Indian tax laws are changing rapidly more so it is somewhat complex. In this blog we are discussing about intricacies of Capital Gain Tax for NRIs in India. Indian Income tax Act has some provisions which are applicable to both residents and non-resident Indians, however there are other provisions which are different for NRIs and residents.
Let’s get to the topic gradually by understanding certain key words first.
What is “Capital Gain”?
Capital Gain is the profit that arise from transfer (i.e. sale) of any capital asset. Capital asset includes property, gold, shares, bonds etc. We are studying this blog because Income Tax Act, 1961 prescribes special tax rates for tax on capital gains.
For the purpose of taxability, gain on capital assets categorised under two different categories, as explained below:
Short Term Capital Gain: According to Income Tax Act 1961, if equity or equity-oriented funds are held by taxpayer for less than 12 months and any other capital assets is held for less than 24 months before they are transferred, in that case any gain from transfer on such asset is called Short Term Capital Gain.
Long Term Capital Gain: Capital gain not covered under Short Term Capital Gain as mentioned above is known as Long Term Capital Gain. In other words, if the asset is held by taxpayer for more than the time threshold, then capital gain on that asset is Long Term Capital Gain.
Capital Gain Tax for NRIs in India
Long Term Capital Gain Tax for NRIs in India: In general, Long term capital gain is taxed @ 12.5% (plus surcharge and cess) for NRIs w.e.f. 23rd July 2024 (10% if the asset was sold prior to 23rd July 2024).
Further in case land, building or any other asset purchased prior to 23rd July 2024 and sold after that date benefit of indexation may be availed, however tax rate in that case will be 20%.
Please note that gain on sale of unlisted debenture or bonds taxed @20% without indexation.
Short Term Capital Gain Tax for NRIs in India:
Short term capital Gain Tax for NRIs on sale of equity shares or Equity oriented Mutual funds charged @15% if asset sold before 23rd July 2024 and @20% if asset sold on or after 23td July 2024.
For other assets Short Term Capital Gain charged at 30%.
Exemptions and Deductions for NRIs in India
NRIs can avail various exemptions and deductions as per Income Tax Act 1961, to reduce their capital gains tax liability.
Important exemptions are as follows:
Under section 54, LTCG from sale of a residential property is exempt if capital gain reinvested in purchase or construction of another residential property in India.
Under section 54F exemption, NRIs can avail exemption of LTCG from the sale of any long-term asset other than a residential house, on the reinvestment of the sale proceeds in a residential house property.
Whether an NRI is liable to file Income Tax Return in India?
Yes, NRIs must file their income tax return if their annual income in India crosses the threshold limit or if they have any other transactions that calls for filing of Income Tax Return.
Income Tax Act requires NRIs to declare capital gains in their Indian income tax returns. The deadline for filing the return is July 31st of the assessment year, barring any extensions by the government.
NRIs should maintain meticulous records of their investment and sale transactions to substantiate their tax filings. Non-adherence can lead to penalties and accrued interest on unpaid taxes.
What are the conditions which require a person to file the ITR in India?
Following are the conditions that require a person to file income tax return in India:
1. If total income in the year exceeds the tax-free limit-
| Age | Tax-free limit (in INR) |
| Below 60 years | 2.5 Lakhs |
| 60 years or more but below 80 years | 3 Lakhs |
| 80 years and above | 5 Lakhs |
2. If you want to claim income tax refund.
3. If you have earned from or have invested in foreign assets during the Financial Year.
4. If you wants to apply for a visa or a loan.
5. For company or a firm, irrespective of profit or loss amount, ITR filing is must.
6. In case of loss from business or profession or under capital gains head, to carry forward loss to next years (ITR within due date).
Even if you don’t under any of the above conditions, it is mandatory to file ITR if you meet any of these conditions:
1.Deposited a total of INR 1 crore or more in one or more current accounts with a bank.
2. Deposited more than INR 50 lakh in your saving bank accounts
3. Spent more than INR 2 lakhs on foreign travel whether for yourself or any other person
4. Yearly electricity expenditure is more than INR 1 lakh
5. If tax withhold in form of TDS/TCS is more than INR 25,000. However, in the case of senior citizen (above 60 years) this limit is INR 50,000
6. Business turnover is more than INR 60 lakh
7. Income from your profession is more than INR 10 lakh
Note: The government had released a notification vide Notification No. 37/2022 dated 21st April 2022 specifying additional conditions for filing income tax returns even if income is below the basic exemption limit.
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