Multi-Million-Dollar Gain for NRI Property Owner: Tax Implications of 2024 Sale

Capital Gains on Sale of Plot of Land by NRI: Understanding the Tax Implications

The Ask Wallet Wise initiative received a query from a non-resident Indian (NRI) regarding the tax implications of selling a residential plot of land in India. The plot was allotted by HUDA, Haryana in 2004 and the NRI paid yearly installments until 2011 for a total amount of Rs 22 lakh. The possession letter was obtained in June 2014, and the plot was sold for Rs 18.5 crore. In this article, we will decode how capital gains are calculated for the sale of the plot and determine the tax liability.

Taxation of Capital Gains

The profit on sale of the plot of land by the NRI in India is taxable in India, even though the individual is a non-resident for tax purposes, as the capital gains have accrued in India. Since the plot was held for more than 24 months, the profits on sale of the plot shall be treated as Long Term Capital Gains (LTCG), which is the difference between the sale consideration and the cost of acquisition of the plot.

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Calculating Cost of Acquisition

For the purpose of calculating the gain, the NRI's cost shall include the sum contributed by them, presuming that the plot is not held jointly with their father and is owned exclusively by them. The sum contributed by the father is a gift made by him to the NRI. Although part of the payment was made by the father, the NRI's cost shall include the sum contributed by them.

Tax Liability

The tax liability does not make any difference whether the money was paid from the NRI's regular account or their NRO account. The NRI has the option to save capital gains if they invest the sale proceeds for the purchase/construction of a residential house property within the prescribed time period or invest the capital gains in capital gain bonds of specified financial institutions like Rural Electrification Corporation (REC), National Highway Authority of India, Power Finance Corporation (PFC), and Railway Finance Corporation (RFC) within six months from the date of sale of the plot.

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Tax Computation

In case the NRI does not want to invest the money either in a house or in bonds, they have to pay tax on such LTCG. The NRI has the option to pay the lower of tax computed at 20.6% on the indexed long-term capital gains or at 12.50% on plain long-term capital gains. The benefit of indexation shall be available from the date of allotment of the plot, as this is the date on which the NRI became the owner of the capital asset.