Capital Gains Tax for NRIs

Capital Gains Tax Rate for NRIs in India

Capital Gains Tax on Shares

The tax liability for capital gains on listed equity shares or equity-oriented mutual funds is classified as either long-term or short-term:

 - Short-term Capital Gains: If equity shares or mutual funds are held for less than 12 months, the capital gains are taxed at 15%, with TDS also at 15%.

- Long-term Capital Gains: If held for more than 12 months, the gains exceeding ₹1 lakh are taxed at 10%, with TDS at 10%.

 Taxation on Capital Gains from Debt Mutual Funds

- Short-term Capital Gains: Investments held for less than 36 months are taxed at the applicable income tax slab rates.

- Long-term Capital Gains: Investments held for more than 36 months are taxed at 20% with indexation. However, as of April 1, 2023, debt mutual funds no longer benefit from indexation for long-term capital gains, and these gains are now taxed at applicable slab rates.

 Tax on Sale of Unlisted Shares

- Short-term Capital Gains: Gains from unlisted shares held for less than two years are taxed at the applicable income tax rates according to the individual's tax slab.

- Long-term Capital Gains: Gains from unlisted shares held for two years or more are taxed at a flat rate of 20%, with the option of indexation to adjust for inflation.

 Tax on Purchase or Sale of Property

- Purchasing Property: When an NRI buys property from an Indian resident, they must deduct TDS at 1% if the purchase amount exceeds ₹50 lakhs.

- Selling Property: The tax liability depends on the holding period:

  - Long-term Capital Gains: Property held for more than two years is taxed at 20%.

  - Short-term Capital Gains: Property held for less than two years is taxed at normal income tax slab rates, with TDS at 30%.

 Tax Exemptions on Capital Gains for NRIs

- Exemption for Long-term Residential Property: Under Section 54, NRIs can claim exemptions on capital gains from the sale of a long-term residential property by purchasing a new residential house in India. This can be applied to two houses if the gain does not exceed ₹2 crores.

- Exemption for Other Long-term Capital Assets: Section 54F allows exemptions on capital gains from the sale of any long-term capital asset other than residential property.

- Specified Bonds: Section 54EC provides exemptions by reinvesting the capital gains in specified bonds within a specified timeframe, with a maximum exemption limit of ₹50 lakhs.

- Capital Gain Account Scheme: Uninvested capital gains can be deposited in a capital gain account with a designated bank, to be used for investment within a specified time frame.

 Advance Tax Implications

NRIs must pay advance tax if their estimated tax liability exceeds ₹10,000 in a financial year. Failure to pay advance tax may result in interest charges under Sections 234B and 234C.

 TDS Provisions for NRIs

NRIs are subject to TDS on capital gains at the applicable rates:

- Equity-related Capital Gains: 10% for long-term and 15% for short-term, plus applicable cess.

- Non-equity Investments: 20% for long-term (post-indexation) and 30% for short-term.

NRIs can also purchase life insurance policies in India, which will be taxed according to Indian income tax laws. Tata AIA Life Insurance Plans, for example, offer various policies with high life insurance coverage and flexible premium payments.

 Conclusion

NRIs should be aware of the tax implications on capital gains from various sources and the exemptions available under Sections 54 and 54F. Understanding these tax provisions is crucial for making timely investments and claiming tax benefits, as well as fulfilling advance tax obligations and TDS requirements.