NRI Property Sale 2025: Why Losing Indexation Benefit Costs You Lakhs
Complete analysis with real examples showing how the July 2024 tax changes impact NRI property sales and strategies to minimize your tax liability
Written by
CA Ashama Rajawat
Major Tax Change Alert
From July 23, 2024, the Long-Term Capital Gains (LTCG) tax rate dropped from 20% to 12.5%, BUT the indexation benefit that helped adjust purchase price for inflation has been completely removed. This change can cost NRIs lakhs in additional taxes, especially for properties purchased many years ago.
What Changed in July 2024?
The Finance Act 2024 brought significant changes to capital gains taxation on property sales for both residents and NRIs:
| Aspect | Old Regime (Before July 23, 2024) | New Regime (After July 23, 2024) |
|---|---|---|
| LTCG Tax Rate | 20% | 12.5% |
| Indexation Benefit | Available (CII) | Not Available |
| Holding Period | 24 months for LTCG | 24 months for LTCG |
| TDS for NRIs | 20% on indexed gains | 12.5% on actual gains |
What is Indexation and Why Does It Matter?
Indexation was a method to adjust the purchase price of your property for inflation using the Cost Inflation Index (CII) published annually by the Income Tax Department. This significantly reduced your taxable capital gains.
How Indexation Worked
Formula: Indexed Cost = Purchase Price × (CII of Sale Year / CII of Purchase Year)
Example:
- • Property bought in 2010: ₹50 lakh (CII: 167)
- • Property sold in 2024: ₹1.5 crore (CII: 363)
- • Indexed Cost = ₹50L × (363/167) = ₹1.09 crore
- • Capital Gain with indexation: ₹1.5Cr - ₹1.09Cr = ₹41 lakh
- • Capital Gain without indexation: ₹1.5Cr - ₹50L = ₹1 crore
Key Insight
Older the property, higher the benefit from indexation. Properties purchased 10-15 years ago could see their indexed cost nearly double, dramatically reducing taxable gains.
Real Examples: When New Regime Hurts NRIs
Example 1: Property Purchased in 2010
Property Details:
- Purchase Price (2010): ₹50,00,000
- Sale Price (2024): ₹1,50,00,000
- Holding Period: 14 years
CII Values:
- CII 2010-11: 167
- CII 2024-25: 363
Old Regime (With Indexation)
Indexed Cost: ₹1,08,68,263
Capital Gain: ₹41,31,737
Tax @ 20%: ₹8,26,347
New Regime (No Indexation)
Actual Cost: ₹50,00,000
Capital Gain: ₹1,00,00,000
Tax @ 12.5%: ₹12,50,000
Additional Tax Under New Regime: ₹4,23,653
You pay 51% more tax despite the lower rate!
Example 2: Property Purchased in 2018
Property Details:
- Purchase Price (2018): ₹80,00,000
- Sale Price (2025): ₹1,20,00,000
- Holding Period: 7 years
CII Values:
- CII 2018-19: 280
- CII 2024-25: 363
Old Regime (With Indexation)
Indexed Cost: ₹1,03,71,429
Capital Gain: ₹16,28,571
Tax @ 20%: ₹3,25,714
New Regime (No Indexation)
Actual Cost: ₹80,00,000
Capital Gain: ₹40,00,000
Tax @ 12.5%: ₹5,00,000
Additional Tax Under New Regime: ₹1,74,286
Still worse off despite shorter holding period
Example 3: Recent Purchase (2022)
Property Details:
- Purchase Price (2022): ₹1,00,00,000
- Sale Price (2025): ₹1,30,00,000
- Holding Period: 3 years
CII Values:
- CII 2022-23: 331
- CII 2024-25: 363
Old Regime (With Indexation)
Indexed Cost: ₹1,09,66,768
Capital Gain: ₹20,33,232
Tax @ 20%: ₹4,06,646
New Regime (No Indexation)
Actual Cost: ₹1,00,00,000
Capital Gain: ₹30,00,000
Tax @ 12.5%: ₹3,75,000
Tax Savings Under New Regime: ₹31,646
New regime benefits recent purchases with lower appreciation
The Break-Even Analysis
The new regime becomes beneficial only when your property's appreciation is relatively low compared to the inflation-adjusted cost.
| Purchase Year | Holding Period | Better Regime | Reason |
|---|---|---|---|
| Before 2015 | 10+ years | Old (20% + Indexation) | High indexation benefit outweighs higher rate |
| 2015-2020 | 5-10 years | Usually Old | Depends on appreciation, but indexation helps |
| After 2020 | Under 5 years | New (12.5%) | Lower rate beneficial with less indexation |
Special Considerations for NRIs
Higher TDS Rate
NRIs face TDS of 12.5% on sale proceeds (reduced from 20%). However, this is on the FULL gain without indexation, which means higher TDS deduction upfront.
Form 15CA/15CB Required
For repatriating sale proceeds abroad, proper documentation is mandatory. Without lower TDS certificate, 12.5% will be deducted on entire gains.
DTAA Benefits Still Apply
You can still claim relief under Double Tax Avoidance Agreement with your country of residence to avoid paying tax twice on the same income.
Capital Gains Exemptions Available
NRIs can claim exemption under Section 54 (residential property) or 54EC (bonds) same as residents, but reinvestment must be in India.
Strategies to Minimize Tax Impact
Timing Your Sale Strategically
If you purchased property before 2020 and can defer sale, consider waiting to assess future tax policy changes. However, market conditions should be primary consideration.
Apply for Lower TDS Certificate (Form 13)
Calculate your actual tax liability and apply for Section 197 certificate to reduce TDS to your actual rate, preventing cash flow blockage.
Utilize Capital Gains Exemptions
Invest in another residential property (Section 54) within specified time or invest up to ₹50 lakh in capital gains bonds (Section 54EC) to claim tax exemption.
Document All Improvement Costs
Add cost of improvements (renovations, additions) to your purchase price. This reduces capital gains. Keep all receipts and payment proofs.
Claim DTAA Benefits
File ITR in India showing tax paid, obtain Tax Residency Certificate, and claim foreign tax credit in your country of residence to avoid double taxation.
Documents Required for NRI Property Sale
- ✓Sale Deed - Registered property sale document
- ✓Purchase Deed - Original purchase documents with price proof
- ✓TDS Certificate - Form 16A from buyer showing TDS deducted
- ✓Improvement Bills - Receipts for renovation/addition expenses
- ✓Form 15CA/15CB - For repatriation of funds abroad
- ✓PAN Card - Mandatory for property transactions
- ✓Bank Statements - Showing fund flow for purchase and improvements
Common Mistakes to Avoid
- ✗Not documenting improvement costs - loses opportunity to reduce gains
- ✗Forgetting to apply for lower TDS certificate - causes cash flow issues
- ✗Missing Section 54/54EC exemption deadlines - loses tax-saving opportunity
- ✗Not filing ITR even if TDS covers tax liability - mandatory for NRIs selling property
- ✗Repatriating funds without Form 15CA/15CB - can cause legal issues
Conclusion
The removal of indexation benefit from July 2024 has significantly impacted NRIs who purchased property many years ago. While the LTCG rate dropped to 12.5%, the loss of inflation adjustment means you could pay 50-100% more tax on properties held for over 10 years.
Before selling your property, it's crucial to calculate your actual tax liability under the new regime, explore all available exemptions, and consider applying for a lower TDS certificate. Given the complexity and significant tax implications, consulting a CA specializing in NRI taxation is highly recommended.