3 Income-Tax Exemptions NRIs Can Avail Of In India
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3 Income-Tax Exemptions NRIs Can Avail Of In India

3 Income-Tax Exemptions NRIs Can Avail Of In India
(Dreamstime)

Being a non-resident Indian or NRI, you are eligible for certain tax exemptions from your income generated from sources in India, including property.

In Budget Speech 2017-18, Finance Minister Arun Jaitley announced a reduction in the period of short-term capital gains from three to two years. What does it mean? So, if you sell a property within two years of its purchase, you will be liable for short-term capital gain at the rate of 30 per cent. On the other hand, if the same property sold after two years of purchase, it will be considered as long-term capital gain at the rate of 20 per cent. There is no disparity between these rates of taxes for NRIs or resident Indians.

However, NRIs are eligible for certain tax sops under the Income Tax (IT) Act over and above the exemptions available under section 80C. Let’s take a look at these exemptions.

Section 54
You can claim exemption under Section 54 of the IT Act if you invest your long-term capital gain from sale of a property in buying another residential property in India.

The exemption is limited to purchase of only one residential property from capital gains. The amount invested in buying such property may be higher than the capital gains, but the exemption is available only for the long-term. Also, you can claim this exemption on property purchased before one year of getting long-term capital from sale of a property. So, if you have bought a residential property in 2017 and sell another in 2018, the capital gains made out from the latter
can be adjusted with the former, while filing the IT return.

You can also claim the exemption if you utilise your capital gain in buying another residential property in the next two years. This exemption is available for buying only one residential property in India. You can also claim it for construction of a residential property, but, the construction must complete within three years.

What if you can’t buy another property for any reason? At times, NRIs do not get the desired property within two years. In such a scenario, deposit the amount of capital gain in an Indian bank, under the Capital Gains Account Scheme and you won’t have to pay tax on that amount.

Section 54F 

The exemption under section 54F is available on long-term capital gain from sale of a property other than residential property. In order to claim exemption under this section, you have to buy a residential property utilising the long-term capital gain from a property.
Moreover, the new property for which you avail of an exemption must not be sold before three years.

Section 54 EC

Besides investing long-term capital gains in buying another residential property, you can also invest in specific bonds issued by the government of India. This includes bonds issued by Rural Electrification Corporation (REC) and National Highway Authority of India (NHAI). These bonds can be redeemed after
three years of purchase In order to avail an exemption, you have to buy these bonds within six months of selling a property in India. Also, the maximum amount of investment in these bonds is fixed at Rs 50 lakh.

Please note that none of the above tax exemptions are available for buying an asset outside India.

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