Budget 2024 changes on Sale of Immovable properties by Non-residents

Budget 2024 changes on Sale of properties for NRIs

The 2024 budget impacts capital gains tax on the  immovable sale of property for NRIs sold in India.

There is a fair amount of confusion about the tax implications for NRIs who want to sell any property they may have in India. In this article, we’ll explore these changes, their effects, and how you can plan your property sale under the new tax rules.

How are Gains from the Sale of Property in India Taxed to NRI?

NRIs who sell an immovable property in India are required to pay capital gains tax. The amount of tax payable depends on whether the gains are short-term capital gain (STCG) or long-term capital gain (LTCG). When a property is sold after holding it for more than two years, the gains arising from such property will be treated as LTCG otherwise it is STCG.

Key changes in the budget:

There are two important changes related to taxation on the sale of house property.

Reduced tax rate:

The first major change is the reduction in the capital gains tax rate to 12.5%, down from 20%. (Exclusive of surcharge and cess).

No Indexation Benefits:

The second notable change in the Budget 2024 is the removal of indexation on capital gains calculation. Therefore, NRI will not receive the indexation benefit on the acquisition cost if they execute the transfer on or after 23rd July 2024.

Impact on Recently Bought Properties

• If you recently bought your property, within the last 2-5 years, this change could be beneficial. he indexation benefit provided little advantage for recently purchased properties, and now you enjoy a reduced tax rate of 12.5%, down from the previous 20%.
• Therefore, for NRIs, the lower tax rate helps reduce the overall tax burden, making it more attractive to sell properties bought in the recent past.

Impact on Old or Inherited Properties

• For those who have owned their property for a long time (e.g., 10-15 years or more) or are selling inherited property, this change might not be beneficial. Without indexation, you will end up paying more taxes.
• For example, if your parents bought a property in 1990 for 10 lakh rupees and you are selling it for 1 crore in 2024, your capital gain would be 90 lakh rupees, taxed at 12.5%.

Short Term Capital Gain:

STCG is taxed at the applicable income tax slab rates for NRIs based on their total taxable income in India.

Rate of TDS:

The rate of TDS to be deducted by a buyer on a payment to a non-resident for the sale of immovable property after 23rd July 2024 is 12.5%, (exclusive of surcharge and cess) instead of 20%.

How to Save Tax on Capital Gains:

This exemption is available when there is a long-term capital gain on the sale of immovable property of the NRI. You do not have to invest the entire sale proceeds; only by investing up to the amount of capital gains would be enough to save tax. Of course, your purchase price of the new property may be higher than the amount of capital gains. However, we will limit your exemption to the total capital gain on the sale.

The NRI can invest the sale proceeds in the following to save the capital gain tax:

• Exemption under Section 54: This section exempts NRIs from long-term capital gains tax on the sale of a residential property if they reinvest the proceeds in another residential property, subject to the conditions specified in section 54.
• Exemption under Section 54EC: The taxpayer can invest the capital gains in specified bonds issued by the National Highways Authority of India (NHAI) or Rural Electrification Corporation (REC) within six months from the date of sale subject to conditions as specified in section 54EC.

To know more about Capital Gains Tax, you may reach out to V Ramaratnam and Company. We offer you expertise in Capital Gains Tax Services.