Is Indian Real Estate Still a Good Investment for NRIs ?

The Indian Budget 2024 introduced significant changes to the long-term capital gains (LTCG) taxation on the profits from the sale of real estate, impacting investors and homeowners. Today, we’ll decode its impact on NRIs.

Long-Term Capital Gains Taxation on Real Estate

In India, any profit from the sale of a property held for more than two years is classified as a long-term capital gain. The LTCG is taxed at a rate of 20% with the benefit of indexation, which adjusts the property's purchase price according to inflation, thereby reducing the taxable gains.

Budget 2024: Removal of Indexation Benefit

The recent 2024 budget proposed reducing the LTCG tax rate on real estate from 20% to 12.5% but with a major caveat: removing indexation benefits.

Indexation is an important tool that adjusts the purchase price of an asset for inflation, effectively reducing the taxable capital gains. The new rule has been viewed as a substantial setback for property owners, particularly those who have held their properties for many years.

Relaxations Announced Post-Budget

After the budget announcement, the finance minister, responding to pressure from various bodies and public outcry, provided partial relief by allowing property owners to choose between two options for the LTCG tax.?

?? Option 1: Pay a 12.5% LTCG tax without the benefit of indexation.

?? Option 2: Pay a 20% LTCG tax with the benefit of indexation.???

However, this relief was limited to properties acquired before July 23, 2024. The 12.5% LTCG tax without indexation will apply for properties acquired on or after this date.

The relaxation is available to individuals and Hindu Undivided Families (HUFs) with resident status under the Income Tax Act, 1961.

Does this mean non-resident individuals (NRIs) will not be eligible for indexation relief on properties acquired before July 23, 2024??

Unfortunately, Yes. NRIs cannot benefit from the new relaxation. However, Not Ordinarily Residents (NORs) are eligible to claim relief.?

NORs are residents who were non-residents in nine out of the last ten financial years or have spent less than 730 days in India during the previous seven years.

Here’s how LTCG taxation under the new rules affects NRIs compared to resident Indians.

Let's analyze the numbers for a property bought in 2003 and sold in 2024

Read the full Newsletter

Cheers,

iNRI Team