Published 9 May 2026
Section 54 of the Income-tax Act, 1961 reinvestment exemption, section 54EC bonds, section 54F where the seller has multiple houses, the post 23 July 2024 long-term capital-gains rate at 12.5%, the Form 13 lower Tax Deducted at Source route on sale consideration, and the repatriation framework
Taxpayer Brief
Selling Indian property as a Non-Resident Indian is a far more complex transaction than selling as a Resident. Section 195 of the Income-tax Act, 1961 imposes Tax Deducted at Source on the sale consideration, not on the capital gain -- meaning the buyer typically deducts ₹12.5 lakh of Tax Deducted at Source on every ₹1 crore of sale consideration. Add to that the section 54 reinvestment exemption that limits how the seller can use the proceeds, the section 54F restriction where multiple residential properties are involved, the section 54EC bond ceiling of ₹50 lakh per year, and the Reserve Bank of India's repatriation cap, and a typical Non-Resident Indian property sale needs three to four months of structured planning before signing the agreement to sell.
1. The Capital-Gain Computation -- Pre and Post 23 July 2024
Holding Period | Pre 23 July 2024 Regime | Post 23 July 2024 Regime (Finance Act, 2024) |
|---|---|---|
Land or building held more than 24 months | Long-Term Capital Gain at 20% with indexation under second proviso to section 48 | Long-Term Capital Gain at 12.5% without indexation under sub-section (1A) of section 112 |
Land or building held up to 24 months | Short-Term Capital Gain at slab rate | Short-Term Capital Gain at slab rate (unchanged) |
Election available? | Not relevant | For property acquired before 23 July 2024 -- choice between 20% with indexation and 12.5% without indexation, whichever is lower |
The grandfathering choice Sub-section (1A) of section 112, as amended by the Finance Act, 2024, allows a Non-Resident Indian who acquired the property before 23 July 2024 to choose between the new 12.5% rate without indexation and the old 20% rate with indexation -- whichever produces the lower tax. For property held for many years, the indexed-cost-with-20% route may still be cheaper; for property held for shorter periods or in low-inflation periods, the 12.5%-without-indexation route is cheaper. Run both numbers before electing. |
2. Tax Deducted at Source on the Sale Consideration -- Section 195
When a Non-Resident Indian sells immovable property in India, section 195 read with the First Schedule to the Finance Act prescribes Tax Deducted at Source on the entire sale consideration. The default rate post 23 July 2024 is 12.5% on Long-Term Capital Gain assets, plus surcharge, plus 4% Health and Education Cess -- effective 13% for non-surcharge cases, up to 14.95% in the 15% surcharge bracket. For Short-Term Capital Gain assets, the rate is 30% plus surcharge plus cess.
Asset Profile | Default Tax Deducted at Source Rate | Effective Rate (with 4% Cess; surcharge varies) |
|---|---|---|
Long-Term Capital Asset (held > 24 months) -- post 23 July 2024 | 12.5% under sub-section (1A) of section 112 | 13% to 14.95% |
Long-Term Capital Asset -- pre 23 July 2024 transfer | 20% under second proviso to section 48 | 20.8% to 23.92% |
Short-Term Capital Asset (held up to 24 months) | 30% under section 195 read with First Schedule | 31.2% to 35.88% |
Tax Deducted at Source on consideration, not on gain Critical point -- section 195 mandates Tax Deducted at Source on the sale consideration, not on the capital gain. A property bought for ₹50 lakh and sold for ₹2 crore generates a Long-Term Capital Gain of ₹1.5 crore -- but the buyer must deduct 12.5% on the full ₹2 crore (₹25 lakh), not on the ₹1.5 crore gain (which would have been ₹18.75 lakh). The over-deduction is recovered through the seller's Income Tax Return refund. Form 13 application under section 197 lets the assessing officer specify a lower rate based on the actual gain. |
3. Section 54 -- Reinvestment in a Residential House
Section 54 of the Income-tax Act, 1961 grants exemption to the seller of a long-term residential house if the capital gain is reinvested in another residential house in India within the prescribed period. The reinvestment must be in India -- a Non-Resident Indian who reinvests in a property abroad does not qualify.
Section 54 Condition | Specifics |
|---|---|
Asset sold | Long-term residential house (any holding period exceeds 24 months) |
Asset purchased / constructed | Residential house in India only |
Time-window for purchase | 1 year before to 2 years after the date of transfer |
Time-window for construction | 3 years from the date of transfer |
Number of new houses (post Finance Act, 2019) | Up to two houses if capital gain does not exceed ₹2 crore (one-time election only); else only one |
Cap on exemption (post Finance Act, 2023) | ₹10 crore -- excess capital gain remains taxable |
Holding period of new house | Cannot be transferred within 3 years of acquisition / completion -- otherwise the exemption is reversed |
Capital Gain Account Scheme | If reinvestment is not completed before the Income Tax Return filing due date, deposit the unutilised gain in the Capital Gain Account Scheme to preserve exemption |
4. Section 54EC -- Specified Bonds Reinvestment
Section 54EC offers an alternative exemption -- the seller invests the long-term capital gain (not the consideration) in specified bonds issued by Rural Electrification Corporation, National Highways Authority of India, Power Finance Corporation or Indian Railway Finance Corporation, within 6 months from the date of transfer. The investment is locked in for 5 years. The cap is ₹50 lakh per financial year per assessee.
Section 54EC Parameter | Position |
|---|---|
Eligible Asset Sold | Any long-term capital asset (not restricted to residential property) |
Eligible Investment | Bonds of Rural Electrification Corporation, National Highways Authority of India, Power Finance Corporation, Indian Railway Finance Corporation |
Time-window | 6 months from the date of transfer |
Lock-in period | 5 years from the date of investment |
Cap per assessee per financial year | ₹50 lakh aggregate across all section 54EC bonds |
Interest | Approximately 5.25% per annum, taxable in the year of accrual / receipt |
Repatriation | Maturity proceeds can be credited to Non-Resident Ordinary account; subject to the United States Dollar one million per year repatriation cap |
5. Section 54F -- Where Multiple Houses Already Held
Section 54F applies where the asset sold is not a residential house (a plot of land, commercial property, or any other long-term capital asset) but the seller wants the reinvestment exemption by buying / constructing a residential house. The exemption is proportional to the amount reinvested over the net consideration. Critical condition: the seller must not own more than one residential house (other than the new one) on the date of transfer; if the seller owns two or more residential houses, section 54F is not available.
6. Repatriation Out of India
Once the property sale closes and the proceeds are credited to the Non-Resident Indian's Non-Resident Ordinary account, the seller faces the Reserve Bank of India repatriation cap. Under the Foreign Exchange Management (Remittance of Assets) Regulations, 2016, an Authorised Dealer bank can remit up to United States Dollar one million per financial year out of the Non-Resident Ordinary balance, after Tax Deducted at Source compliance and Form 15CA / 15CB clearance.
Step | Action | Document |
|---|---|---|
1 | Tax Deducted at Source already deducted by buyer at sale closure | Form 16A from buyer |
2 | File Income Tax Return for the year of sale; claim section 54 / 54EC / 54F exemption; section 244A interest on excess Tax Deducted at Source | Income Tax Return-2 |
3 | Funds credited to Non-Resident Ordinary account | Bank statement |
4 | Apply for outward remittance under the United States Dollar one million per year window | Form A2 |
5 | Chartered Accountant certifies tax compliance in Form 15CB | Form 15CB |
6 | Self-declaration in Form 15CA (Part C for amounts above ₹5 lakh) | Form 15CA |
7 | Bank executes outward remittance to foreign bank account | Society for Worldwide Interbank Financial Telecommunication wire confirmation |
7. Worked Comparison -- Reinvest in India vs Take Money Abroad
Mrs. Sneha, an Indian citizen and Non-Resident Indian based in Toronto, sold her Bandra flat in November 2025 for ₹3 crore. The flat was acquired in 2010 for ₹40 lakh. Long-Term Capital Gain on transfer post 23 July 2024 = ₹3 crore minus ₹40 lakh (no indexation) = ₹2.6 crore. Tax at 12.5% = ₹32.5 lakh plus 15% surcharge plus 4% cess = ₹38.94 lakh. She has two options.
Option | Mechanism | Tax Liability | Cash Repatriated to Toronto |
|---|---|---|---|
Option A -- Section 54 reinvestment | Buy a new residential flat in India for ₹2.6 crore within 2 years; ₹2.6 crore exempted under section 54 | Nil capital gain; only Tax Deducted at Source refund accrues | Up to remaining ₹40 lakh after section 54; constrained by United States Dollar 1M / year cap |
Option B -- Section 54EC bonds (partial) | Invest ₹50 lakh in REC / NHAI / PFC / IRFC bonds within 6 months | Capital gain of ₹2.1 crore taxable; tax ₹26.25 lakh | ₹3 crore minus ₹50 lakh (locked in bonds) minus ₹26.25 lakh tax = ₹2.23 crore over 3 years (within USD 1M / year cap) |
Option C -- No reinvestment | Take the entire money abroad | Capital gain of ₹2.6 crore taxable; tax ₹38.94 lakh | ₹3 crore minus ₹38.94 lakh = ₹2.61 crore over 3 years |
BharatTax NRI Compliance Tool Is your Non-Resident status reflected in the income-tax department's Permanent Account Number database, and is your Permanent Account Number-Aadhaar status correctly tagged as exempt? Use the NRI Compliance Tool at itr.bharattax.co to verify, update residential status on the e-filing portal, and pre-validate your Non-Resident External or Non-Resident Ordinary bank account for any refund. |
8. Case Law Reference and Anticipatory Legal Analysis
Case Law Reference: Section 54 reinvestment exemption for NRIs Section 54 of the Income-tax Act, 1961 provides reinvestment exemption from Long-Term Capital Gain on residential house property. The Supreme Court in Commissioner of Income-tax v. T.N. Aravinda Reddy (1979) 120 ITR 46 (SC) and the Bombay High Court in [VERIFY: confirm High Court ruling on NRI section 54 reinvestment] addressed the section 54 framework for NRI capital-gain. The Income Tax Appellate Tribunal Mumbai in [VERIFY: confirm Tribunal citation on section 54 / 54F NRI applicability] confirmed that NRIs are eligible for section 54 / 54F exemption on Indian residential property reinvestment. [VERIFY: cross-check specific Tribunal citations in the BharatTax case-law database.] |
Prospective Interpretation -- The Capital Gains Account Scheme overlay Two unsettled interpretive issues. (i) Treatment of the Capital Gains Account Scheme (CGAS) for NRIs. (ii) Treatment of the section 54 / 54F new-property holding requirement -- the property must be held for three years post-acquisition; on disposal within three years, the section 54 / 54F exemption is recaptured. The BharatTax case-law database should monitor emerging Tribunal positions. [VERIFY: confirm Tribunal decisions emerging on the NRI section 54 / 54F framework.] |
9. Key Takeaways
- Long-Term Capital Gain on property sold post 23 July 2024 -- 12.5% without indexation; pre-acquisition property has the choice between old 20%-with-indexation and new 12.5%-without-indexation route.
- Section 195 Tax Deducted at Source is on sale consideration, not on capital gain -- gross over-deduction is the norm; Form 13 application under section 197 fixes this.
- Section 54 -- residential house exempt if reinvested in another residential house in India; up to ₹10 crore cap; one-time election for two houses if gain up to ₹2 crore.
- Section 54EC -- ₹50 lakh per year cap on bond reinvestment within 6 months; 5-year lock-in.
- Section 54F -- proportional exemption on consideration if no other residential house held; not available if seller already owns more than one residential house.
- Repatriation -- United States Dollar one million per financial year cap on Non-Resident Ordinary outflow; Form 15CA / 15CB compliance mandatory.
Disclaimer: This article is for general information only. It does not constitute tax / legal advice. Please consult a qualified Chartered Accountant or tax practitioner for advice specific to your circumstances. The legal position is current as of FA 2024 (No. 2) / FA 2025; subsequent amendments and CBDT notifications may modify the position.