Is a capital gain tax-free if new house is not in India?

Long-term capital gains tax is levied under section 45 of the Income Tax Act, 1961 (ITA), if assets such as shares and securities are held by the assessee for a period exceeding 12 months or exceeding 36 months in the case of any other assets. Sections 54 and 54F of the ITA exempt capital gains which are invested in a residential house within a year before or two years after the sale, or used to construct a residential house within a period of three years after the transaction took place.

Non-residents

These sections apply equally to non-resident Indians (NRIs). NRIs can claim the exemption under sections 54 and 54F of the ITA as neither section mentions that the new house property should be located in India. Thus if an individual or a Hindu undivided family (HUF) sells any long-term capital asset to purchase a new property outside India, exemption can be claimed under section 54 (sale of a residential house property) or under section 54F (sale of any long-term capital asset other than a residential house property).

Both of these sections restrict the exemption to an individual or a HUF, but do not decline the exemption on the basis of residential status. Thus an NRI, residing outside India and having foreign income, can claim exemption under sections 54 and 54F on the proceeds arising from the sale of any long-term capital asset in India.

Amitabh Chaturvedi is the managing partner of Mine & Young, where Utkarsh Tewari is a partner.