NRI Taxation for Property Sale below 50 Lakhs  

Introduction

When an NRI decides to sell a property in India for under ₹50 lakh, the excitement of a successful sale can quickly be overshadowed by confusing tax rules and procedural hassles. From determining whether your gain is short-term or long-term to navigating TDS, indexation, and repatriation, every step demands clarity. In this blog post, we’ll break down the entire journey into bite-sized, actionable segments, complete with real numbers, clear tables, and simple explanations. By the end, you’ll have a roadmap that transforms tax complexity into confident decision-making for properties below ₹50 lakh.

Property Classification: Why It Matters

Before you calculate taxes, it’s crucial to know where your property sits in the market spectrum. This positioning affects everything from stamp duty costs to negotiation leverage, legal fees, and even buyer expectations.

A clear classification helps you:

• Estimate ancillary costs (stamp duty, legal charges) accurately.
  
  
• Position your property competitively during negotiations.
  
  
• Anticipate the likely buyer profile and closing timeline.
  
  

Category

Sale Value Range

Typical Examples

Budget

Up to ₹50 lakh

Small 1 BHK in tier-2 cities

Mid-Range

₹50 lakh – ₹1 crore

2–3 BHK flats in growing suburbs

Premium

₹1 crore – ₹5 crore

Villas or high-end apartments in metros

Luxury/High-Value

Above ₹5 crore

Penthouses, luxury villas

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Understanding Capital Gains

Capital gains tax depends on how long you held the property. Held for two years or less? You face Short-Term Capital Gains (STCG). Held for more than two years? You qualify for Long-Term Capital Gains (LTCG) with indexation benefits.

Short-Term Capital Gains (STCG)

If you sell within two years of purchase, your profit is fully taxable at the slab rate for capital assets.

Key Points

• Holding Period: ≤ 2 years
  
  
• Tax Rate: 30% + 4% Health & Education Cess + applicable surcharge
  
  
• Indexation Benefit: Not available
  
  

Worked Example

• Purchase Price (2022): ₹30 lakh
  
  
• Sale Price (2024): ₹45 lakh
  
  
• Profit: ₹15 lakh
  
  
• Tax on Gain: 30% of ₹15 lakh = ₹4.50 lakh
  
  
• Total with Cess (4%): ₹4.50 lakh × 1.04 = ₹4.68 lakh
  
  

Long-Term Capital Gains (LTCG) and Indexation

Holding for over two years unlocks LTCG at a flat 20% rate, with indexation shrinking your taxable gain to adjust for inflation.

Key Points

• Holding Period: > 2 years
  
  
• Tax Rate: 20% + 4% Cess + applicable surcharge
  
  
• Indexation: Adjusts your original cost using the Cost Inflation Index (CII)
  
  

Financial Year

CII

2018–19

280

2023–24

348

Indexed Cost Formula

Indexed Cost=Original Cost×CIISale YearCIIPurchase Year\text{Indexed Cost} = \text{Original Cost} \times \frac{\text{CII}_{\text{Sale Year}}}{\text{CII}_{\text{Purchase Year}}}Indexed Cost=Original Cost×CIIPurchase Year​CIISale Year​​

Worked Example

• Original Cost (2018): ₹30 lakh
  
  
• Sale Price (2023): ₹48 lakh
  
  
• Indexed Cost: 30×348280=₹37.29lakh30 \times \frac{348}{280} = ₹37.29 \text{lakh}30×280348​=₹37.29lakh
  
  
• Taxable Gain: 48−37.29=₹10.71lakh48 - 37.29 = ₹10.71 \text{lakh}48−37.29=₹10.71lakh
  
  
• LTCG Tax (20%): ₹2.14 lakh
  
  
• With Cess (4%): ₹2.14 lakh × 1.04 = ₹2.22 lakh
  
  

Indexation: Turning Time into Tax Savings

Hold a property beyond two years and you qualify for Long‑Term Capital Gains (LTCG) at 20% post‑indexation. Indexation applies the Government’s Cost Inflation Index (CII) to your purchase price, shrinking your taxable gain.

Financial Year

CII

2018–19 (Purchase)

280

2023–24 (Sale)

348

Indexed Cost Formula:

Indexed Cost=Original Cost×CIISale YearCIIPurchase Year\text{Indexed Cost} = \text{Original Cost} \times \frac{\text{CII}_{\text{Sale Year}}}{\text{CII}_{\text{Purchase Year}}}

Worked Example:

• Original cost (2018): ₹30 lakh
  
  
• Sale price (2023): ₹48 lakh
  
  
• Indexed cost = 30 lakh × (348 / 280) = ₹37.29 lakh
  
  
• Taxable Gain = 48 lakh – 37.29 lakh = ₹10.71 lakh
  
  
• LTCG Tax = 20% of 10.71 lakh = ₹2.14 lakh (vs. ₹3.6 lakh without indexation)
  
  

Key Benefits of Indexation:

1. Lowers Tax Bill: Shrinks your gain base.
   
   
2. Beats Inflation: Reflects real profit, not paper gain.
   
   
3. Rewards Patience: Encourages holding for over two years.

Exact Tax Rates

Your total tax rate depends on your income slab, surcharge, and cess. Below is a consolidated view:

Component

LTCG (%)

STCG (%)

Base Rate

20

30

Surcharge

– Total income ≤ ₹50 lakh

Nil

Nil

– ₹50 lakh – ₹1 crore

10% of tax

10% of tax

– ₹1 crore – ₹2 crore

15% of tax

15% of tax

– ₹2 crore – ₹5 crore

15% (LTCG) / 25% (STCG)

Same brackets

– Above ₹5 crore

15% (LTCG) / 37% (STCG)

Same brackets

Health & Education Cess

4% on (tax + surcharge)

4% on (tax + surcharge)

Effective Maximum Rate

~23.92%

~37.44%

TDS on Property Sales

When you sell as an NRI, the buyer deducts TDS at source under Section 195 before releasing funds. This upfront deduction often exceeds your final liability but is adjustable when you file your return.

TDS Rates

Gain Type

TDS on Sale Value

Surcharge + 4% Cess

STCG

30%

Yes

LTCG

20%

Yes

Lower TDS Certificate (Form 13): You can apply to the Assessing Officer for a certificate to reduce TDS based on estimated tax liability.

Exemptions to Reduce LTCG

Even if you hold property long enough, you can eliminate or reduce LTCG tax by reinvesting under various sections.

Section 54 – Residential House Reinvestment

• What: Reinvest gains in one residential property in India
  
  
• When: Buy within 1 year before OR 2 years after sale; or construct within 3 years
  
  
• Limit: Exemption up to capital gains; new property must not be sold within 3 years
  
  

Section 54EC – Capital Gain Bonds

• What: Invest in NHAI, REC, PFC or IRFC bonds
  
  
• When: Within 6 months of sale
  
  
• Limit: ₹50 lakh per financial year; bonds lock‑in for 5 years
  
  

Section 54F – Any Capital Asset → Residential House

• What: Sell any non‑house asset and invest entire sale proceeds in one residential house
  
  
• When: Same timeframes as Section 54
  
  
• Note: Proportional exemption if you invest less than full sale proceeds
  
  

Section 54B – Agricultural Land

• What: Sell agricultural land used for ≥ 2 years and reinvest in new agricultural land
  
  
• When: Buy within 2 years of sale; lock‑in for 3 years
  
  

Penalties for Non-Compliance

Failing to deduct or deposit TDS on time can trigger serious penalties under the Income Tax Act:

a. Penalty under Section 201(1A)

• Interest for Late Deduction: 1% per month (or part) from due date to deduction date.
  
  
• Interest for Late Payment: 1.5% per month (or part) from deduction to deposit date.
  
  

b. Disallowance of Expenses (Section 40(a)(i)/(ia))

• Domestic Payments: 30% of the expense disallowed if TDS not deducted.
  
  
• Payments to Non‑Residents: Entire expense disallowed if TDS not deducted.
  
  

c. Penalty for Late Filing of TDS Returns

• Late Filing Fee: ₹200 per day, up to the total TDS amount.
  
  
• Section 271H Penalty: ₹10,000 to ₹1,00,000 for incorrect or non‑filing.
  
  
• Prosecution Risk: Non‑deposit can lead to imprisonment (3 months–7 years) plus fine.
  
  

Including these checks in your process ensures you avoid extra costs and headaches down the line.

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6. Surcharge & Cess: The Extras on Top

Beyond the base rate, high‑income NRIs face surcharge. Cess is flat 4% on the total tax.

Total Income (Incl. Gains)

Surcharge on LTCG

Surcharge on STCG

Up to ₹50 lakh

Nil

Nil

₹50 lakh – ₹1 crore

10%

10%

₹1 crore – ₹2 crore

15%

15%

₹2 crore – ₹5 crore

15% (LTCG) / 25% (STCG)

Same brackets

Above ₹5 crore

15% (LTCG) / 37% (STCG)

Same brackets

Remember: cess of 4% applies on top of tax + surcharge.

Repatriation of Funds

After sale proceeds land in your NRO account, follow these steps:

1. Form 15CA: Self-declaration for foreign remittance above ₹5 lakh or taxable payments.
   
   
2. Form 15CB: Chartered Accountant’s certificate confirming correct TDS deduction.
   
   
3. Bank Submission: Provide both forms, proof of tax paid/refund.
   
   
4. Limit: Up to US $1 million per financial year, net of taxes.
   
   

Case Overview

Rahul’s friend, Mr. Rajesh, sold a Pune apartment to illustrate:

Detail

Values

Sale Price

₹48 lakh

Purchase Price (5 years ago)

₹30 lakh

Indexed Cost (CII 1.4×)

₹42 lakh

LTCG

₹6 lakh

Tax on LTCG (20%)

₹1.20 lakh

Scenario 1: With Reinvestment

• Reinvests full ₹6 lakh under Section 54/54F → Zero LTCG tax
  
  
• Full ₹48 lakh credited to NRO account → repatriable up to US $1 million after Form 15CA/CB.
  
  

Scenario 2: Without Reinvestment

• Pays ₹1.20 lakh LTCG tax → net proceeds ₹46.80 lakh
  
  
• ₹46.80 lakh in NRO account → repatriable up to US $1 million after compliance.
  
  

Key Takeaways

• Classification First: Know if you’re in the ₹50 lakh “budget” bracket to plan costs.
  
  
• Indexation Matters: Holding over two years and using CII can save ~40% on gains tax.
  
  
• TDS vs. Liability: Use Form 13 to lower upfront TDS based on real liability.
  
  
• Reinvestment Strategies: Sections 54, 54EC, 54F, and 54B offer powerful exemptions.
  
  
• Compliance Is Crucial: Missing TDS deadlines can trigger hefty penalties.
  
  

Smooth Repatriation: Form 15CA/15CB plus NRO banking rules make moving funds abroad seamless.