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Quick answer: an NRI who sells a flat in India at a long term gain can reduce the final tax by putting the gain into another house in India (the old section 54) or into specified bonds (the old section 54EC). From 1 April 2026 these are sections 82 and 85 of the Income-tax Act, 2025. Each has a deadline and a cap, and neither stops the buyer from deducting tax when you are paid. A planned reinvestment is not an exemption you already hold.
This is general information and not tax advice. The Income-tax Act, 2025 renumbered the capital gains sections from 1 April 2026, and the section numbers and conditions below should be checked with a chartered accountant against the current Act before you sell. This guide is independent and has not been reviewed by a lawyer or a chartered accountant.
Old and new section numbers
| Old section | From 1 April 2026 | What it is for |
|---|---|---|
| Section 54 | Section 82 | Long term gain on a residential house, reinvested in another house in India |
| Section 54EC | Section 85 | Long term gain on land or a building, put into specified bonds |
| Section 54F | Section 86 | Long term gain on an asset that is not a house. Not for the sale of a flat |
The mapping comes from the text of the 2025 Act as reproduced on tax reference sites (see section 82, section 85, section 86 and a mapping table). Check it on the income tax portal.
Two different things: final tax and the deduction at payment
The exemption reduces your final capital gains tax, which is worked out in your return. The buyer’s deduction is a withholding on each payment, and it is usually on the whole sale price. Claiming an exemption later does not stop the deduction. If you want less held back, ask your accountant about a lower deduction certificate before the sale. The department’s Form 128 FAQ explains the application. See the guide to the lower TDS certificate (Form 128) and the NRI property-sale TDS guide. If too much was deducted, see the NRI TDS refund guide.
Section 82: reinvesting in a house
- Who and what. It applies to an individual or HUF. The text has no residence condition, so an NRI can qualify. It is for long term gain on the sale of a residential house, and the new house must be in India.
- Time to reinvest. Buy the new house within one year before or two years after the sale, or build one within three years after the sale.
- If you have not reinvested by the return due date. Deposit the unspent gain in a specified bank or institution under the scheme the Central Government notifies (known under the old law as the Capital Gains Account Scheme), and file the proof with your return. Confirm with your bank which scheme and account apply to an NRI.
- If the money is not spent in time. The unspent deposit becomes taxable in the year the three year period ends.
- Holding the new house. If you sell it within three years, its cost is reduced by the gain that was exempted.
- Caps. Cost of the new house above Rs 10 crore is ignored. There is also an option for two houses where the gain is up to Rs 2 crore, available once in a lifetime.
Section 85: specified bonds
- It applies to long term gain on land or a building, so it can suit a flat sale.
- Invest within six months of the sale.
- The cap is Rs 50 lakh in a tax year, or across the year of the sale and the next tax year.
- The lock in is five years. Selling the bond, converting it to money, or taking a loan or advance against it makes the gain taxable.
- The Act names bonds issued by NHAI or REC after 1 April 2018, and others the Central Government notifies. Broker pages list more issuers, and sources disagree on what is currently on offer. Check the current notification and the issuer’s offer document, and confirm availability from abroad with your investment adviser.
- You cannot claim the same investment under the section that replaced section 80C.
Section 86 is not for a flat sale
Section 86 covers long term gain on an asset that is not a house, such as land or shares, and asks for reinvestment of the net sale proceeds in a house. If you are selling a flat, the route is section 82 and section 85.
The rate, in short
The text of the Act sets long term capital gains tax at 12.5% without indexation, and the indexation option for property bought before 23 July 2024 is limited to residents (see the Act’s section 197 and the Business Standard and ICAI journal explainers). Surcharge and cess are added. A flat is generally long term if held for more than 24 months, which your accountant should confirm. The rate is for the final tax, and the rate used for the deduction at payment can differ. Ask your accountant to work out both.
A worked outline, with assumed numbers
This is an illustration with assumed numbers. It is not advice and it ignores surcharge, cess and costs.
| Amount | |
|---|---|
| Long term gain | Rs 40,00,000 |
| Spent on a new house in India within the time limit | Rs 25,00,000 |
| Gain left that is not covered | Depends on the rules for the proportion of the net sale value spent. Your accountant computes it. |
| Gain put into bonds within six months | Up to the Rs 50 lakh cap, if you choose that route |
The point of the example is the structure. You choose a route, meet its deadline, and prove it in your return. Missing a deadline makes the gain taxable for that year.
Deadlines to put in your calendar
| Event | Deadline |
|---|---|
| Buy a new house | One year before to two years after the sale |
| Build a new house | Within three years after the sale |
| Deposit unspent gain in the scheme account | By the return due date |
| Invest in specified bonds | Within six months of the sale |
| Hold the bonds | Five years |
| Hold the new house | Three years, or the cost is reduced |
Money, repatriation and your return
- Money put into a new house or bonds is spent in India. Whether and how later proceeds can go abroad follows the repatriation rules. See the guide to sending property sale proceeds abroad.
- Claim the exemption in your return and attach the proof. See the NRI income tax return guide.
- If you are buying the new house, see the checklist for choosing between an under-construction and a ready flat and the NRI flat possession checklist.
Mistakes to avoid
- Counting a plan to reinvest as an exemption you already hold.
- Missing the six month bond window because the sale money was slow to arrive.
- Spending the deposit on something that does not qualify.
- Assuming the exemption will stop the buyer’s deduction.
- Using old section numbers on a 2026 return.
For the sale itself, see the step by step guide to selling your flat as an NRI.
Frequently Asked Questions
Which reinvestment exemptions can an NRI use on a flat sale?
Reinvesting in another house in India (section 82 from 1 April 2026, formerly section 54) and investing in specified bonds (section 85, formerly 54EC). Section 86 is for assets other than a house.
Does the exemption stop the buyer from deducting tax?
No. It reduces your final tax. The deduction at payment continues unless you hold an applicable lower deduction certificate.
How long do I have to reinvest in a house?
You can buy within one year before or two years after the sale, or build within three years after. Unspent gain has to be deposited under the notified scheme by the return due date.
How much can I put into the specified bonds?
The Act’s cap is Rs 50 lakh in a tax year, or across the year of sale and the next year, with a six month window and a five year lock in.
Is there a cap on the house exemption?
Cost of the new house above Rs 10 crore is ignored under the Act’s text.
Is the capital gains rate lower for an NRI?
The long term rate in the Act is 12.5% without indexation, and the older indexation option is for residents only. Surcharge and cess are added.
Where do I claim the exemption?
In your income tax return for the year of the sale, with proof of the reinvestment or the scheme deposit.
Sources
| Point | Source |
|---|---|
| Sections 82, 85 and 86 of the Income-tax Act, 2025 | section 82, section 85 and section 86 (reproduced text) |
| Section mapping | TaxClue |
| Long term rate | section 197, Business Standard and ICAI journal |
| Lower deduction application | Income Tax Department |
Reviewed on 29 October 2026. The section text was read from reproductions of the Act, not the government gazette. Confirm the section numbers, the notified scheme and bond issuers, the holding period and the surcharge with a chartered accountant before you sell. This guide has not been reviewed by a lawyer or a chartered accountant.
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