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:
a. NRI can avail exemption if long term
capital gains arising on sale of a residential property are re-invested in one
residential house property. The Government has extended the said benefit of
re-investment to two residential properties, effective from AY 2020-21 i.e. from
FY 2019-20 onwards.
b. The aforesaid benefit can be
exercised only when the capital gains on sale of residential property does not exceed Rs. 2 crores. It is
pertinent to note that the benefit of this provision can be availed, at the
option of the person only once in
c. 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,
2020), 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, 2023), 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, 2024).
d. The maximum deduction that can be claimed
will be restricted to Rs. 10 crore from AY 2024-25 (For eg. – If Capital gain amount is Rs.18 crore and the
assessee purchases a new house of 16 crore, the amount of exemption will be Rs.
10 crore only)
e. If NRI has not purchased/constructed the new residential house before July
31, 2022 or September 30, 2022, as applicable (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’ (CGAS) 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. However, if the amount
deposited in CGAS is not utilized wholly or partly in purchasing/construction of
the new residential house property within the timelines prescribed in paragraph
i(c) above , then such unutilized amount would be subject to LTCG tax in the 3rd
year from the date of transfer of old property.
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:
a. NRI can
reinvest the amount of LTCG arising on sale of residential
house in Tax saving bond issued by:
- National Highways Authority of
- Rural Electrification Corporation
- Bonds as may be notified by the
is to be made in the above specified bonds within 6 months from the date of sale of property.
investment in specified bonds should not exceed Rs. 50 lakhs and NRI is
required to hold specified bonds for a period of five years. However, if
the same is transferred or converted into money within 5 years then exempted
capital gains will be taxable in year of ‘’transfer/conversion’’
of such specified bonds.
any borrowings against security of these bonds shall tantamount to “conversion/transfer’’ of such specified
bonds into money.
iii. Investment in equity shares of a new eligible Indian company:
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
are several conditions to be complied with in order to claim this reinvestment
iv. Investment in units of specified fund:
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.