I have been living in Singapore for 15 years. In February 2025, I sold my old residential property and used the proceeds to buy a new residential property. I had claimed capital gains exemption at that time. I have to sell this property for some emergency purpose. What will happen to the exemption that I had claimed earlier?
– Name withheld on request
Under the Income-tax Act, 1961, exemptions such as those under Section 54 are subject to a three-year lock-in period. If the newly acquired residential property is transferred within this period, the exemption previously claimed is withdrawn and becomes taxable.
Transition clause
Following the repeal of the 1961 Act and the introduction of the Income-tax Act, 2025 effective 1 April 2026, such cases are governed by transitional provisions. Specifically, Section 536(2)(h) of the Income-tax Act, 2025 provides that where conditions attached to an exemption claimed under the ITA 1961 are violated after the commencement of the ITA 2025, the previously exempted amount is deemed to be income in the year of violation under ITA 2025.
Accordingly, if a property (in respect of which Section 54 exemption was claimed) is sold during FY 2026-27—i.e., within the three-year lock-in period but after the commencement of ITA 2025—the exemption will be taxed in the year of sale of such property, i.e., FY 2026-27 in your case.
However, the eligibility criteria, conditions and computation provisions will continue to be governed by the provisions of ITA 1961. Therefore, there is no requirement to file an updated return for FY 2024-25, and the capital gains income will become taxable in FY 2026-27.
I’m an NRI living in the UAE. I am a shareholder in a Pvt Ltd company in India which has declared an interim dividend this month. The company has asked me to provide TRC from the UAE and Form 41 if I want to take India-UAE DTAA benefits. However, I can get current year’s TRC only after I complete 183 days in CY 2026. Can I still submit Form 41 based on CY 2025 TRC and ask company to deduct lower TDS on dividend payout?
– Name withheld on request
It has been the general practice lately that the UAE Federal Tax Authority has not been issuing TRC to individuals before completion of stay in the UAE for at least 183 days during the relevant calendar year. However, Form 41 requires you to submit a valid TRC along with other prescribed details in order to avail DTAA benefits. Without a valid TRC, the form is considered incomplete for claiming treaty benefits.
Refund route
Since you do not currently have a valid TRC for CY 2026, you may not be able to claim DTAA benefits at the time of receiving the dividend. Therefore, the Indian company will deduct withholding tax at 20% plus applicable surcharge and cess, as per Indian domestic tax law.
However, once you obtain the TRC later in the year, you can file Form 41 in order to claim DTAA benefits while filing your income tax return in India for FY 2026-27. The dividend income can then be offered to tax at a concessional treaty rate of 10%. The excess tax deducted can be claimed as a refund while filing your return in India.
Harshal Bhuta is Partner at P. R. Bhuta & Co. CAs.
