"NRI Guide: Capital Gains Tax on Indian Real Estate"

Non-Resident Indians (NRIs) are subject to capital gains tax on Indian real estate transactions, with tax rates and exemptions varying based on the holding period and type of gain (short-term or long-term). Key considerations include TDS deductions, indexation benefits, and eligibility for exemptions under Sections 54, 54EC, and 54F for long-term gains.


Capital Gains Tax Rules for NRIs Investing in Indian Real Estate

Non-Resident Indians (NRIs) are subject to capital gains tax on real estate transactions in India. The tax treatment depends on the holding period of the property and the nature of the gain (short-term or long-term). Below are the detailed rules:

Type of Capital Gain Holding Period Tax Rate Exemptions
Short-Term Capital Gain (STCG) Less than 24 months Taxed as per the applicable income tax slab rates for NRIs Not eligible for exemptions under Sections 54, 54EC, or 54F
Long-Term Capital Gain (LTCG) 24 months or more 20% (with indexation benefits) Eligible for exemptions under:
  • Section 54: If the gain is reinvested in purchasing another residential property within India.
  • Section 54EC: If the gain is invested in specified bonds (e.g., NHAI or REC) within 6 months of the sale.
  • Section 54F: If the entire sale consideration (not just the gain) is invested in purchasing a residential property within India.

Key Points to Note:

  • TDS (Tax Deducted at Source): For NRIs, 20% TDS is applicable on LTCG and 30% TDS on STCG. This is deducted by the buyer at the time of payment.
  • Filing of Income Tax Return: NRIs can claim a refund for excess TDS by filing an income tax return in India.
  • Indexation Benefits: NRIs are eligible for indexation benefits to adjust the purchase price for inflation when calculating LTCG.
  • Currency Conversion: Gains are calculated in Indian Rupees, but the initial purchase cost and sale proceeds must be converted using the RBI's notified exchange rates.

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