The Union Budget 2024 has introduced a series of changes in India’s tax structure, significantly impacting Non-Resident Indians (NRIs). These adjustments include higher tax rates on both short-term and long-term capital gains, the removal of the indexation benefit, and a uniform tax rate for long-term capital assets. While these measures complicate the tax landscape, some relief is provided through increased exemption limits and simplified tax slabs.
Who Qualifies as an NRI?
An NRI is an individual who has resided outside India for more than 182 days in a financial year or for more than 365 days over the last four years, spending fewer than 60 days in India in the current year. NRIs are taxed on their income earned or received in India, but their global income remains untaxed unless they meet specific residency criteria under Indian tax laws. This distinction often causes confusion, especially with the new tax regime introduced in Budget 2024.
Key Tax Changes for NRIs
The Budget has increased the standard deduction for NRIs opting for the new tax regime, from Rs 50,000 to Rs 75,000. This change offers some relief by reducing overall tax liability. However, NRIs will face higher taxes on short-term capital gains, with rates increasing from 15% to 20% for investments in stocks, equity mutual funds, and business trusts. This hike is expected to discourage short-term trading activity among NRIs.
The most significant change is the standardisation of the long-term capital gains (LTCG) tax rate to 12.5% across all long-term capital assets. This simplifies tax calculations but uniformly impacts different asset categories. The holding period for determining whether an asset is short-term or long-term has also been streamlined: for listed securities, a holding period of more than 12 months qualifies as long-term, while for other assets, the threshold is 24 months.
Impact on Real Estate Investments
One of the most substantial blows to NRIs is the removal of the indexation benefit, which adjusts the purchase price of an asset for inflation. This change is particularly significant for those investing in real estate. Without indexation, the tax liability increases, especially for properties with modest appreciation.
For example, under the old regime, an NRI selling a property purchased in 2001 for Rs 15 lakh and sold in 2024 for Rs 80 lakh would have paid Rs 5.11 lakh in taxes after indexation. Under the new regime, without indexation, the tax liability rises to Rs 8.12 lakh. However, in cases of significant appreciation, the new regime may result in lower tax liability.
Changes in Securities and Buyback Tax
NRIs will also face higher tax rates on capital gains from listed shares and securities, with the long-term tax rate increasing from 10% to 12.5%, and the short-term rate rising from 15% to 20%. Additionally, the Securities Transaction Tax (STT) on futures and options transactions has been increased by 60%, likely discouraging frequent trading.
The abolition of the buyback tax from October 1, 2024, is another significant change. While this move increases cash flow for investors, NRIs in the highest tax bracket will now face a 30% tax on buybacks, up from 20%.
Expert Insights
Experts suggest that the Budget 2024 changes present a mix of challenges and reliefs for NRIs. While the removal of indexation and increased tax rates will likely lead to higher tax liabilities, certain benefits such as increased exemptions and simplified tax slabs may offer some cushion. NRIs are advised to carefully assess the impact of these changes on their investment strategies and tax liabilities to make informed financial decisions.
