NRI with capital gains? Know this before you act
1. Selling property? Documentation and timing can save you lakhs Before you continue reading How financially free are you? Most people overestimate their financial freedom
1. Selling property? Documentation and timing can save you lakhs Before you continue reading How financially free are you? Most people overestimate their financial freedom. Discover your Financial Freedom score through a quick survey Calculate My Score 2. Selling agricultural land? First check whether it's even taxable 3. Selling listed shares or equity mutual funds? Don't ignore Section 215 4. Selling unlisted shares? Currency movements won't reduce your tax 5. Selling gold or jewellery? The biggest challenge may be proving ownership Selling investments in India can trigger a significant capital gains tax bill for Non-Resident Indians (NRIs). But the amount you eventually pay depends not only on how much you've earned, but also on what you're selling.Property, shares, mutual funds, gold and agricultural land all follow different tax rules. Each also comes with its own exemptions, documentation requirements and ta planning opportunities.Here's what you should know before selling different assets in India.Property often attracts the largest tax bills and also offers some of the biggest opportunities to reduce them.Property held for more than 24 months qualifies as a long-term capital asset and is generally taxed at 12.5% without indexation, while shorter holdings are taxed at the applicable slab rate.One major issue for NRIs is that buyers are generally required to deduct TDS under Section 195 on the sale consideration, which often results in excess tax deduction and subsequent refund claims, according to CA Priyal Goel Jain, Partner and NRI Tax Expert at Dinesh Aarjav & Associates.One of the biggest opportunities to reduce taxable gains is correctly claiming the cost of improvement.
Expenses such as constructing an additional floor, major renovations or structural improvements can increase the property's cost base, provided they are supported by proper documentation, says Sanyam Goel, Director at Accorp Partners.NRIs may also reduce tax by claiming exemptions through reinvestment.NRIs can sell Indian property and reinvest the gains into a residential property to save capital gains tax. Jain says that Sections 54 and 54F under the Income Tax Act, 1961 allows eligible reinvestment into residential property within the prescribed timelines, while the equivalent of the old Section 54EC allows investment of up to ₹50 lakh in specified capital gains bonds within six months.Perhaps the most underused strategy is applying for a lower or nil TDS certificate under Section 197 before the sale. Without it, a substantial portion of the sale proceeds may remain blocked with the tax department until the refund is processed, adds Goel.Agricultural land is one asset where taxation depends more on the location than on the seller's NRI status. Rural agricultural land is generally not treated as a capital asset under the Income-tax Act and therefore does not attract capital gains tax.Urban agricultural land, however, is taxed broadly like other property.NRIs generally cannot purchase agricultural land under FEMA, although they may inherit or receive it as a gift from a resident relative, according to Jain.Many people wrongly assume inherited agricultural land automatically qualifies as rural land.Municipal boundaries change over time, so land that was once rural may now fall within notified municipal limits, cautions Goel.He advises checking the current classification before assuming the exemption applies.For eligible urban agricultural land, Jain notes that the equivalent of the earlier Section 54B may provide relief if the prescribed conditions are met.However, she warns that NRIs should also consider FEMA restrictions before planning reinvestment into another agricultural property.Listed shares and equity-oriented mutual funds follow a different tax regime from property.According to Jain, gains on holdings of more than 12 months are generally taxed at 12.5%, with the first ₹1.25 lakh of eligible long-term gains exempt under Section 112A.
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