Jigar M. Patel
International Tax Attorney
India’s global diaspora continues to be a powerful source of economic support for the country, as fiscal year 2025 closed with a record USD 135.46 billion in remittance inflows, a 14% year-on-year rise. Let us look at some practical queries with respect to investments and taxation, when it comes to NRIs.
Inequity on Tax on Equity Gains in case of an NRI
Query: I am an NRI. During FY 2024-25, my taxable income in India comprised only of long-term capital gains (LTCG) of Rs.2,75,000 from equity shares. Would I be liable to pay any tax or file ITR for assessment year 2025-26?
Reply: Although your total income of Rs.2,75,000, representing LTCG is less than the basic exemption limit of Rs.3,00,000 for FY 2024-25, you would still be liable to pay tax. This is because under the proviso to section 112A(2), the benefit of set-off of the basic exemption limit against the amount of taxable gain is available only to a resident individual or HUF. Apparently quite iniquitous and even illogical, this tax discrimination needs to be addressed.
However, though being a non-resident, you can still claim the benefit of the exclusion of Rs.1,25,000 from the amount of taxable LTCG from equity. Accordingly, your taxable LTCG being Rs.1,50,000 (2,75,000 – 1,25,000), you would be required to pay tax of Rs.18,750 at 12.5% under section 112A.
Whether NRI can acquire agricultural land in India via gift?
Query: I am an NRI living in Australia for the past 6 years. My father, an Indian resident has some agricultural lands that he wishes to pass along to me, considering his growing age. I have a PAN card and Aadhar card. Wanted to know if he can gift me these lands and effect the change accordingly in the revenue records.
Reply: An NRI can freely acquire an immovable property, by way of gift or inheritance, either from a person resident in India or from another NRI. However, there is a restriction when it comes to agricultural land, plantation or farm house. The same cannot be acquired by an NRI by way of a gift, even if it is from a family member. Such agricultural land can only be received through inheritance or under a Will. Therefore, the only way you can receive the agricultural lands from your father is under his Will or by way of inheritance in the future.
Tax implications when buying immovable property from an NRI
Query: I am an Indian resident, planning to buy a house next door belonging to my neighbour, who is an NRI for the past few years. The sale transaction is expected to be around Rs. 2 crores. What are the things that I need to keep in mind in connection with the sale of property by my NRI neighbour?
Reply: When an NRI sells property, the buyer is required to deduct tax at source (TDS) under the provisions of section 195 on the amount of capital gains chargeable to tax, arising on the sale of the property in the hands of the NRI. TDS would be required to be made at the applicable rate (long-term or short-term), attracted on the facts of the case.
It is pertinent to note that the provision for TDS to be deducted by the buyer, from the amount of sale consideration at 1% under section 194-IA, is applicable only in the case of a resident seller. Since the seller in your case is an NRI and you are required to make TDS under section 195 as explained hereinabove, the simple procedure of TDS deduction by filing online challan Form 26QB would not be applicable in your case.
You would be required to obtain a Tax Deduction Account Number (TAN) for deducting tax under section 195 and subsequently file TDS statement in the prescribed Form 27Q.
