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For Non-Resident Indians (NRIs) selling property in India, one of the biggest concerns is the high tax liability on capital gains, excessive TDS deduction on property sale, and the increasing number of income tax notices received after property transactions.
In many cases, NRIs end up paying significantly higher taxes simply because capital gains are computed incorrectly, eligible deductions are ignored, or tax filing in India is not done properly.
In an important taxpayer-friendly decision, the Bangalore Income Tax Appellate Tribunal (ITAT) has delivered a landmark ruling in the case of Santanu Arun Nandi vs ITO (AY 2020–21), providing significant clarity on:
This judgment is particularly relevant for NRIs in USA, UK, UAE, Canada, Australia, Singapore, and other countries who are selling property in India and need proper tax filing in India, capital gains computation, or assistance in replying to an income tax notice.
You may also read our earlier detailed analysis on a similar issue here:
Related Reading:
https://www.dineshaarjav.com/blog-detail/itat-bangalore-ruling-on-nri-property-sale-capital-gains
The taxpayer, an NRI residing overseas, sold a residential property in Bengaluru for approximately ₹2.63 crore and calculated Long-Term Capital Gains (LTCG) after claiming several deductions, including:
However, during assessment proceedings, the Income Tax Department disallowed multiple claims, significantly increasing taxable capital gains and resulting in a higher tax liability.
The matter ultimately reached the Bangalore ITAT, which examined whether these expenses qualified under Section 48 of the Income Tax Act, 1961.
This ruling has become highly relevant for NRI tax filing in India, especially in situations involving property sale scrutiny notices, capital gains mismatch notices, and income tax notice reply matters.
One of the most important questions before the Tribunal was:
Can an NRI deduct travel expenses incurred for travelling to India to complete a property sale?
The taxpayer argued that expenses incurred for:
were incurred “wholly and exclusively in connection with transfer”, making them eligible for deduction under Section 48(i) while calculating capital gains tax.
The Tribunal observed that:
The Tribunal clarified that:
Since the taxpayer had travelled to multiple cities and certain expenses did not directly correspond with the sale execution timeline, the Tribunal sent the matter back to the Assessing Officer for verification.
If you travel to India for:
you should maintain:
Proper evidence becomes critical during tax filing in India and while preparing an income tax notice reply for property sale transactions.
One of the most important parts of this ruling concerns:
Whether housing loan interest can be added to acquisition cost while computing capital gains
This issue affects thousands of NRIs who:
In this case, the taxpayer argued that:
Housing loan interest paid during ownership should be included in cost of acquisition because it was never claimed earlier as deduction.
The Tribunal ruled in favour of the taxpayer and held:
If housing loan interest has not been claimed under Section 24(b), it may be added to the cost of acquisition while calculating capital gains.
Further, the Tribunal also permitted:
This is a highly significant relief because indexation can substantially reduce taxable gains.
Example:
An NRI who paid ₹30 lakh in cumulative housing loan interest over years may be able to claim indexed cost, resulting in meaningful reduction in taxable capital gains.
This becomes extremely important where:
Another key issue examined by the Tribunal was:
Can maintenance deposits paid to builders be added to property cost?
The answer was:
Yes, if the payment was compulsory for obtaining possession of property.
The Tribunal held that:
If possession could not have been obtained without paying the one-time maintenance charge, then such payment forms part of:
This principle may apply to:
Many NRIs fail to include such costs while calculating capital gains, ultimately paying higher taxes than required.
The Tribunal also examined:
Whether electricity and water deposits paid during acquisition can be claimed while computing capital gains
The ruling held that:
Mandatory utility deposits linked to acquisition of property may qualify as acquisition cost.
Accordingly, electricity and water-related deposits were permitted to be included in cost.
For NRIs selling old residential properties, this ruling may help reduce overall taxable capital gains liability.
This judgment has major implications for:
1. NRI Tax Filing in India
A large number of NRIs file income tax returns in India without properly evaluating:
This often results in:
2. Income Tax Notices for Property Sale Transactions
Many NRIs receive:
In most situations, notices arise due to:
A technically drafted income tax notice reply supported by proper legal interpretation often becomes crucial.
3. Excessive TDS Deduction on Sale of Property by NRI
Under Indian tax law, buyers frequently deduct substantial TDS while purchasing property from an NRI.
However, actual tax liability may be significantly lower after considering:
Professional review can help determine whether:
Ignoring housing loan interest
Many NRIs fail to evaluate whether unclaimed housing loan interest can reduce capital gains.
Incorrect capital gains calculation
Failure to claim indexed acquisition cost may result in higher taxes.
Missing supporting documents
Lack of invoices and payment proof often leads to disallowances.
Ignoring DTAA provisions
NRIs in USA, UK, UAE, Canada, Australia, Singapore and Europe should review tax implications in both countries.
Improper tax filing in India
Incorrect ITR filing often triggers scrutiny or notice from the Income Tax Department.
Before filing taxes, NRIs should carefully review:
A proper review before filing may substantially reduce tax liability and minimise future litigation.
At Dinesh Aarjav & Associates, we specialise in:
NRI Tax Filing in India
NRI Property Sale Taxation
Income Tax Notice Reply
With 25+ years of experience, presence across multiple jurisdictions, and extensive work with NRIs, OCIs, expatriates and global Indian families, our team provides specialised cross-border tax advisory.
The Bangalore ITAT ruling in Santanu Arun Nandi vs ITO provides important relief for selling NRI property in india.
The decision confirms that:
For NRIs selling property in India, accurate capital gains computation, proper tax filing in India, and timely income tax notice reply can significantly impact tax liability and refund eligibility.
Visit Dinesh Aarjav & Associates for specialised support in NRI taxation, property sale tax planning, capital gains advisory, tax filing in India, and responding to income tax notices.
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