What are the Tax Exemptions available for a Non Resident India (NRI) / OCI / PIO for reducing the Capital Gains Tax from Property Sale in India?

According to the Income Tax Act and Section 54, first the Capital Gains needs to be calculated correctly, and then if there is a Long Term Capital Gains (LTCG) on the sale of property by a Non Resident Indian, ie: if an NRI sells a residential property after three years from date of purchase, the he can have  a tax exemption if he re-invests the proceeds in another residential property (within two years from date of sale), then the capital gains from property sale will be exempt to the extent of the cost of the new property.

For example, there is a Capital Gains of Rs.1 crore for a Non Resident Indian and the new property that the NRI has purchased is bought for Rs.80 lakh, then Rs 80 laks will be exempt from Capital Gains Tax and Rs.20 lakh will be treated as Long Term Capital Gains (LTCG). The residential property that you sell may either be a self-occupied property or one that was given on rent.

Can an NRI invest in Foreign Property to get the benefit of Capital Gains Tax in India?

In general, NRIs / OCI / PIO’s cannot invest the proceeds received from a Property sale in India, into a foreign property and avail the benefit of Section 54 and claim exemption from Tax in India.

However, there have been a few hearings with the Appellate tax authorities, who have held that exemption can be claimed under section 54 even if the new house is purchased outside India. It is important to clearly under the law and it is advisable to consult a proper International Tax consultant.

What is 54 EC Bonds and can NRI’s invest in 54 EC Bonds?

According to section 54EC of the Income-tax Act, if an NRI sells a property in India, in this case the residential property (after three years from the date of purchase) and invest the amount of capital gains in bonds of National Highways Authority of India (NHAI) and Rural Electrification Corporation of India (REC) within six months of the property sale, then the NRI  will be exempt from paying capital gains tax to the extent of the amount invested in the Bond. The bonds will remain locked in for a period of three years and the interest paid is Taxable.

However, we have seen in many Non Resident Indian capital gains from property sale computation, it may at times be a financially wiser decision to pay tax rather than to invest in these Capital Gains Bonds.

Tax Assist is a professional income tax consultancy in India for both corporate houses and individual tax payers; the latter comprising Salaried Individuals, Seafarers, Professionals and Non Resident Indians.

With the help of Tax Assist and its team of income tax professionals, taxpayers can minimize their Income Tax liability, maximize their net income and create opportunities to save for current and future needs while maintaining proper accounting standards and income tax returns which are compliant with the Law.