We want to help NRIs understand the impact of NRI property tax changes 2024 through the changes that the Income Tax Act brings, which we believe is not radical like most think, infact is a good move to give the whole process a more structured approach.To understand the impact of the new rule we must understand a few key terminologies and broadly how the process works.
Steps and Guide for NRIs to understand Tax (on account of sale of property in India)
- Identify Potential buyers
- Buyers must have TAN no. to buy from NRIs
- Compute Capital Gains
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- Capital Gains is the profit you made upon selling a property.
- For a property bought for ₹1 crore and sold for ₹1.5 crore, Capital Gain would be ₹50 lakh.
- On basis of original cost, find out the indexed value of Cost of Acquisition (Concept of Indexation)
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- One must always keep in mind the concept of inflation meaning the value of money spent in acquisition of a property back in time has to be adjusted for inflation, thereby reducing the taxable gains. Simply put, calculating the current value of money you spent in purchase of property for calculating the real profit you made on a property sale.
- With base year 2000, Income tax department gives out Cost of Inflation Index Table using which; one could easily calculate the current value using a formula (Index for the year of sale/ Index in the year of acquisition) x cost of property.
- Hence, with the concept of indexation the value of Investment of 1 Cr made a few years ago today stands at 1.40 Cr meaning -Profit from the above example reduces to let’s say only 10 reducing the overall taxability.
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4. Compute Capital Gain Tax and understand overall taxability. (Applicable on the Capital Gains)
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- Short term Capital Gain Tax: Applicable on properties being sold with a holding period less than 24 months; attracts a Slab Rate of Income tax going upto 30% on sales proceeds.
- Long Term Capital Gain Tax: Applicable on properties being sold with a holding period more than 24 months; attracts a slab rate based on the applicable Capital Gain.
- <50 Lacs: 20.8% (net)
- >50 Lacs < 1 Crore: 22.88% (net)
- >1 Crore: 23.92% (net)
5. Capital Gain tax is payable latest by the July 31 of the next Financial Year or before repatriation of the sales proceeds to a foreign account whichever is earlier.
6. To avoid any potential revenue (tax) losses, the Income Tax department has mandated TDS deductions before the Sales registry. a. What is Tax Deducted at Source (Applicable on Total Sales Proceeds)
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- TDS deduction is a liability of the buyer.
- Seller is liable to give evidence/declaration of the current Residency status correctly.
- TDS is deducted before the Sales is Registered
- TDS deduction for NRIs is basis a slab rate, defined by the property value
- <50 Lacs: 20.8%
- >50 Lacs < 1Crore: 22.88%
- >1 Crore: 23.92%
What has Changed
LTCG is now announced to be flat 12.5% irrespective of the Property value and the indexation has been removed and can not be claimed.
Applicability of the new LTCG Tax
- Mandatory and applicable on all properties registered on and after the 23rd July 2024.
- For all properties registered before 23rd July 2024 have an option to choose from whatever is lower
- 20% with indexation
- 12.5% without indexation
How Does Form 13 / Low or Nil TDS certificate Help NRIs
- Form 13 significantly reduces the upfront deductions of TDS.
- In absence of form 13, TDS is deducted on Property Sales Value at the rates shared earlier in this article.
- Form 13 application is to intimate the Income Tax department that basis of LTCG – total tax liability is lesser than the proposed TDS deduction on total property sales value.
- Form 13 hence gives out a complete Capital Gain Calculations and investment plan of the seller ensuring the TDS is deducted only on the Capital gain thereby reducing upfront TDS deductions.
