This article explains the benefits of Section 54, 54EC and 54F for NRIs looking to buy and sell real-estate in India.

📚 Table of Contents

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• How does Section 54, 54EC and 54F apply to NRIs?
  • What is Section 54?
  • What is Section 54EC?
  • What is Section 54F?
• How do you choose between Section 54 and 54EC for real estate sales for NRIs?
  • Taking Section 54EC benefit
  • Taking Section 54 benefit
  • Investing in Mutual Funds by Not taking either Section 54 or Section 54EC benefit
• How can NRIs save tax under Section 54F when buying a new house?
  • How does Section 54F work in practice?
  • Applying Section 54F to an under-construction house
  • Using the Google Sheets or Excel version of our Section 54F calculator

How does Section 54, 54EC and 54F apply to NRIs?

What is Section 54?

Under Section 54, you can save long-term capital gains (LTCG) tax if you have sold immovable property like land or buildings after holding them for 2 years or more. For property held for 2 years or sell, tax is applicable at slab rate.

The logic here for saving LTCG tax is like this:

• you sell a property for ₹1 crore and make, say 40 lakhs profit
• usually, you would be liable to pay LTCG tax on that 40 lakhs (maybe after adjusting for indexation if you are not an NRI)
• instead of paying the tax, you invest the ₹1 crore in a new residential property and save the complete capital gains tax
• the new house must be purchased within one year before or two years after the sale of the old house
• if the cost of the new house is less than the capital gains (here ₹40 lakhs), then the tax exempt gains is up to the cost of the new house. Otherwise, the entire LTCG is exempt
• this works in both old and new tax regimes since Section 54 applies to capital gains tax and not income tax
• Section 54 applies to both resident Indians and NRIs

What is Section 54EC?

Under Section 54EC, you can save long-term capital gains (LTCG) tax if you have sold immovable property like land or buildings.

The logic here is like this:

• you sell a property and make, say 20 lakhs profit
• usually, you would be liable to pay LTCG tax on that 20 lakhs after adjusting for indexation
• instead of paying the tax, you invest the 20 lakhs in certain bonds under Sec 54EC.
• these bonds pay out interest at around 5%, which is taxable at the slab rates
• you will get back 20 lakhs after 5 years, and there is no capital gains tax any more
• this works in both old and new tax regimes
• Section 54EC applies to both resident Indians and NRIs

What is Section 54F?

Introduced in 1983, Section 54F of the Income Tax act, as sourced from the Income Tax website, allows us to save capital gains tax if we sell mutual funds to buy a house.

The basic premise of this tax exemption is very simple:

• you wish to buy a house in India as an individual or HUF
• you sell Mutual funds, shares, gold etc, to buy the house
• on the date of the MF sale, you do not already own more than one house
• you don’t have to pay capital gains taxes (only if it is long term gains) on the MF/shares/gold you sold

There is an upper limit of Rs. 10 crores on the exemption amount under Section 54F as per Budget 2023.

How do you choose between Section 54 and 54EC for real estate sales for NRIs?

Taking Section 54EC benefit

We take the example of an apartment purchased in the 2010s and sold anytime after 23rd July 2024:

• The purchase value is ₹60 lakhs
• The sale value is ₹1.5 crores (₹150 lakhs)
• LTCG will be 150-60=90 lakhs
• 54EC bond investment = ₹50 lakhs
• LTCG tax 12.5% on 40 lakhs = ₹5 lakhs (you can invest the remaining ₹35 lakhs)
• Interest per year at 5% on bonds: ₹2.5L (pre-tax) for five years
• Maturity amount = ₹50 lakhs (tax-free) after five years

Under DTAA, you should apply for a foreign tax credit for ₹5 lakhs in your home country.

Taking Section 54 benefit

If you don’t want to take Section 54EC benefit and have a property deal lined up, you can save the entire ₹90 lakhs capital gains tax by investing the entire ₹1.5 crores.

Investing in Mutual Funds by Not taking either Section 54 or Section 54EC benefit

If you invest the complete post-tax capital gains in mutual funds, can you get higher returns?

Here is the same example: you either take 54EC, invest in a new property for investment (7% return in 5 years), or do neither and invest in Indian mutual funds by paying off the entire capital gains tax.

Heading	Section 54EC	Section 54	MF Investment
Capital gains	90.00	90.00	90.00
Bond investment	50.00	-	-
Taxable LTCG	40.00	90.00	90.00
12.5% LTCG tax	5.00	11.25	11.25
Bond interest (5y)	12.50	-	-
Investment in RE	-	90.00	-
MF Investment at 12%	35.00	-	78.75
Corpus after 5y	111.68	-	138.78
RE after 5y at 7%	-	126.23	-
Total	111.68	126.23	138.78

The 12% return in mutual funds is more than realistic if you see the median returns for a 5-year lump sum investment for AMFI data from 2013 to date:

Category	Any 5Y
Equity: Large Cap	14.12%
Equity: Mid Cap	17.44%
Equity: Small Cap	23.06%

The breakeven point, pre-tax, for section 54 and MF investment is real estate appreciating at 9% or more and mutual fund giving less than 12% over 5 years.

How can NRIs save tax under Section 54F when buying a new house?

How does Section 54F work in practice?

To understand Section 54F, we need to first understand a few terms:

• Original asset: this is the asset sold to buy the house. This can be Mutual funds, shares, gold etc. This cannot be another house which comes under Section 54
• Date of sale (DOS): date on which the original asset was sold
• New asset: the new house that is constructed / purchased. It must be in India
• What are the timelines: DOS must be within a year of purchase of the new asset. In case the new asset is being constructed, the construction must finish within three years of DOS
• the tax exemption is available only if you already own not more than one house. This rule is thus beneficial if you are buying your first or second house only. It also means that if you have taken the exemption once for your first house, you can take it again for your second house as well
• the capital gains must be long term

If your new house costs more than the mutual funds you sold, you can save lakhs in capital gains tax

If the cost of the new asset is X and the sale proceeds from original asset sales is Y, then

• if X ≥ Y, i.e. the new house is at least as expensive compared to the sale, then entire capital gains on original assets sale is tax-free
• if X < Y, then the capital gains exemption applies proportionally based on the cost of the new asset relative to the sale amount. For example, you sold 80 lakhs of assets and have a capital gains tax of 20 lakhs. The new house costs 60 lakhs. The capital gains exempt from tax will be 60/80 * 20 = 15 lakhs. The other 5 lakhs of capital gains will be taxable.

If another house is constructed/purchases within the same period (1 year for purchase / 3 year for construction) which is eligible for ‘income from house property’ i.e. given on rent, then the tax benefit received on the new asset construction is reversed and has to be paid in the previous financial year. This rule effectively means that:

• you sell 50 lakhs of mutual funds to buy a house (H1). The capital gains tax saved is ₹5 lakhs
• within 3 years of the sale of the MF, you buy/construct another house (H2)
• then the ₹5 lakh tax becomes payable in the financial year preceding the purchase of H2. This is of course not a problem if you don’t buy H2

If the new house is sold within three years of purchase / construction, the capital gains tax becomes payable in the financial year preceding the purchase of the house.

Applying Section 54F to an under-construction house

Constructing a house after returning to India is normal for many NRIs. This section deals with the rules for getting Section 54F exemption for such a house.

Every calculation is based on the agreement date. Depending on the state, this is also called allotment date or builder-buyer-agreement date

• Rule 1: your share/MF sale that gets 54F advantage has to happen within one year before and one year after the agreement date
• Rule 2: the house has to be constructed within 3 years of the agreement date which is measured by the registration date
• Rule 3: you cannot sell the new house before 3 years of the registration date
• Rule 4: the new house is your first or second house and not your third, fourth etc
• Rule 5: everything like shares, mutual funds, RSUs, gold etc is eligible for selling . Only real-estate is not eligible

Violation of any of the rules above will invalidate Section 54F exemption.

Our simple-to-use calculator gives you a quick answer while analysing the appropriate dates for selling mutual funds and other eligible assets to buy a house and save capital gains tax. If you have already purchased or have been allotted the house, you can use this calculator to find suitable dates for selling assets to finance the house purchase.

We have a large list of FAQs on this topic here: Frequently asked questions on Section 54F: the complete guide.

Using the Google Sheets or Excel version of our Section 54F calculator

We have an easy-to-use calculator for Section 54F exemption calculation that works in any browser using Google Sheets.

We will use Google sheets to create a simple calculator for this calculation. There is a link to download a pre-filled copy of the Google sheet via the button below.

Important: You must be logged into your Google Account on a laptop/desktop (and not on a phone) to access the sheet.

Get the Sheet

Please refer to the Sec54F tab of the sheet once you open it. You can export this Sheet to Excel using the File > Download Menu option.