Long-Term Capital Gains Taxation Implications for Non-Resident Indians Selling Residential Plots in India
Tax Liability on Sale of Residential Plot as NRI
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A recent query from an individual who was allotted a residential plot in 2004 by HUDA, Haryana is a prime example of the complexities involved in determining tax liability on the sale of a residential plot as a non-resident Indian (NRI). The individual paid yearly instalments until 2011, totalling Rs 22 lakh, and took possession of the plot in June 2014. They have since sold the plot for Rs 185 lakh.
The individual's tax liability arises from the sale of the plot, which is taxable in India, despite their status as an NRI. The capital gains have accrued in India, and the profit on the sale of the plot is treated as long-term capital gains (LTCG), which will be the difference between the sale consideration and the cost of acquisition of the plot.
Tax Calculation
| Component | Amount (Rs lakh) |
|---|---|
| Sale consideration | 185 |
| Cost of acquisition | 22 |
| Indexed cost of acquisition | (Indexed from 2004) |
The cost of acquisition includes the sum contributed by the individual, presuming that the plot is not held jointly with their father and is owned exclusively by them. The sum contributed by their father is a gift to them.
The tax liability on the LTCG is computed at 20.6 percent on the indexed long-term capital gains or at 12.50 percent on plain long-term capital gains. The benefit of indexation is available from the date of allotment of the plot, which is the date on which the individual became the owner of the capital asset.
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Investment Options
To save capital gains, the individual can invest the sale proceeds in the purchase or construction of a residential house property within the prescribed time period or invest the capital gains in capital gain bonds of specified financial institutions, such as Rural Electrification Corporation (REC), National Highway Authority of India, Power Finance Corporation (PFC), or Railway Finance Corporation (RFC), within six months from the date of sale of the plot.
If the individual does not opt for these investment options, they will have to pay tax on the LTCG at the applicable rate.
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