I inherited farmland in India — can I sell it as an NRI?
Inheriting it and selling it are governed by different rules, and the sale is the harder of the two. Two separate questions arise. Under exchange-control law the class of people who may buy agricultural land is restricted, so your buyer's status is a condition of the transaction rather than a detail of it. Under tax law, whether the land is a capital asset at all depends on where it sits in relation to defined municipal limits. A sale can be entirely possible and still fail at completion because nobody checked the first question until the papers were with the registrar.
Is agricultural land in India a capital asset for tax purposes?
Not automatically. The definition turns on location: whether the land lies within, or at what distance from, defined municipal limits. Land on one side of that boundary is treated as a capital asset and land on the other is not, with very different consequences on a sale. This is a question of fact to be established from the land records and the municipal boundary as it stands, not from what the land is used for or what the family has always called it. Boundaries also move as towns grow, so the answer your father was given may not be the answer today.
Who is allowed to buy agricultural land from an NRI in India?
Exchange-control law restricts the class of permitted purchaser, so this is not a question of who is willing to pay. It has to be settled before the agreement is signed, because a buyer outside the permitted class cannot cure the problem by paying more or by completing faster. In practice the buyer's status is established with documents at the outset and the agreement is drawn to reflect it. Where a sale has been agreed informally within a family or a village before anyone takes advice, this is the point at which the arrangement usually has to be reworked.
Can I send the proceeds of selling inherited farmland out of India?
Repatriation is a third question, separate from whether you may sell and separate from how the gain is taxed, and it is answered by the bank against its own documentary requirements. Satisfying the tax position does not by itself satisfy the remittance position, and clearing the remittance does not settle the tax. The practical consequence is that the evidence should be assembled while the sale is happening: the inheritance documents, the land records, the sale deed and the tax position on the gain. Reconstructing all of that a year later, to support a remittance, is much harder work.
Does the distance from the town boundary change tax on my farmland?
It can decide the whole character of the transaction, because the capital-asset definition is drawn by reference to defined municipal limits and distance from them. So the first piece of work on one of these sales is not a computation. It is establishing, from the land records and the current municipal boundary, exactly where the plot falls. Two plots in the same village can land on different sides of that line. Until it is settled there is no reliable way to say what the sale produces, and any number quoted beforehand is guesswork dressed up as advice.
Can I buy agricultural land in India now that I am an NRI?
Generally not. Exchange-control law restricts who may acquire agricultural land in India, and a non-resident is ordinarily outside that class, which is a different position from land you already hold or land that came to you by inheritance. People are often surprised by the asymmetry: holding and selling are possible, acquiring is not. If the aim is to consolidate a holding, add an adjoining plot or take over a relative's share, the question has to be asked before money moves, because an acquisition that should not have happened is considerably harder to unwind than one that was never made.
Do NRIs have to file an Indian tax return?
If you have Indian-source income above the filing threshold, or you want a refund of tax withheld at source, or you are claiming treaty relief — then yes. Interest, rent, capital gains on Indian shares or property, and TDS deducted at a rate higher than your real liability all commonly force or reward a return. Filing is also how a lower-rate treaty claim and a foreign tax credit get onto the record. See NRI tax return filing.
What is DTAA?
DTAA — a Double Taxation Avoidance Agreement — is India's term for a tax treaty. It allocates taxing rights between India and the other country, caps withholding on cross-border payments, and gives relief for income taxed twice by either exempting it or crediting the foreign tax. Relief is claimed, and from the Indian side that normally means a tax residency certificate, Form 10F and Form 67. See DTAA relief.
