NRI alert: Expats face higher taxes on property sales in India as indexation benefit ends

Dubai: With several Indian expats in the UAE and other countries facing higher taxes on property sales back home after the Indian government removed a tax benefit, a UAE resident is giving voices to the NRIs by supporting a legal fight.

“NRIs [Non Resident Indians] are not treated at par with the residents when India revoked a decision to remove the indexation benefit on real estate taxations,” Sreejith Kuniyil, a chartered accountant who has taken up a mission to end the discrimination against NRIs, told Gulf News.

He said the disparity in the status of NRIs and residents cropped up as the government used the word “resident” instead of “citizen” and went silent about NRIs when it amended a decision regarding indexation benefit on long-term capital gains on property sales last year.

In India, when you sell a property, you might have to pay tax on the profit you make. This is called capital gains tax. To make things fairer, the Indian government used to allow people to adjust the original cost of the property for inflation. This is called indexation. It helped reduce the amount of tax you had to pay. However, the government in July 2024 removed this benefit.

Taxpayers often prefer the higher tax rate (20 per cent) with indexation because it accounts for inflation and can result in a lower overall tax burden compared to the lower tax rate without indexation (12.5 per cent), which ignores the impact of inflation on the property’s original cost.

Following a huge backlash, the government allowed taxpayers to choose between two tax rates for long-term capital gains on property: one with indexation and a slightly higher tax rate, and another without indexation but with a lower tax rate.

“Article 112(a) of the Income Tax Act, which provided the two tax rates options made it applicable to ‘an individual or a Hindu undivided family, being a resident.’ In this case, NRIs have been left out whereas the status of NRIs while purchasing properties under FEMA (Foreign Exchange Management Act) remains the same as residents,” explained Sreejith.

However, he said, now NRIs selling properties after July 23, 2024 are facing a discrimination after the amendment to the IT Act.

Aiming to raise a voice for NRIs, Sreejith has helped an aggrieved Indian expat in Kuwait, who ended up paying a huge tax amount while selling her property last year, file a petition against the Union of India in the High Court of the south Indian state of Kerala.

“The petition seeks to restore the rights of NRIs and treat them equally by giving both the tax options provided to resident Indians. While the hearing is going on, we want the government to address the disparity in tax treatment between resident Indians and NRIs regarding long-term capital gains on property sales in the upcoming budget session and provide a solution in favour of NRIs,” he added.