How much tax do NRIs pay on selling property in India? Here’s what changed after Budget 2024 25

For many Non-Resident Indians (NRIs), investing in Indian real estate has long been a preferred route to grow wealth and maintain a connection to their homeland. But when it comes to selling that property, the tax implications can be complex—especially after the capital gains taxation changes introduced in Budget 2024-25.

Capital gains tax: Long-term vs short-term

When an NRI sells a residential property in India, the tax liability depends on whether the capital gain is classified as short-term (STCG) or long-term (LTCG). If the property is sold within 24 months of purchase, the gain is treated as short-term and taxed as per the NRI’s income tax slab rates. However, if the property is held for more than 24 months, the gain is classified as long-term and taxed differently.

As per the Finance (No.2) Act, 2024, effective July 23, 2024, LTCG is now taxed at 12.5% (without indexation) instead of the earlier 20% (with indexation). This means NRIs no longer get the benefit of indexation, which adjusts the purchase price of a property for inflation and reduces taxable gains. Add to that surcharge and 4% cess, and the total tax outgo can be significant.

Tax calculation

For instance, if an NRI purchased a property for Rs 1 crore in 2010 and sold it in 2025 for Rs 2 crore, the long-term capital gain of Rs 1 crore would now be fully taxable.

The LTCG tax at 12.5% would amount to Rs 12.5 lakh, with an additional surcharge of Rs 1.87 lakh and a cess of Rs 57,500, leading to a total tax of Rs 14.95 lakh. However, the legal requirement for the buyer to deduct TDS at 12.5% on the entire sale value, not just the gain, means that the upfront deduction could be considerably higher.

In this scenario, TDS on the sale value of Rs 2 crore would amount to Rs 25 lakh, which with surcharge and cess, totals nearly Rs 30 lakh. This deduction exceeds the actual tax liability of Rs 15 lakh, necessitating NRIs to file an Income Tax Return (ITR) to reclaim the excess amount. Delays or errors in filing could hinder the refund process, adding to the financial strain.

Tax regulations

Experts, including Dinkar Sharma, Company Secretary and Partner at Jotwani Associates, advise NRIs to ensure strict compliance with tax regulations, even if their income from rent or capital gains falls below the exemption limit. Filing ITRs, adhering to TDS norms, and following FEMA guidelines for repatriation are essential steps.

Before selling any property, NRIs are encouraged to obtain a Form 13 certificate for a lower or nil TDS deduction to mitigate excessive tax deductions. Maintaining thorough documentation, such as the title deed, occupancy certificate, tax receipts, and RERA registration, is also necessary. Additionally, consulting a property lawyer and a chartered accountant with expertise in NRI tax laws is recommended to navigate these changes effectively.

NRIs should note

Moreover, NRIs should note that rental income from Indian properties is taxable in India. The repatriation of sale proceeds is allowed up to $1 million per financial year, provided that necessary compliance, like Form 15CA/CB and bank certification, is ensured. Non-compliance with FEMA and Income Tax Act rules can lead to severe penalties.

Key steps before selling property:

Obtain a Form 13 certificate for lower or nil TDS deduction.

Maintain documents like title deed, occupancy certificate, tax receipts, and RERA registration.

Hire a property lawyer and a chartered accountant experienced in NRI tax laws.

Additional points to remember:

Rental income from Indian property is taxable in India.

Repatriation of sale proceeds is allowed up to USD 1 million per financial year, with necessary compliance like Form 15CA/CB and bank certification.

Penalties under FEMA and the Income Tax Act can be severe in case of violations.

In summary, while Budget 2024-25 clarified capital gains rules, the removal of indexation and the shift to TDS on the full sale value significantly impact NRI property transactions. Understanding these changes and undertaking careful planning is crucial to avoid undue tax losses and ensure compliance.