Saving tax on sale of your residential house property

An NRI selling his / her residential house property in India attracts capital gains tax under the Income Tax law. If the residential house property has been held for more than 3 years, the income resulting on its sale is taxable as long-term capital gains.

This long-term capital gains tax can be saved by investing in any of the following:

I. New Residential House

Conditions to be satisfied: 

  • The amount of capital gains to be deposited in Capital Gains Account Scheme in a Nationalised Bank before the due date of filing tax return relating to the year in which residential house property is sold
  • New residential house in India should be purchased within 1 year before or 2 years after the date of sale or constructed within 3 years after the date of sale
  • If the amount of capital gains does not exceed INR 2 crores, amount of capital gains may be invested in two residential house properties in India
  • New residential house should not be transferred within 3 years of its acquisition 

II. Specified bonds 

5-year bonds issued on or after 01 April 2018 offered by Rural Electrification Corporation Limited or National Highways Authority of India.

Conditions to be satisfied: 

  • Amount to be invested shall be the amount of capital gains or Rs 50 lakhs, whichever is lower (maximum amount that can be invested is Rs 50 lakhs) 
  • To be invested within 6 months from date of sale of residential house property 
  • Lock in period of 5 years 

III. Equity shares of Eligible Start-up (available only up to 31 March 2021)

Conditions to be satisfied:

  • Net sale consideration to be invested in equity shares of eligible start-up 
  • Eligible start-up must utilise this amount for purchase of new asset 
  • Amount to be invested within due date of filing tax returns relating to the year in which residential house property is sold 

In all the above cases, the amount of exemption granted shall be the amount invested or the capital gain amount, whichever is lower. Also, if any of the specified conditions are violated, the amount of exemption granted shall be taxable in the year of violation. 

Disclaimer: The views / the analysis contained therein do not constitute a legal opinion and is not intended to be an advice. Readers of this document are advised to seek their own professional advice before taking any course of action or decision, based on this document.

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