Understanding Capital Gains Tax for Non-Resident Indians Selling Property in India

Introduction

Non-Resident Indians (NRIs) are liable to pay tax on capital gains arising from the sale of property located in India. This article aims to clarify the tax obligations and procedures for NRIs selling property in India, including both long-term and short-term capital gains and the tax deduction at source (TDS) rules.

Long-Term Capital Gains (LTCG)

A long-term capital gain (LTCG) occurs when a property held for more than two years is sold. LTCGs are taxed based on indexation under the Income Tax Act. This means that the cost of acquiring the property is adjusted for inflation before calculating the gain.

Tax Calculation for LTCG

The gain from the sale of property, after adjusting for inflation, is taxed at a rate of 20%. This rate is applied to the capital gains under the Income Tax Act.

Short-Term Capital Gains (STCG)

A short-term capital gain (STCG) is realized when a property is held for two years or less and then sold. Unlike LTCGs, STCGs are not eligible for indexation. These gains are taxed at the applicable income tax slab rate for the NRI based on their total taxable income in India.

Tax Deduction at Source (TDS)

When selling a property, the buyer is required to deduct tax at source (TDS) before transferring the proceeds to the NRI seller. The rate of TDS varies depending on whether the property is held for long-term or short-term before sale:

Long-Term Capital Asset: If the property is sold after more than two years, TDS is applicable at 20%. Short-Term Capital Asset: If the property is sold within two years, TDS is required at a rate of 30%.

Exemptions and Considerations

NRIs should note that certain exemptions and considerations apply. For instance, the prevailing cess rate on tax is 4%, increasing from the erstwhile 3%. It is important to conduct a comprehensive review of one's tax situation and seek professional advice before proceeding with a property sale.

Fair Understanding and Disclaimer

This article is intended to provide a fair understanding of the tax obligations associated with selling property as an NRI in India. However, for accurate and customized advice, individuals are advised to consult with a professional tax advisor. This information is provided for general reference purposes and may not cover all aspects of the specific tax provisions that may apply to an individual tax situation.