Purchase of residential house by a foreign national (Indian origin, not holding Indian passport)

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Quick Summary

Individuals of Indian origin residing abroad can purchase residential property in India. Funds can be transferred from foreign accounts to an NRE account for the purchase, subject to RBI and FEMA guidelines. Capital gains tax applies upon sale, with rates differing for short-term and long-term holdings. Eligibility for capital gains tax exemption under Section 54 is available if specific conditions, including reinvestment timelines, are met.

Gaurav Haldia

Gaurav Haldia (Querist)
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01 December 2025 A person who was born in India but now staying outside India wants to buy residential property in India. To be specific, currently the person does not have OCI status as well (in process). He has a NRE bank account in India. The queries are as follows:
(a) Fund transfer - Can the person transfer funds from a foreign bank account to NRE bank account for payment for the property? Are there any issues or considerations?
(b) Tax implications upon sale of property?
(c) The person already has a house property in India which he will transfer and invest that amount also in the new house property. Will he be eligible for capital gain tax exemption under section 54 of the Act?

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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02 December 2025 Fund Transfer to NRE Account
A person born in India but residing abroad (treated as NRI if Indian citizen) can transfer funds from a foreign bank account to their NRE account for residential property purchase, as NRE accounts accept foreign currency inflows freely under RBI guidelines. No specific issues arise if the buyer qualifies as NRI or OCI (application in process does not block), but PIOs without OCI require prior RBI approval to buy immovable property. Ensure compliance with FEMA for payments through banking channels to avoid scrutiny on frequent transactions resembling real estate business.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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02 December 2025 Tax Implications on Sale of Property
• Capital Gains Tax:
• If held >24 months, gains are long-term capital gains (LTCG) taxed at 12.5% (flat, without indexation) as per Budget 2024–25 changes.
• If held ≤24 months, gains are short-term capital gains (STCG) taxed at 30%.
• TDS Deduction:
• Buyer must deduct TDS under Section 195 on the entire sale consideration (not just gains).
• Rates: 12.5% for LTCG, 30% for STCG.
• Repatriation: Sale proceeds can be repatriated abroad up to USD 1 million per financial year from NRE/NRO accounts, subject to documentation.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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02 December 2025 Section 54 Capital Gain Exemption
- Eligibility: Section 54 applies to individuals and HUFs, including NRIs.
- Conditions:
- Sale of a residential house property in India.
- Reinvestment of capital gains (not entire sale proceeds) into purchase or construction of another residential property in India.
- Timeline:
- Purchase within 1 year before or 2 years after sale.
- Construction within 3 years after sale.
- Limitations:
- Exemption restricted to one residential property.
- From FY 2023–24, exemption capped at ₹10 crore of reinvested capital gains.
- Your Case: Since the person already owns a house and plans to sell it and reinvest in a new house, Section 54 exemption is available provided timelines and conditions are met.

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