Ans. NRI has the following options to claim exemption of LTCG tax on sale of residential house which is held for more than two years.
i. Reinvest in a residential house:
• At present, NRI can avail exemption if long term capital gains arising on sale of a residential property are re-invested in one residential house property. Recently the Government has extended the said benefit of re-investment to two residential properties., effective from AY 2020-21
• The aforesaid benefit can be exercised only when the capital gains on sale of residential property does not exceed Rs. 2 crore. It is pertinent to note that the benefit of this provision can be availed, at the option of the person only once in his lifetime.
• The exemption can be availed if a new residential house was purchased one year before the date of sale of the old residential house (i.e. by September 2, 2018), or purchases a new residential house within a period of two years from the date of sale of the old residential house (i.e. before August 31, 2021), or, construct a new residential house within a period of three years from the date of sale of the old residential house (i.e. on or before August 31, 2022).
• If NRI has not purchased/constructed the new residential house before July 31, 2020 (i.e. due-date for filing tax return for the year in which the old residential house is sold), and he would like to claim tax exemption then he has to open a banking a/c under the ‘Capital Gains Account Scheme’ with a Nationalized Bank and deposit the amount of Capital Gains and utilize the said deposits for purchasing/construction of the new residential house within the time lines prescribed above.
• Having obtained the tax exemption as above he must hold the new residential house for at least a period of 3 years from the date of its purchase/construction as otherwise he may lose the Tax exemption. If the same is sold before 3 years, while computing Capital Gains from sale of the said new residential house, the cost of acquisition of the new residential house shall be reduced by the amount of exemption claimed and thereby resulting into higher capital gains amount subject to taxation
ii. Invest in Specified bonds:
• NRI can reinvest the amount of LTCG arising on sale of residential house in specified bonds (carrying interest at around 5%) within 6 months from the date of sale of the property.
• The investment in specified bonds should not exceed Rs. 50 lakhs and NRI is required to hold the specified bonds for a period of five years.
iii. Investment in equity shares of a new eligible Indian company:
• NRI will be eligible to claim exemption in proportion of amount reinvested in equity shares of a new eligible Indian company or eligible start-up (as defined in Section 54GB of the Act) to the sales consideration received on sale of residential house.
• There are several conditions to be complied with in order to claim this reinvestment exemption.
iv. Investment in units of specified fund:
• The Government has provided for an additional amount of exemption of Rs. 50 lakhs that may be invested in the units of specified fund. However, no such specified fund has been notified till date.