NRI Selling Agricultural Land in India? Tax & Repatriation Guide

When a Non-Resident Indian (NRI) sells agricultural land in India, the tax treatment depends on whether the land is classified as a capital asset under the Income Tax Act, 1961. Below is a detailed guide on the taxation, compliance, and repatriation of sale proceeds.

Classification of Agricultural Land for Taxation

A. Rural Agricultural Land (Not a Capital Asset)

• If the land is located outside specified municipal limits, it is not considered a “capital asset” under Section 2(14) of the Income Tax Act.
• No capital gains tax applies if an NRI sells such land.
• However, if agricultural land is held as stock-in-trade (e.g., for business purposes), then business income tax may apply.

B. Urban Agricultural Land (Capital Asset)

• If the land falls within specified municipal limits, it is considered a capital asset.
• Sale of such land attracts capital gains tax.

Capital Gains Tax Implications

A. Short-Term Capital Gains (STCG)

• If held for less than 24 months, profits are treated as short-term capital gains.
• Tax rate: As per the applicable income tax slab rate.

B. Long-Term Capital Gains (LTCG)

• If held for more than 24 months, profits are long-term capital gains.
• Tax rate:  sale on or Before 23/07/2023 20% (plus applicable surcharge and cess).
  • : Sale After 23/07/2023   12.5% (plus applicable surcharge and cess).
• Indexation benefit: Available to reduce taxable gains.

Tax Deducted at Source (TDS) on Sale of Land

• Under Section 195, the buyer must deduct TDS before making payment to the NRI seller:
  • For LTCG → TDS @ 20%/12.5%  (plus surcharge & cess)
  • For STCG → TDS @ slab rate of the NRI
• The NRI can apply for lower TDS deduction under Section 197 by filing Form 13 with the Income Tax Department.

Capital Gains Exemptions for NRIs

NRIs can claim exemptions under the following sections if they reinvest the capital gains:

• Section 54B: If another agricultural land is purchased within 2 years.
• Section 54EC: Investment in specified bonds (NHAI, REC) within 6 months, up to ₹50 lakh.
• Section 54F: If full sale proceeds are used to buy a residential property within 2 years or construct within 3 years.

Repatriation of Sale Proceeds

NRIs can repatriate the sale proceeds subject to RBI regulations:

• If the land was acquired using foreign funds, proceeds can be repatriated up to the original investment amount.
• If acquired using rupee funds, repatriation is limited to $1 million per financial year under the Liberalized Remittance Scheme (LRS).
• Form 15CA & Form 15CB (issued by a Chartered Accountant) are required before repatriation.

Compliance & Documentation

1. Sale Agreement & Title Deed – Proper legal documentation is required.
2. PAN Card – Essential for tax calculation and compliance.
3. TDS Deduction – Buyer must deduct TDS and file Form 26QB.
4. Capital Gains Tax Payment – File ITR and pay taxes, if applicable.
5. Repatriation Approval – Obtain clearance from a CA using Form 15CA/15CB.

Summary Table

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