How the 2025 Budget Changes Impact Property Tax for NRIs?

Introduction

The 2025 Union Budget brought important updates to property taxation rules affecting Non-Resident Indians (NRIs). One key change is the new focus on the property acquisition date when calculating capital gains tax. These updates, introduced under the 2025 Budget NRI property sale reforms, aim to simplify tax compliance but require NRIs to understand how timing impacts tax liabilities on property sales in India.

This blog breaks down what NRIs need to know about capital gains tax, the removal of indexation benefits for newer properties, TDS rates on property sales, and how to use Form 13 to minimize tax withholding. Whether you’re planning to sell inherited property or your personal real estate in India, knowing these updates will help you plan better and avoid unexpected tax burdens.

1. Understanding Capital Gains and Indexation for NRIs

Capital Gains are the profits from selling property. The Income Tax Department allows adjusting the original purchase price for inflation through indexation, reducing taxable gains by accounting for the changing value of money over time.

Formula:

Indexed Cost of Acquisition = (Cost Inflation Index in year of sale / Cost Inflation Index in year of purchase) × Original Purchase Price

This helps NRIs lower their taxable gains by reflecting inflation.

2. Short-Term vs Long-Term Capital Gains Tax

• Short-Term Capital Gains (STCG): Applies if property is sold within 24 months. Taxed as per the seller’s income slab, up to 30%.
• Long-Term Capital Gains (LTCG): Applies for properties held beyond 24 months.

3. Key 2025 Budget Update: LTCG Tax for NRIs

From July 23, 2025, for properties registered on or after this date:

• Indexation benefits are no longer available to NRIs.
• LTCG is now taxed at a flat rate of 12.5%, replacing the earlier 20% tax with indexation.

This change applies to all relevant property sales and has a major impact on tax planning.

4. TDS on Property Sales by NRIs

Buyers must deduct Tax Deducted at Source (TDS) before paying NRIs for property sales. TDS rates vary by property value:

TDS applies on the total sale value, not just gains.

5. Using Form 13 to Lower TDS Deduction

NRIs can apply for Form 13 to reduce upfront TDS by proving their actual tax liability based on capital gains, instead of the entire sale price. This helps ease cash flow by limiting tax deductions to what’s truly owed.

6. Important Deadlines and Compliance

• Pay capital gains tax by July 31 of the assessment year or before repatriating sale proceeds, whichever is earlier.
• Ensure correct residency status is declared to avoid penalties.

Conclusion

The 2025 budget NRI property sale changes have simplified some aspects but also removed indexation benefits for new properties, shifting the tax landscape for NRIs. Staying informed and using tools like Form 13 can help NRIs optimize taxes on property sales in India.

For personalized guidance on these complex rules, NRI Simplify is here to assist you every step of the way.

FAQs: Common Questions About NRI Property Tax Changes

Q1: What happens if my property was registered before July 23, 2025?
A: For properties registered before this date, the old LTCG rules with indexation (20% tax) still apply.

Q2: Can I claim indexation benefits for inherited property?
A: Indexation is not available for properties registered on or after July 23, 2024. For older inherited properties, it depends on the registration date.

Q3: How does TDS affect my sale proceeds?
A: TDS is deducted upfront by the buyer from the sale price. You can recover excess TDS by filing your income tax return.

Q4: How do I apply for Form 13?
A: Submit Form 13 with capital gains calculation to the Income Tax Department before the sale to reduce TDS.

Q5: What documents are needed for tax filing on property sales?
A: Sale deed, purchase deed, proof of taxes paid, and Form 26AS with TDS details.