Budget 2024 fundamentally changed NRI property capital gains tax — replacing the long-standing "20% with indexation" with "12.5% without indexation" as the default.
The rule allows a transitional choice for properties bought before July 23, 2024, but new buyers face a different equation. Understanding the math accurately can save NRIs lakhs of rupees and inform whether to sell now or hold.
This guide explains the current rules with worked examples.
What is the current capital gains tax rate on NRI property sale in India?
As per Budget 2024 (effective for sales from July 23, 2024):
(1) Long-Term Capital Gains (LTCG) on property held over 24 months — flat 12.5% on the gain (without indexation), plus applicable surcharge (10-37% based on income) and 4% health & education cess. Effective rate: roughly 13-15% depending on income level.
(2) For properties acquired BEFORE July 23, 2024, the seller can OPTIONALLY use the older method: 20% on indexed gain (with indexation benefit). The taxpayer chooses whichever results in lower tax.
(3) Short-Term Capital Gains (STCG) on property held under 24 months — taxed at the NRI's slab rate (5-30% based on total Indian income), plus surcharge and cess.
How is long-term capital gain calculated under the new 12.5% rule?
Computation under the post-Budget 2024 default method: Capital Gain = Sale Consideration - Cost of Acquisition - Cost of Improvement - Transfer Expenses. NO indexation is applied. Tax = 12.5% of Capital Gain + Surcharge + 4% Cess. Example: Property bought 2010 for Rs 50 lakhs, sold 2025 for Rs 2.5 crores, transfer expenses (broker, legal) Rs 5 lakhs. Capital Gain = 2.5 cr - 50 lakhs - 5 lakhs = 1.95 crores. Tax = 12.5% × 1.95 cr = Rs 24.375 lakhs + surcharge (15% if income above Rs 2 cr) + 4% cess = approximately Rs 29.15 lakhs total tax.
How does indexation work for properties bought before July 23, 2024?
For properties acquired before July 23, 2024, the seller can choose the older method:
(1) Indexed Cost of Acquisition = Original Cost × (CII of year of sale / CII of year of acquisition). CII = Cost Inflation Index notified by CBDT each year (FY 2024-25 = 363, FY 2010-11 = 167).
(2) Indexed Capital Gain = Sale Price - Indexed Cost - Transfer Expenses.
(3) Tax = 20% of Indexed Gain + Surcharge + Cess. Same example:
Property bought 2010-11 for Rs 50 lakhs (CII 167), sold 2024-25 for Rs 2.5 crores (CII 363). Indexed Cost = 50 × 363/167 = 108.68 lakhs. Indexed Gain = 250 - 108.68 - 5 = 136.32 lakhs. Tax @ 20% = Rs 27.26 lakhs + surcharge + cess = approximately Rs 32.6 lakhs. In this case, the new method (12.5% without indexation) saves Rs 3.5 lakhs — better choice. The choice depends on the gap between purchase and sale year (longer gap favours indexation).
How does an NRI choose between 12.5% (no indexation) and 20% (with indexation)?
Decision rule for properties bought before July 23, 2024:
(1) If purchase was very long ago (15+ years), inflation pushes indexed cost up significantly, often making 20% indexed lower.
(2) If purchase was recent (under 10 years), indexation benefit is small, 12.5% non-indexed usually wins.
(3) Run both calculations always — small differences can swing the choice.
(4) For properties with low original cost (e.g., inherited from parents who bought in 1980s, with original cost taken as Fair Market Value as of April 1, 2001 under Section 55), indexation is very valuable — old method often better.
(5) For properties bought after July 23, 2024 — only the new 12.5% method applies; no choice. CA should run both computations as part of pre-sale planning.
How is short-term capital gain taxed for NRIs on property?
Property held for 24 months or less is short-term. STCG is added to total Indian income and taxed at slab rates:
(1) Up to Rs 2.5 lakh — Nil.
(2) Rs 2.5-5 lakh — 5%.
(3) Rs 5-10 lakh — 20%.
(4) Above Rs 10 lakh — 30%.
Plus surcharge (10% if total income above Rs 50 lakh, 15% above Rs 1 cr, 25% above Rs 2 cr, 37% above Rs 5 cr) and 4% cess. STCG on property is heavily taxed for NRIs because most NRI sellers fall in the 30% slab on the short-term gain itself, taking effective rate to 31-43%.
Strategy: hold property for at least 24 months to qualify for long-term treatment — even a short delay can save 15-25% in tax.
How is the cost of inherited property determined for capital gains?
For inherited property, the seller (heir) inherits the original cost basis from the previous owner — NOT the value at the time of inheritance. Specifically:
(1) Cost of Acquisition = Cost paid by the previous owner (when they originally bought).
(2) Date of Acquisition for holding period = Date when the previous owner acquired (so even if you inherited yesterday, you may have long-term status if your parent bought 20 years ago).
(3) For property acquired by the previous owner BEFORE April 1, 2001 — the seller can elect to use Fair Market Value as of April 1, 2001 as the cost basis (substituted cost). This is favourable for old properties — get a registered valuer's certificate. (4) Cost of any improvements made by previous owners or by the heir is added to cost of acquisition.
What are the major exemptions from capital gains tax for NRIs?
NRIs can claim the same Section 54 family of exemptions as residents:
(1) Section 54 — sale of residential house, invest LTCG in another residential house in India within 2 years (or construct within 3 years). Full exemption to extent invested.
(2) Section 54EC — invest LTCG in specified bonds (REC, NHAI, IRFC, PFC) within 6 months of sale. Maximum exemption Rs 50 lakh per FY (Rs 50 lakh in year of sale + Rs 50 lakh in next FY if 6 months span both years). 5-year lock-in.
(3) Section 54F — sale of any long-term capital asset (other than residential house), invest entire NET sale consideration in residential house. Full exemption if entire consideration invested; proportionate if less. Conditions: NRI should not own more than one residential house at the time of sale (other than the new one).
(4) Capital Gains Account Scheme — if cannot reinvest before ITR deadline, deposit gain in CGAS account before deadline; complete reinvestment within prescribed period.
What is the surcharge structure on capital gains for NRIs?
Surcharge on capital gains tax (over and above the 12.5% LTCG or 20% indexed rate):
(1) Income up to Rs 50 lakh — No surcharge.
(2) Rs 50 lakh - Rs 1 crore — 10% surcharge.
(3) Rs 1 crore - Rs 2 crore — 15% surcharge.
(4) Rs 2 crore - Rs 5 crore — 25% surcharge (capped at 15% for capital gains).
(5) Above Rs 5 crore — 37% surcharge (capped at 15% for capital gains).
Important: surcharge on LTCG is CAPPED at 15% — so even on a Rs 10 crore gain, the surcharge is 15%, not 37%. Plus 4% Health & Education Cess on (tax + surcharge). Total maximum effective rate on LTCG: 12.5% × 1.15 × 1.04 = approximately 14.95%. Make sure your CA applies the cap correctly — many automated software defaults to higher surcharge.
For complete details on selling property in India as an NRI and understanding the complete legal, tax, and repatriation process, visit our Selling Property in India page.