How is sale of ancestral land taxed for NRIs?

—Name withheld on request 

Non-Resident Indians (NRIs) can sell land situated in India. The rules for taxation will be the same as for a resident taxpayer. However, an NRI may transfer agricultural land which has been acquired through inheritance, only to Indian citizens permanently residing in India. Sale of other types of properties don’t have such restrictions. 

Since the property has been held for a period exceeding 10 years, the gains from its sale shall be taxed as long-term capital gains (LTCG). For calculating capital gains, you will need the acquisition cost of the land. You may consider the cost of acquisition to the original owner for the same. You are also allowed to index the cost of acquisition using cost inflation index for the year of acquisition. For this purpose, you may consider the same year of acquisition as that of the original owner from whom you have inherited the land. 

Once it has been determined and indexed, reduce it from the total sale proceeds. The resulting figure is your capital gains. LTCG is taxed at 20%, with additional cess and surcharge as applicable. 

You are allowed to claim exemption on LTCG by investing them in another property or land as per the rules of Section 54F. The property may be constructed or purchased within one year before or two years after and must be situated in India. You should not own more than one residential house (other than the new one) on the date of transfer. You should not purchase within a period of 2 years or construct within 3 years of such date, any residential house (other than the new one). If you invest a portion of the sale proceeds, the exemption will be the proportion of the invested amount to the sale price or exemption i.e cost of new house x capital gains/net consideration. 

Archit Gupta is founder and chief executive officer, Clear.in.

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