Non-resident Indians (NRIs) travelling to India to complete the sale of a property can claim eligible airfare and accommodation expenses as a deduction while calculating capital gains, provided they establish that the expenditure was incurred wholly and exclusively in connection with the transaction, the Income Tax Appellate Tribunal (ITAT), Bengaluru bench, has clarified.
The ruling came in the case of an NRI based in the US who sold a residential property in India for Rs 2.63 crore. The taxpayer had claimed Rs 12.01 lakh towards travel and accommodation expenses while calculating long-term capital gains. However, the Income Tax Department rejected the claim, questioning whether the expenses were directly connected with the property sale.
The tribunal examined the taxpayer’s travel records and distinguished between a visit to India for personal purposes and a trip undertaken specifically to complete the property transaction.
When can NRIs claim flight expenses against capital gains?
Under Section 48(i) of the Income-tax Act, 1961, taxpayers can deduct expenditure incurred wholly and exclusively in connection with the transfer of a capital asset while calculating capital gains.
In this case, the taxpayer had travelled from the US to India in November 2019, nearly two months before the property sale deed was executed on January 6, 2020. The tribunal did not consider the expenses from this earlier visit eligible for deduction against the property sale.
However, it took a different view of the taxpayer’s January 2020 visit. The NRI submitted flight tickets for travel between Chicago and Delhi, along with a hotel bill of Rs 93,125 for his stay in Bengaluru between January 5 and January 8.
The tribunal accepted that travelling to India for registration of the sale deed could be considered expenditure connected with the transfer of the property.
However, the flight tickets also included expenses for another family member. The tribunal, therefore, asked the Assessing Officer (AO) to examine the supporting documents, verify the eligible expenses and decide the deduction afresh.
This means the tribunal did not approve the entire Rs 12.01 lakh claim. The taxpayer will have to establish that the expenses being claimed were directly related to the property transaction.
What other expenses can NRIs claim while calculating capital gains?
Apart from travel expenses, the tribunal also examined other costs claimed by the taxpayer while calculating long-term capital gains.
It allowed Rs 21.60 lakh paid as interest on a home loan taken to purchase the property to be included in its cost of acquisition. The taxpayer had submitted income tax return records for assessment years 2007-08 to 2020-21 to establish that the interest had not already been claimed as a deduction under Section 24(b) of the Income-tax Act.
The tribunal also allowed indexation on the eligible home loan interest.
Further, it accepted a one-time maintenance deposit of Rs 2.29 lakh and an electricity and water deposit of Rs 1.71 lakh as part of the property’s cost of acquisition. The maintenance payment was necessary to obtain possession of the flat, while there was no evidence that the deposits had been separately recovered from the buyer.
What documents should NRIs keep when selling property in India?
The ruling highlights the importance of maintaining documentary evidence when claiming expenses against capital gains from a property sale.
NRIs travelling to India for such transactions should retain flight tickets, hotel invoices, sale agreements and property registration records to establish the purpose and timing of their visits.
Expenses related to family members, personal activities or trips undertaken well before the sale may not qualify. Where a journey involves both personal and property-related activities, taxpayers may need to establish which expenses were incurred exclusively for the transaction.
The key condition under Section 48 is that the expenditure must have a direct connection with the transfer of the capital asset. Merely travelling to India around the time of a property sale does not automatically make the airfare and accommodation costs eligible for deduction.