Attention NRIs: Flat 12.5% LTCG Tax Now Applies on Property Sales in India – No More Indexation Benefit | Here's How You Can Still Save Taxes

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📢 Attention NRIs: Flat 12.5% LTCG Tax Now Applies on Property Sales in India – No More Indexation Benefit | Here's How You Can Still Save Taxes

A major update in real estate taxation for Non-Resident Indians (NRIs) came into effect in the second half of 2024 — and it’s already impacting property sellers in 2025. If you’re planning to sell property in India this year, be aware of the new flat Long-Term Capital Gains (LTCG) tax rate of 12.5% — and more importantly, the removal of the indexation benefit.

This change, introduced through the Finance Act, 2024, applies to all property sale transactions by NRIs from July 23, 2024, onward.

📌 What Has Changed?

🔴 Before July 2024:

  • LTCG Tax Rate: 20%

  • Indexation Benefit: ✅ Available

🟡 After July 23, 2024:

  • LTCG Tax Rate: ✅ Flat 12.5%

  • Indexation Benefit: ❌ Not Available

This means capital gains are now calculated as:
Sale Price – Actual Purchase Price (No inflation adjustment)

📉 Real Impact

Even with a lower tax rate, the absence of indexation means your taxable gain will be higher, leading to potentially greater tax liability.

💡 Example: How It Affects You

Let’s look at three different purchase years to understand the impact better:

Scenario 1: Property Bought in 2005 for ₹50 lakhs, Sold in 2025 for ₹1.5 crores

  • Earlier (With Indexation):

    • Indexed Cost ~ ₹1.2 crores

    • Taxable Gain = ₹30 lakhs

    • Tax @ 20% = ₹6 lakhs

  • Now (No Indexation):

    • Taxable Gain = ₹1 crore

    • Tax @ 12.5% = ₹12.5 lakhs

Result: The tax burden almost doubles due to the removal of the indexation benefit.

Scenario 2: Property Bought in 2015 for ₹70 lakhs, Sold in 2025 for ₹1.5 crores

  • Earlier (With Indexation):

    • Indexed Cost ~ ₹1.12 crores (assuming inflation adjustment of ~16%)

    • Taxable Gain = ₹38 lakhs

    • Tax @ 20% = ₹7.6 lakhs

  • Now (No Indexation):

    • Taxable Gain = ₹80 lakhs

    • Tax @ 12.5% = ₹10 lakhs

Result: Even though the property was bought more recently, the taxable gain increases significantly without indexation.

Scenario 3: Property Bought in 2019 for ₹80 lakhs, Sold in 2025 for ₹1.5 crores

  • Earlier (With Indexation):

    • Indexed Cost ~ ₹92 lakhs (Indexed with ~15% inflation)

    • Taxable Gain = ₹58 lakhs

    • Tax @ 20% = ₹11.6 lakhs

  • Now (No Indexation):

    • Taxable Gain = ₹70 lakhs

    • Tax @ 12.5% = ₹8.75 lakhs

Result: The increase in taxable gain is noticeable, but it’s less severe compared to older properties. Without indexation, the tax burden increases, but not as drastically.

💸 TDS Deduction for NRIs

  • With PAN: TDS @ 12.5%

  • Without PAN: TDS @ 20%

TDS is deducted on the total sale value, not just the gain. So even if your actual profit is low, your upfront TDS deduction can be significant.

💡 What Can You Do to Save Taxes?

While you can't control the new rules, you can take smart steps to reduce your tax burden:

✅ 1. Apply for Lower or Nil TDS Certificate (Form 13)

  • This allows the buyer to deduct TDS only on your actual tax liability, not the total sale value.

  • Apply to the Income Tax Department before the sale is completed.

  • Avoids cash flow blockage and refund delays.

✅ 2. Claim Exemption Under Section 54

  • Reinvest your capital gains into another residential property in India within prescribed timelines.

  • You can claim full or partial LTCG exemption, depending on the amount reinvested.

  • Hold the new property for at least 3 years to retain the benefit.

✅ 3. Maintain Proper Documentation

  • Keep all records: purchase deed, payment receipts, sale agreement, and any renovation costs.

  • These support your capital gain and exemption claims.

✅ 4. Consult a Tax Advisor

  • A good consultant helps you:

    • Accurately compute capital gains

    • Apply for Form 13

    • Claim rightful exemptions

    • Stay compliant and minimize taxes

🗓️ Final Checklist for NRIs Selling Property in 2025

  • ✔️ Understand 12.5% LTCG tax (no indexation)

  • 📄 Apply for Form 13 to lower TDS

  • 🏠 Plan reinvestments under Section 54

  • 🧾 Organize sale & purchase documents

  • 💼 Consult a professional for best results

🧾 In Summary

The new LTCG regime for NRIs is straightforward but could lead to higher tax outflows due to the removal of indexation. However, by applying for a lower TDS certificate, using available exemptions, and planning in advance, NRIs can significantly reduce their tax liability and make their property sale more profitable.

🚀 Need assistance in financial planning, tax compliance, or business strategy? Connect with experts today!


Team Eaztaxbiz

Write us : ca@eaztaxbiz.com

Reach us : +91-9921010284

www.eaztaxbiz.com

 

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