NRI cannot claim LTCG indexation benefit while selling property in India However, this benefit is available only to resident individuals and resident Hindu Undivided Families (HUFs). The capital gains indexation benefit on selling a property is not available to NRI for properties bought before July 23, 2024
Sameer Gupta
National Tax Leader, EY India
Surabhi Marwah
Tax partner, EY India
In Budget 2024, Finance Minister Nirmala Sitharaman proposed reducing the LTCG tax on property to 12.5% from 20% while removing the benefit of indexation, impacting homeowners. After much debate, the government offered partial relief to property owners by allowing them to choose indexation benefits for long-term capital gains (LTCG). As per the amended laws, an individual selling land or building /house or both will pay a lower LTCG tax, either 20% with an indexation benefit or 12.5% without an indexation benefit.
#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} However, this partial relief comes with certain conditions. The partial relief is available to properties acquired before July 23, 2024. Further, this relief is available to individuals and Hindu Undivided Families (HUFs) who have resident status as per the Income-tax Act, 1961.
Also Read: Who gains from indexation relief to homeowners?
This would mean that non-resident individuals (NRIs) are not eligible to avail of this relief on their properties acquired before July 23, 2024. Any ancestral properties that NRIs inherit will also be taxed without the indexation benefit when sold.
Below are some of the finer points of how LTCG taxation will work in the new regime and how much excess tax NRIs will pay vis-à-vis resident individuals when selling their property due to no-indexation benefit.
How does the partial indexation relief provided work?
If there is LTCG on grandfathered property (acquired before July 23, 2024), then a resident individual/ HUF has to first compute the tax at 12.5% without indexation, then compare it with tax at 20% with indexation as per the old law. If there is any excess tax at 12.5% tax rate, such excess shall be ignored. This effectively means that the resident taxpayer pays tax on the grandfathered property at a rate which is lower of 12.5% without indexation and 20% with indexation.Is relief available on all long-term assets such as gold, jewellery, unlisted shares, land and buildings?
No, the relief is provided only for calculating tax payable on LTCG from sale of house, land or building and that too, if they were acquired before July 23, 2024.Will land/ buildings purchased now be eligible for such relief?
No, only land/ buildings acquired before July 23, 2024, will be eligible for such relief.Is the relief available to Partnership firms / LLPs / Companies also?
No, only resident individuals and HUFs are eligible for the relief.Whether non-resident individuals are eligible for the relief?
No, the relief does not apply to Non-Residents, including NRIs. Hence, such taxpayers cannot claim similar relief for grandfathered properties. But not ordinarily residents (NORs) are eligible to claim relief.The income tax laws divide the residential status into three categories, namely:
Resident Individual: Who has resided in India for 182 days or more in a financial year or present in India for 60 days or more in a financial year and 365 days or more in total in four preceding financial years
Not Ordinarily resident (NOR) individual: Resident Individuals are further classified into NOR if he/she has been non-resident in nine out of 10 previous financial years or physical presence in India is less than730 days during seven previous financial years
Non-resident individual: An individual not meeting any criteria of the resident individual is called non-resident.
There are certain exceptions to the rules mentioned above in determining residential status.
What happens if there is a capital loss arising due to indexation benefit (for house, land and building acquired prior to July 23, 2024)?
The computation of long-term capital gains/loss which gets reported in an individual's income tax return will continue to be computed without the benefit of indexation . The relief as explained above is only allowed to reduce the tax burden for such resident individuals/HUF whose ultimate tax liability as computed without the benefit of indexation (using the12.5% tax rate) is higher as compared to the tax liability computed with indexation benefit using the 20% tax rate. This is explained by way of an example below:Sale consideration
A
100
Cost of acquisition
B
70
Indexed cost of acquisition
C
110
LTCG (without indexation)
D = A-B
30
LTCG (with indexation)
E = A-C
(10)
Tax @ 12.5% without indexation (30*12.5%)
F
3.75
Tax @ 20% with indexation
G
NIL
Ultimate tax liability
Lower of F or G
NIL
LTCG to be reported in the tax return*
30
*The tax return form may also need some amendments to reflect this reporting.
Depending on how the income tax return form is amended, the LTCG may need to be reported with and without the indexation benefit in the ITR form. The tax payment will, however, be computed as per the table above.
Whether the amount of LTCG required to be reinvested to claim LTCG rollover benefit like Section 54 or 54EC will increase for grandfathered properties for resident individuals/HUFs?
No, there has been no change in the amount of LTCG to be reinvested to claim rollover benefit under Section 54. This is explained by way of an example below:In the table below, the resident individual has to reinvest only an LTCG of 100 and still has a NIL capital gains tax liability because for grandfathered property, the individual can choose the beneficial regimes (20% with indexation or 12.5% without indexation). So, in the example below, even if 100 was reinvested, there was no capital gains tax liability.
Particulars (for a grandfathered property)
With indexation
Without indexation
LTCG before rollover benefit
100
150
LTCG reinvested to claim rollover benefit
100
100
LTCG post rollover benefit
NIL
50
LTCG tax @ 20% with indexation and 12.5% without indexation
NIL
6.25
Final LTCG tax payable at lower of the two
NIL
However, for immovable properties acquired on or after 23 July 2024, the amount required to be reinvested to claim rollover benefit will increase. In the above example, the amount required to be reinvested will be 150 instead of 100 to claim full rollover benefit (subject to caps as specified in respective provisions). This will apply to non-residents also, who will need to invest more to claim full rollover benefits irrespective of when the property was purchased.
What will be the impact on the sale of inherited ancestral immovable property acquired by the taxpayer or his/her ancestors prior to April 1, 2001 for a non-resident as compared to a resident individual?
For ancestral properties (acquired prior to April 1, 2001), the fair market value ('FMV') of such property as calculated by a registered valuer or the stamp duty ready reckoner value as on 1 April 2001, if available, whichever is lower, can be considered as the cost of acquisition. The FMV or registered stamp duty value (whichever is higher) will be considered only if it is higher than the actual cost of acquisition and/or improvement until April 1, 2001. The comparative (difference) is explained by way of the table below:Date of sale
On or after 23 July 2024
Date of acquisition
Before 1 April 2001
Resident
Non-resident
Sale consideration
A
1,00,00,000
1,00,00,000
Original cost of acquisition
B
1,00,000
1,00,000
Fair Market Value ('FMV') not exceeding stamp duty value as on 1 April 2001
C
15,00,000
15,00,000
Indexed cost of acquisition*
D
54,45,000
NA
LTCG (without indexation)
E = A-C
85,00,000
85,00,000
LTCG (with indexation)
F = A-D
45,55,000
NA as indexation does not apply to Non Residents
Tax @ 12.5% without indexation
G
10,62,500
10,62,500
Tax @ 20% with indexation
H
9,11,000
NA
Ultimate tax liability
Lower of G or H (for resident only)
9,11,000
10,62,500
Cost Inflation Index ('CII') applied on the FMV as on 1 April 2001 by using the CII of 2024-25 and 2001-02 (i.e. 363/100)
While the difference in terms of final tax outcome (ultimate tax liability) between a resident and non-resident individual will depend on variables such as sale consideration; FMV as on April 1, 2001 and the indexed cost of acquisition, in the example above, the resident individual will enjoy higher benefit as his ultimate tax liability is reduced by Rs1,51,500 (10,62,500 - 9,11,000) due to the relief provided at enactment stage.
(Sameer Gupta, National Tax Leader, EY India and Surabhi Marwah, Tax partner, EY India.) #sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} (Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
This story originally appeared on: India Times - Author:Faqs of Insurances
