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The Indian Budget 2024 has introduced significant changes impacting NRI investors, especially concerning capital gains taxation and the removal of indexation benefits for real estate. These changes require NRIs to reassess their financial planning and leverage tax treaty benefits to mitigate the effects on investment returns. Let's delve into the details to understand how these reforms will affect you.
On July 23, 2024, Finance Minister Nirmala Sitharaman announced various tax reforms to align the tax structures for both residents and Non-Resident Indians (NRIs). Among these, a major overhaul in the capital gains tax regime stands out. For NRIs, this represents a significant shift in tax obligations, demanding a reassessment of investment strategies due to increased tax liabilities.
The removal of the indexation benefit for real estate is a critical change for NRIs. Long-term capital gains (LTCG) on real estate, previously taxed at 20% with the indexation benefit, will now be taxed at 12.5% without it. The indexation benefit allowed adjusting the purchase price of the property for inflation, thus reducing the taxable gains. Without indexation, taxable gains increase, leading to higher tax liabilities.
If you purchased your property within the last 2-5 years, the change might be beneficial. The indexation benefit was minimal for recently bought properties, and the new lower tax rate of 12.5% compared to the previous 20% can save you approximately 7.5% in taxes. This makes selling recently acquired properties more attractive for NRIs, reducing the overall tax burden.
For long-term property owners or those selling inherited properties, the removal of the indexation benefit is less favorable. Without indexation, taxes on long-held properties increase significantly. For instance, selling a property bought in 1990 for 1 lakh rupees at 1 crore in 2024 results in a capital gain of 99 lakh rupees, taxed at 12.5%, leading to a higher tax liability.
For properties bought before 2000, you can still choose between the actual cost and the market value, determined by a valuation report from a registered valuer. However, without indexation, the tax impact remains substantial. It's crucial to obtain a professional valuation to minimize your taxable capital gain effectively.
The Indian Budget 2024 brings noteworthy changes for NRI investors, necessitating a careful reevaluation of their investment strategies. Understanding the implications of the new capital gains tax regime and the removal of the indexation benefit is essential for optimizing your financial planning and minimizing tax liabilities.
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