The Income Tax Appellate Tribunal (ITAT) Mumbai bench has provided significant relief for family property transactions, ruling that absence of a formal gift deed cannot justify treating a property purchase as an 'unexplained investment' when the source of funds is clearly identifiable. In a May 27 order, the tribunal held that a man purchasing property in his daughter's name out of natural love and affection cannot be treated as a suspicious transaction merely because no formal gift deed was executed. This ruling reinforces an important principle that where a parent with disclosed sources of income directly funds property purchase in a child's name and the money trail is fully documented, additions for unexplained investment may not survive merely because no gift deed was executed. The latest developments show this principle being further reinforced in cases like Sanjeevani Sanjay Rane vs ACIT Mumbai, where the tribunal accepted that entire investment, including housing loan and related expenses, was funded by the husband while the wife's name was added only for convenience, deleting additions of ₹54.94 lakh made under Sections 69B and 56(2)(vii)(b).
For US NRIs purchasing land in India, the choice between using NRE or NRO accounts for the initial investment does not affect capital gains tax liability. According to Mint reports, from an Indian income-tax perspective, the taxability of capital gains on subsequent sale does not depend on whether the original investment was made out of NRE or NRO funds. The tax rate remains the same regardless of the account used for the initial purchase. This ruling aligns with the ITAT's recent decision that human probabilities and surrounding circumstances cannot be ignored while evaluating such transactions among close family members. Once the payment trail is established through banking records and the source of payment identified, the absence of a formal gift deed by itself cannot render the transaction as 'unexplained'. Legal experts emphasize that tax liability depends on actual source of funds and beneficial ownership, not whose name appears in the purchase agreement, with cases like CIT v. Ajit Kumar Roy (252 ITR 468) showing that even when property is registered jointly, tax liability is determined by the source of funds and beneficial ownership rather than legal title.
The taxation of land sales depends on the holding period. As reported by Mint, if the land is held for more than 24 months, gains qualify as long-term capital gains and are taxed at 12.5% plus applicable surcharge and cess. However, if the land is sold within 24 months from acquisition, gains are classified as short-term capital gains and taxed at the applicable slab rate in India, plus surcharge and cess. The India-US Double Taxation Avoidance Agreement (DTAA) does not offer any exemption or relief from capital gains taxation in India. This tax structure remains unchanged regardless of whether the initial investment was made through NRE or NRO accounts. In joint ownership scenarios, tax liability is generally determined by the source of funds and beneficial ownership rather than legal title, with cases like ACIT v. C.K. Malik (89 ITD 249) showing that where both spouses contribute to purchase and ownership shares are clearly identifiable, income and capital gains should be taxed in proportion to those ownership interests.
From a Foreign Exchange Management Act (FEMA) perspective, NRIs face significant restrictions on land acquisitions. According to Mint reports, an NRI is not permitted to acquire agricultural land except by way of inheritance. The procured land must be non-agricultural in nature. Additionally, sale proceeds can be credited only to an NRO account and can thereafter be repatriated outside India under the RBI's $1 million per financial year scheme. These restrictions significantly impact the practical aspects of land investment for NRIs. The ITAT ruling emphasizes that ordinary Indian family setups are neither uncommon nor unusual for property transactions between family members without formal documentation. Legal experts note that joint ownership can complicate property sales, succession matters, and marital disputes as consent of all co-owners is generally required, making clear documentation of ownership shares essential.
For NRIs making remittances from India, Form 145 must be filed for each payment to non-residents or foreign companies before the transfer. As per the latest regulations, the form has four parts based on remittance amounts: Part A covers remittances up to ₹ 5 lakh, Part B requires certificate u/s 395(1)/395(2) for amounts exceeding ₹ 5 lakh, Part C needs certificate in Form No. 146 from a chartered accountant, and Part D applies when remittances are not taxable under the Act. The form enables taxpayers to furnish information regarding payments to non-residents and foreign companies, with successful e-verification providing a transaction ID and acknowledgement number.
