Non-Residents Can Split Long-Term Capital Gains Between House Purchase and Plot, Remittance Rules Explained

India's Foreign Exchange Rules Allow NRI Residents to Remit Funds

A non-resident Indian (NRI) currently residing in Australia for the past seven years is seeking guidance on how to reinvest long-term capital gains (LTCG) from the sale of a residential property in Mumbai, purchased 20 years ago. Specifically, the individual wishes to understand the process for remitting maximum money to Australia after selling the property.

According to India's income-tax act, since the house in question has been held for more than two years, the profits from its sale will be treated as LTCG. Section 54 of the income-tax act provides a crucial exemption to individuals and Hindu Undivided Families (HUF) from LTCG arising from the transfer of a residential house, provided the gains are invested in another residential property in India within a prescribed time period.

However, a key caveat to this exemption is that the taxpayer can only use the LTCG for acquiring one residential house property in India, with the exception of a one-time opportunity to claim this exemption by investing the LTCG in two residential house properties in India, provided the amount of LTCG does not exceed Rs 2 crore.

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In the case of this NRI resident, since the LTCG does not need to be invested in the plot of land proposed to be purchased, the balance amount can be remitted to Australia. This is possible due to the Foreign Exchange Management Act (FEMA), which allows NRIs to remit up to $10 lakh every fiscal out of their non-resident ordinary (NRO) account.

Remitting Funds from NRO Account

The sale consideration of the house should be credited to the NRO account. To remit funds from the NRO account, a certificate from a chartered accountant and an online application in the prescribed form are required. Fortunately, for remittances up to $10 lakh, the Reserve Bank of India's permission is not necessary. However, for amounts exceeding $10 lakh, special permission from the RBI is required.

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