consult a qualified tax advisor before making a move.
