Capital Gains Tax Rules: The Union Government has increased tax on capital gains and tax deduction at source (TDS) requirements for Non-Resident Indians (NRIs) who want to sell their properties in the country. Will this impact the sale of NRI properties in India?
Capital Gains Tax Rules-Income Tax Act
Under the Income Tax Act, buyers who purchase properties from non-resident Indians are required to deduct tax deducted at source a higher rate, depending on the capital gain, when compared to resident sellers (where TDS is generally 1 percent if the value of property exceeds Rs. 50 lakh).
DON'T MISS
LTCG And STCG Differentiation & Amount Considerations
A property is considered as a Long-Term Capital Gain (LTCG) if it is sold after being held for a period of more than 2 years. LTCG is taxed at 12.5 percent without the benefit of indexation for all properties bought on or after July 23, 2024. The tax rate may apply at 20 percent with indexation benefits as per applicable rules for properties bought before that date.
On the other hand, a property is considered as a Short-Term Capital Gain (STCG) if it is sold within a period of 2 years. STCG properties are taxed as per the applicable income tax slab rates that can go much higher. Generally, TDS is deducted by buyers at approximately 30 percent for short-term gains.
Depending on the total taxable income of the NRI, surcharge as well as 4 percent health and education cess may also apply. These rates substantially increase the effective TDS deduction while impacting the final amount that is received from the sale of the property in question.
It is widely believed by market experts that the high tax on capital gains and tax deduction at source requirements may affect property sales in the country for NRIs. This is primarily because TDS is usually deducted on the total sale consideration and not on actual profit earned, creating severe cash flow issues for NRIs.