Capital Gain Taxability for NRI in India

Capital gain is gain raised on transfer of any capital asset. Transfer refers to sale, exchange, relinquishment, or extinguishment of rights in an asset by owner. Any capital gain earned from capital asset located in India is taxable in India. Long term capital gain is applicable for NRI who sold his house property after holding for 2 years. Income tax on Capital gain depends on whether is long term or short term capital gain. For calculation of capital gain for NRI its important to know date of purchase of asset / shares and date of sale. Long term capital gains are taxed at 20% and short term gains shall be taxed at the applicable income tax slab rates for the NRI based on the total income which is taxable in India for the NRI.

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Types of Capital Gain

Capital gain can be of 2 types- Short Term Cpital Gain (STCG) and Long Term Capital Gain (LTCG). Capital gains are classified on basis of period of holding of asset.

Asset is considered as short term if it is held for period of 36 months or less. But, for immovable property period of 24 months or less is to be considered instead of 36.And if asset or immovable property is held for period more than 36 months/ 24 months respectively then, it is to be considered as long term asset.

Specific criteria of 12 months is prescribed for some specified assets.These assets are considered as short term if held for period less than or equal to 12 months nd long term if held for more than 12 months.

These specified assets are:

Equity or preference shares in a listed company

Securities (like debentures, bonds, govt securities etc.) listed on a recognized stock exchange in India

Units of UTI, whether quoted or not

Units of equity oriented mutual fund, whether quoted or not

Zero coupon bonds, whether quoted or not.

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NRI capital gain tax on investment in shares, mutual funds

Taxation rules are same for residents and non-residents incase of mutual fund or listed equity shares investments . Incase of equity oriented mutual funds or listed equity shares if NRI redeem within 1 year i.e. 12 months then gain will be short term capital gain (STCG) and taxes at rate of 15%. And if sold after 1 year then there will be long term capital gain (LTCG) and 10% tax rate will be applicable.

If the listed equity shares  or equity-oriented mutual funds held for a period above 12 months then considered as  long term instruments.And on sale of such instrumentstax rate applicable will be of 10% if the gain on sale is more than Rs. 1 lakh. In case the long term gain is upto Rs. 1 lakh, then the whole  gain is exempt from tax,subject to condition that the Securities Transaction Tax (STT) paid on acquisition and sale of equity shares.

Whereas for debt / non-equity oriented mutual funds if redeem after 3 years or more than gain will be LTCG and taxed at 20%(with indexation benefit) or 10%(without indexation benefit). But ifunits are  redeemed before 3 years then it will amount to STCG and applicable tax rate will be as per slab rate.

Incase NRI sold unlisted shares(other than debt mutual fund) or securities which are held by NRI for period more than 24months , gain will be LTCG and taxed at 10% without indexation benefit.

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NRI Capital Gain Tax on Property

NRI can purchase and sale property in India subject to some compliance and documentation.If NRI sells long term property (held for >24 months) in India then gain will LTCG and tax rate applicable will be 20%. Whereas NRI sells short term property (held for <24 months) in India  then gain will STCG and tax is calculated as per normal applicable slab rates.

Also when NRI sells long term property in India, TDS @20% is to be deducted by buyer. And if sold out property is short term then TDS rate applicable will be 30% or applicable slab rate.

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Deductible expenses for capital gain calculation

While calculating amount of capital gain following expenses are allowed to claim by assessee:

• Incase of sale of house property: Following expenses are allowed to deduct from sale price of sold house property-

1. Brokerage or commission paid inrelation to property
2. Stamp paper charges/ stamp duty
3. Cost of succession certificate and other expenses born,incase property is inherited

• Incase of sale of shares: Only brokerage expenses are allowed to be deducted. It is to be noted specifically that Securities Transaction Tax (STT) is not deductible expense.

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How to save tax on capital gains of NRI:

Income tax tax given exemption to save tax on capital gain. which allows NRI to claim refund of TDS deducted on capital gain for different type of assets sold. NRI are allowed to claim tax exemptions under section 54 for tax savings. These income tax exemptions comes with certain condition. If  NRI fulfil such conditions then eligible to claim tax saving benefit. Filing Income tax return is important in such cases.

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Exemption u/s 54:  Exemption under this section can be availed when NRI has long term capital gain on sale of house property and such LTCh is reinvested in buying or constructing another house property.  Such sold out house property can be self occupied by NRI or let out. Maximum exemption available under section 54 is total amount o capital gain on sale by NRI. But to avail this exemption NRI must comply with below conditions:

New property is required to purchased by NRI within time limit imposed i.e.- 1 year before sale or 2 years after sale.

If NRI is investing this LTCG in house property under construction, then construction must be completed within 3 years of sale.

Such purchsed/ constructed property shall be kept in possession for atleast 3 years. If NRI sell this new property before 3 years then exemption can be taken back.

NRI can take exemption from LTCG by investing upto 2 house properties and capital gain must not exceed Rs.2 crore.But this exemption is allowed only once in lifetime.

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Section 54F:  This exemption can be available for NRI when there is LTCG from sale of long term capital asset other than residential house property.

New property is required to purchased by NRI within time limit imposed i.e.- 1 year before sale or 2 years after sale.

If NRI is investing this LTCG in house property under construction, then construction must be completed within 3 years of sale.

Such purchsed/ constructed propertymust be situated in India and kept in possession for atleast 3 years. If NRI sell this new property before 3 years then exemption can be taken back.

In this section NRI is required to invest entire sale receipts to avail full exemption of capital gain. If less amount is invested , exemption will be allowed proportionately.

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Section 54EC:  Another option for exemption from LTCG is to invest LTCG  on sale of immovable property in specified bonds as per section 54EC. Section prescribes bonds issued by- National Highway Authority of India (NHAI) or Rural Electrification Corporation (REC) to claim exemption.Maximum period of 6 months is allowed to invest gains into bonds along with that such investment should be before return filing date. This section imposes 5 years lock in period for thse bonds. If sold before 3 years then amount of exemption will get taxed. Maximum amount of exemption allowed u/s 54EC is Rs. 50 lakhs. Incase of NRI, it is important to make investment and show proos to buyer so that he should not deduct TDS on capital gain or NRI can claim refund of excess TDS at time of return filing.

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Double taxation DTAA relief For NRI

Non residents who sold capital asset in India can take relief from Double Taxation Avoidance Agreement (DTAA) if India has valid agreement with country of his residence. In such case eNRI is either required to pay tax in only one country or required to pay tax in both countries & get relief from country of residence later.

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NRI capital gain (FAQ):

1. Can NRI avail basic exemption limit benefit for income from capital gain?

No,Unlike the resident Indians, the non-residents are not eligible to benefit from the basic exemption limit incase of capital gains.

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2. Can capital gain get set off against capital loss incase of NRI?

Yes, NRI can setoff capital gain against capital loss.It is allowed to set-off gains of a debt fund against that of equity fund loss or vice-versa. A short-term capital loss can be set-off against both LTCG and STCG. But, a long-term capital loss can only be set-offagainst LTCG.

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3. Is capital gain account scheme is available for NRI?

Yes, if NRI is not able to invest capital gain until date of filing of income tax return of that year then NRI is allowed to deposit gain amount in capital gain account scheme in bank and claim exemption u/s 54.

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