Here’s a practical and legally sound tax planning strategy for an NRI who has sold agricultural land in India considering:
• They deposited the capital gain in CGAS under Section 54B, but
• FEMA restrictions prohibit them from buying agricultural land, and
• They wish to explore alternatives to reduce or avoid tax legally.
🔁 Step-by-Step Tax Planning for the NRI Seller of Agricultural Land
🧾 Situation Summary:
• Seller: NRI
• Asset Sold: Agricultural Land in India (presumed to be rural/agricultural and held for >2 years)
• Date of Sale: November 2024
• Capital Gain: Long-Term Capital Gain (LTCG)
• Current Plan: Claimed Section 54B and deposited in CGAS
• Problem: FEMA prohibits NRIs from buying agricultural land without RBI approval, so Section 54B likely fails.
✅ Tax-Saving Strategy:
1. ❌ Reassess Section 54B Claim (Withdraw if Not Eligible)
• Since Section 54B is not available to NRIs unless RBI approval is obtained to buy agricultural land, the exemption will fail if land isn’t purchased.
• Capital Gain will become taxable in FY 2024-25 (AY 2025-26) unless another valid exemption is used.
2. ✅ Explore Section 54EC Exemption – Bonds Option
➤ What is Section 54EC?
• Allows exemption from LTCG if you invest the gains in specified bonds within 6 months of sale.
• Eligible bonds: REC, NHAI, PFC, IRFC (available to NRIs too).
• Lock-in period: 5 years
• Max investment: ₹50 lakh
➤ ✅ Benefits:
• FEMA-compliant
• 100% LTCG exemption up to ₹50 lakh
• Low risk (government-backed)
➤ ⚠️ Deadline:
• Invest by May 2025 (within 6 months of Nov 2024 sale).
• If CGAS was used initially under Section 54B, you may withdraw from CGAS and use it for 54EC investment, but consult with AO/CA for procedural clarity.
3. ✅ Alternate Strategy – Section 54F (If Residential Property is an Option)
If the NRI has not claimed any exemption yet, and wishes to invest in a house in India, then:
• Purchase or construct a residential property in India within:
o 2 years (purchase), or
o 3 years (construction)
• Deposit in CGAS under Section 54F if not done yet.
• Conditions:
o NRI must not own more than one residential house in India on date of sale.
o The entire sale proceeds (not just capital gain) should be reinvested to claim full exemption.
🔁 Important: Cannot switch from 54B to 54F now unless a revised return is filed before the due date and CGAS was under 54F from the beginning.
4. 🧾 What if Nothing Works?
If:
• Section 54B is invalid
• 54EC deadline missed
• 54F not applicable
Then:
• Pay LTCG tax at 12.5% + cess
• Consider:
o Clubbing with other losses (like capital losses)
o Using DTAA provisions to claim credit if taxed elsewhere
o Gift to Resident Relative before sale (advance planning only)
🧮 Example Summary:
Particulars Amount (₹)
Sale Price 1.2 Cr
Cost 40 lakh
LTCG 80 lakh
👉 If 54EC bonds invested (₹50L):
• Exempted: ₹50L
• Taxable: ₹30L → ₹3.75L tax approx.
👉 If no exemption valid:
• Entire ₹80L taxable → ₹10L +SC+EC tax approx.
📌 Final Advice for the NRI:
1. Check if 54EC investment window is still open → Best FEMA-compliant option.
2. If missed, prepare to pay tax and file ITR accurately.
3. Avoid 54B unless RBI permission obtained — else risk of disallowance.
4. Do not switch to 54F casually — only if planning residential investment & conditions met.