With the amendments introduced in THE FINANCE (NO. 2) BILL, 2024, there has been significant clarity on Long-Term Capital Gains (LTCG) tax rates and Tax Deducted at Source (TDS) for property transactions involving Non-Resident Indians (NRIs). This blog aims to eliminate any confusion and provide an accurate understanding of the applicable tax rates.

LTCG Rate for NRIs: Crystal Clear Rules

The Key Amendment

As per the provisions outlined on page 40 of THE FINANCE (NO. 2) BILL, 2024:

For Transfers Before July 23, 2024:

• LTCG Tax Rate: 20% with indexation benefits.

For Transfers On or After July 23, 2024:

• LTCG Tax Rate: 12.5% without indexation benefits.

This amendment ensures a straightforward taxation structure for NRIs, eliminating any ambiguity.

Who Does This Apply To?

• Non-Residents (not being a company)
• Foreign Companies

Exclusion of Choice for NRIs

Unlike resident taxpayers, NRIs are not provided a choice between the 12.5% rate without indexation and the 20% rate with indexation for properties acquired before July 23, 2024. NRIs must adhere to the rates specified in the amendment.

TDS Rate for NRIs: No Confusion

Under Section 195 of the Income Tax Act:

Who Must Deduct TDS?

• Any person responsible for paying a non-resident for property transactions.

Applicable TDS Rate:

• TDS on sale of property for NRIs is deducted at the LTCG rate of 12.5% for transfers occurring on or after July 23, 2024.

Basis of Deduction:

• TDS is calculated on the entire sale value, irrespective of the capital gains.

Clarification Post Budget 2024

The Finance (No. 2) Bill, 2024, specifies that Section 195 mandates the deduction of income tax at the rates in force. For the sale of property by NRI, the "rates in force" are clearly aligned with the amended LTCG rates post-budget:

• 12.5% TDS for transfers after July 23, 2024.
• 20% TDS for transfers before July 23, 2024.

This ensures uniform application and compliance for all stakeholders involved in property transactions with NRIs.

Why the Confusion?

The confusion arises from the distinction in tax treatment between residents and NRIs:

Residents: Have the option to choose between:

• 12.5% without indexation.
• 20% with indexation

NRIs: Must follow the prescribed LTCG rates without any options.

Impact of the New Amendment

The amendment streamlines the tax process for NRIs by:

• Introducing a flat LTCG rate of 12.5% for transfers post-July 23, 2024.
• Removing the complexity of indexation benefits for future transactions.

Summary of Key Points

LTCG Rate for NRIs:

• 20% (with indexation) for transfers before July 23, 2024.
• 12.5% (without indexation) for transfers on or after July 23, 2024.

TDS Rate:

• Deducted at 12.5% of the sale value for transfers post-July 23, 2024.

Residents vs. NRIs:

• Only residents have the choice between two tax computation methods for properties acquired before July 23, 2024.
• Implications for NRIs Selling Property in India

Plan Your Transactions

NRIs should carefully plan their property transactions to align with the new tax rates. For transactions post-July 23, 2024, ensure that the sale agreement reflects the accurate TDS deductions to avoid discrepancies during filing.

Compliance and Documentation

Ensure proper records of the sale agreement and TDS certificates are maintained for future reference. The accurate deduction of TDS at "rates in force" is essential to avoid legal or financial discrepancies.

FAQs on LTCG and TDS for NRIs

1. What is the LTCG tax rate for NRIs post-July 23, 2024?

The LTCG tax rate for NRIs is 12.5% without indexation benefits for property transfers on or after July 23, 2024.

2. How is TDS deducted on property sales by NRIs?

TDS is deducted under Section 195 at the LTCG rate applicable. For transactions post-July 23, 2024, TDS is deducted at 12.5% of the sale value.

3. Can NRIs choose between the 12.5% and 20% LTCG rates?

No, NRIs cannot choose. They must follow the prescribed LTCG rates as per the Finance (No. 2) Bill, 2024.

4. How does this differ for residents?

Residents have the option to choose between 12.5% without indexation and 20% with indexation. This choice is not available to NRIs.

5. Are these amendments applicable to foreign companies?

Yes, the amendments apply to both non-residents and foreign companies.

Final Word: Transparent Taxation for NRIs

The Finance (No. 2) Bill, 2024, has simplified the LTCG and TDS rates for NRIs, ensuring transparency and ease of compliance. By adhering to the specified rates, NRIs can seamlessly navigate property transactions in India.

Have Questions?

Need further clarification or assistance with your tax matters? Contact our expert team at Dinesh Aarjav & Associates. We specialize in NRI taxation and compliance, ensuring you remain stress-free and fully compliant.

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