Same property, different tax Bills: Why an NRI brother paid Rs 5.25 lakh, resident paid Rs 0 tax

A property sale involving two brothers has highlighted how India’s revised capital gains tax rules can lead to sharply different tax outcomes for resident Indians and Non-Resident Indians (NRIs), even when both own the same asset equally.

A recent illustration shared by tax platform TaxBuddy has drawn attention to how India’s revised capital gains tax rules can create sharply different tax outcomes for resident Indians and Non-Resident Indians (NRIs), even when both sell the same inherited property for the same amount.

The example involves two brothers, Ram and Shyam, who jointly sold their late father’s property for around ₹1.24 crore. Both held equal ownership and received identical proceeds from the sale. Yet while Ram paid no tax at all, Shyam, who lives in the US and qualifies as an NRI, ended up with a tax bill of nearly ₹5.25 lakh.

Tax experts say the case highlights the growing importance of understanding post-Budget 2024 changes in property taxation, especially for NRIs.

Same property, share, different tax

According to the illustration, the brothers’ father had purchased the property in 2005 for ₹40 lakh. After the sale, each brother’s share worked out to:

Sale value: ₹62 lakh
Original acquisition cost: ₹20 lakh each

At first glance, both appeared to have earned the same capital gain. However, tax treatment differed because Ram is a resident Indian while Shyam is an NRI.

How Ram paid zero tax

Under the earlier long-term capital gains framework, resident taxpayers could claim indexation benefits, which adjust the original purchase price of an asset for inflation.

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For Ram:
Sale value: ₹62 lakh
Indexed cost after inflation adjustment: around ₹62.05 lakh

Because the inflation-adjusted acquisition cost nearly matched the sale value, his taxable capital gain effectively became zero.

As a result:
Capital gain: ₹0
Tax payable: ₹0

The TaxBuddy infographic showed that although the applicable long-term capital gains tax rate was 20%, there was no taxable gain left after applying indexation.

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Shyma paid Rs 5.25 lakh

Shyam, however, came under the revised tax regime introduced through the Finance (No. 2) Act, 2024.

Effective July 23, 2024, long-term capital gains (LTCG) on property sales are now taxed at 12.5% without indexation benefits, replacing the earlier 20% tax with indexation.

That change significantly increased Shyam’s taxable gain.

His calculation worked out as:

Sale value: ₹62 lakh
Cost of acquisition: ₹20 lakh

Indexed cost benefit: Not available

Taxable capital gain: ₹42 lakh

At a 12.5% LTCG tax rate, the total tax liability came to roughly ₹5.25 lakh.

The infographic clarified that the figures are illustrative and actual tax liability may vary depending on reinvestment exemptions, surcharge, cess, TDS and eligibility under Sections 54 or 54EC.

NRIs selling property

Tax professionals say the removal of indexation has become one of the biggest concerns for NRIs selling Indian property.

Current rules state:

• Property held for over 24 months qualifies as long-term capital asset
• LTCG is taxed at 12.5% without indexation
• Property sold within 24 months attracts short-term capital gains tax as per slab rates

Another issue is Tax Deducted at Source (TDS), which is often deducted on the full sale value rather than only the actual gain.

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For example, experts note that a property sold for ₹2 crore could attract very high TDS even if the actual tax payable is significantly lower. NRIs must then file Indian income tax returns to claim refunds.

What NRIs should do before selling property

Experts recommend that NRIs obtain a Form 13 certificate for lower or nil TDS deduction before executing a property sale.

They also advise:

• Maintaining proper purchase and inheritance documents
• Calculating capital gains in advance
• Checking FEMA compliance requirements
• Consulting tax and legal professionals before the transaction

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