Exemption of Capital Gains u/s 54 Is Allowed Even When New Residential Property is Purchased in Foreign Country!

let us take example. Mr. X, a Non Resident had acquired a property in India. He left India and settled in USA. After twenty years, he sold the property in India for a huge sum. He wants to save on LTCG tax by purchasing a residential house , so that exemption from LTCG u/s 54 can be claimed. So, he purchases a house in USA Now question arises whether purchase of a house outside India makes him eligible to claim exemption u/s 54 of the I T Act?

In my opinion, Yes . The purchase of property outside India also makes a Non Resident eligible for exemption u/s 54 of the I T Act .The reasons are as follows:

1. Section 54 is applicable to both Resident and Non Resident equally.

2. The house property should be purchased. There is no restriction that the purchased house should be India only.

The Mumbai Tribunal judgment in case of Mrs. Prema P Shah vs ITO 282ITR (AT)211 [2006] is significant in this regard. In fact , this order of Tribunal not openly confirmed that the exemption u/s 54 is allowed even for purchase of residential house outside India , but also stated that in UK , even lease for 150 years can be considered purchase for the purpose of section 54 .

Briefly , the facts of the case was that Mrs Shah was a Non resident Indian. She sold her residential property purchased in 1983 for Rs 6million in 1992. Mrs Shah took another property at London on 150 years lease , and claimed exemption u/s 54 of the I T Act. The A.O disallowed the said claim for following reasons