Section 54F Capital Gains Exemption 2026: 3 ITAT Rulings for NRIs

Legal basis: Section 54F, Income Tax Act, 1961 — Effective: ongoing (renumbered as Section 86 under the Income Tax Act, 2025, effective FY 2026-27). Source: Income Tax Act, 1961 (CBDT); ITAT Hyderabad rulings as reported by Business Today, April 2026. Last reviewed by CA Harun Raaj: September 2026.

Three Income Tax Appellate Tribunal (ITAT) rulings out of Hyderabad in 2026 have reshaped how NRIs and HNIs should approach Section 54F capital gains exemption claims. One taxpayer walked away with a ₹2.80 crore exemption despite the new property being registered in his sister's name. Another lost a ₹2.63 crore claim because a pre-sale gift of his house looked like paperwork dressed up as a transaction. If you are planning to sell shares, gold, commercial property, or any capital asset other than a residential house and reinvest the proceeds into a home, these rulings change what documentation you need before you file.

What Section 54F Says

Section 54F of the Income Tax Act, 1961 exempts long-term capital gains (LTCG) when an individual or HUF sells any long-term capital asset other than a residential house — shares, gold, commercial property, unlisted securities — and invests the entire net sale consideration in a new residential house in India.

Key conditions:

• The new house must be purchased within 1 year before or 2 years after the transfer, or constructed within 3 years.


• The assessee must not own more than one residential house (other than the new asset) on the date of transfer.


• The entire net sale consideration — not just the capital gain — must be invested; partial investment gives proportionate exemption only.


• Any amount not invested before the ITR due date must go into the Capital Gains Account Scheme (CGAS), 1988.

ITA 2025 note: Section 54F is renumbered as Section 86 under the Income Tax Act, 2025, applicable from Tax Year 2026-27 (FY 2026-27) onward. For AY 2026-27 (FY 2025-26 transactions), continue citing Section 54F under the 1961 Act in ITR-2/ITR-3.

Key point: Section 54F exemption depends on investing the entire net sale consideration and proving genuine beneficial ownership of the new house — legal title alone is not decisive.

Ruling 1: Property in a Sister's Name — ₹2.80 Crore Exemption Upheld

An NRI resident in the UK sold five villas generating LTCG of approximately ₹3.41 crore and claimed Section 54F exemption of ₹2.80 crore on a new residential property. The property was registered in his sister's name because he could not travel to India for registration.

He produced the builder's allotment letter in his own name, a ₹65 lakh booking advance paid from his bank account, ₹4.31 crore paid via a joint account with his father, a written declaration from his sister confirming she held no beneficial ownership, and a gift deed executed in his favour in January 2025.

ITAT Hyderabad upheld the ₹2.80 crore exemption, holding that relief "hinges not merely on legal title but on the genuineness of investment and beneficial ownership." (Source: Business Today, April 4, 2026; primary case citation unavailable.)

Planning point: If registration in your own name is not possible, document payment source, intent, and beneficial ownership comprehensively. A subsequent registered gift deed strengthens the position.

Ruling 2: Seven-Day Pre-Sale Gift — ₹2.63 Crore Exemption Denied

In a separate Hyderabad ITAT ruling from around the same period, a taxpayer gifted his existing residential house to his father just seven days before signing the sale agreement for the asset generating the LTCG, in an apparent bid to satisfy the one-house condition.

The tribunal found the seven-day gap suspiciously narrow, noted the taxpayer continued residing in the gifted property, and concluded there was no genuine transfer of possession or economic enjoyment. It denied the ₹2.63 crore exemption, calling the gift a "camouflage" arrangement, and held that courts examine "the real economic purpose of a transaction, not just its legal paperwork." (Source: WhalesBook, reported April 2026; primary case citation unavailable.)

Planning point: Any disposal of an existing house to meet the one-house condition must be genuine, completed well ahead of the sale, and independent of it.

Section 54 vs Section 54F: Know Which One Applies

Checklist Before Claiming Section 54F

Common Mistakes NRIs and HNIs Make

• Confusing Section 54 (sale of a residential house) with Section 54F (sale of any other long-term capital asset).
• Investing only the capital gain rather than the full net sale consideration, which caps the exemption proportionately.
• Buying two residential houses simultaneously, which generally disqualifies the claim, subject to the ₹2 crore LTCG two-house relaxation introduced by the Finance Act, 2019.
• Missing the CGAS deposit deadline for uninvested amounts before the ITR due date.
• Registering the new property in someone else's name without documenting beneficial ownership, payment trail, and intent.

Planning Points Going Forward

For NRIs selling shares or commercial property in India with sizeable LTCG, the timing and documentation of the new house purchase determines whether the exemption survives scrutiny. The one-house condition is tested on the date of transfer, so any pre-disposal of an existing house must be genuine, well-documented, and separated in time from the capital asset sale. For AY 2026-27 (FY 2025-26 transactions), continue to cite Section 54F under the 1961 Act; for FY 2026-27 onward, Section 86 of the Income Tax Act, 2025 governs the same relief.

This article summarises secondary reporting of ITAT rulings; primary case citations were not available at the time of writing. It is general information, not tax or legal advice, and individual facts change outcomes.

I'm CA Harun Raaj, Visakhapatnam.

If you're an NRI or HNI planning a property purchase to claim Section 54F, get in touch before you sign anything.

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See Also

• NRI Selling Property in India 2026: 12.5% LTCG, No Indexation

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