The Income Tax Appellate Tribunal (ITAT), Hyderabad Bench, in its recent decision dated 06 February 2026, has addressed an important issue concerning Non-Resident Indians (NRIs) claiming exemption under Section 54F of the Income Tax Act, 1961 while owning residential properties outside India.

This ruling highlights both the compliance obligations of NRIs and the powers of the Income Tax Department to revise assessment orders where proper enquiry has not been conducted. The decision is particularly relevant for NRIs who own residential property overseas and claim capital gains exemption by investing in residential property in India.

At Dinesh Aarjav & Associates, Chartered Accountants, we regularly advise NRIs globally on capital gains taxation, exemption eligibility, and tax-efficient structuring of investments in India.

Legal Framework of Section 54F

Section 54F provides exemption from long-term capital gains arising from the transfer of a capital asset (other than a residential house), if the taxpayer invests the net consideration in purchasing or constructing a residential house in India, subject to prescribed conditions.

One of the key conditions is that the taxpayer should not own more than one residential house, other than the new house being acquired, on the date of transfer of the original asset.

This provision is widely used by NRIs to optimize tax liability when reinvesting capital gains into residential property in India.

Facts of the Case

In the present case, the taxpayer, an NRI individual, earned long-term capital gains of approximately ₹9.97 crore and claimed exemption of ₹1.00 crore under Section 54F after investing in a residential house in India.

At the time of claiming the exemption, the taxpayer owned multiple residential properties, including:

• One residential house in India
• One residential house in Dubai
• One residential house in the United States

The Assessing Officer completed the scrutiny assessment under Section 143(3) and allowed the exemption as claimed by the taxpayer.

Revision Proceedings Initiated under Section 263

Subsequently, the Principal Commissioner of Income Tax examined the assessment records and observed that the Assessing Officer had allowed the exemption without proper verification of the taxpayer’s ownership of multiple residential properties.

The Commissioner invoked revisionary powers under Section 263, holding that the assessment order was erroneous and prejudicial to the interests of the revenue due to lack of adequate enquiry and verification.

The Commissioner accordingly directed fresh examination of the exemption claim.

Arguments Presented Before the Tribunal

The taxpayer contended that the exemption under Section 54F should not be denied merely because of ownership of residential properties outside India, particularly when the new investment was made in a residential house in India.

The taxpayer also submitted that the Assessing Officer had completed the assessment after reviewing the relevant details and therefore revision under Section 263 was not justified.

Tribunal’s Observations and Decision

After examining the facts and records, the ITAT Hyderabad made the following important observations:

Failure to Conduct Proper Enquiry

The Tribunal noted that the Assessing Officer had not conducted specific enquiry or verification regarding the ownership of multiple residential properties and its impact on eligibility under Section 54F.

The assessment order did not contain any findings or discussion on this crucial issue, indicating lack of proper application of mind.

Valid Invocation of Revisionary Powers

The Tribunal held that where an assessment order is passed without conducting necessary enquiry or verification, such an order may be considered erroneous and prejudicial to the interests of the revenue.

In such circumstances, invocation of revisionary powers under Section 263 is legally valid.

Matter Remanded to the Assessing Officer

The Tribunal did not decide the exemption eligibility on merits. Instead, it directed the Assessing Officer to re-examine the issue and determine eligibility after conducting proper enquiry and verification.

This provides the taxpayer with an opportunity to present relevant facts and legal submissions before the Assessing Officer.

Key Takeaways for NRIs

This ruling underscores several important considerations for NRIs:

• Ownership of residential property outside India may be examined when claiming exemption under Section 54F
• Proper enquiry and documentation are essential for supporting exemption claims
• Assessment orders can be revised where adequate verification has not been conducted
• Accurate disclosure of foreign assets and proper tax planning are critical to avoid disputes
• Professional tax advisory plays a crucial role in ensuring compliance and minimizing litigation risk

Professional Advisory for NRIs

NRIs with capital gains and foreign property ownership should carefully evaluate their eligibility before claiming exemptions under Section 54F.

Dinesh Aarjav & Associates, Chartered Accountants, provides comprehensive NRI advisory services, including:

• Capital gains tax planning and compliance
• Advisory on exemptions under Sections 54, 54F, and related provisions
• Tax structuring for foreign and Indian investments
• Preparation and filing of income tax returns in India
• Advisory on foreign asset reporting and regulatory compliance
• Tax planning for NRI returning to india and cross-border taxation matters

With over 25 years of experience and a global client base, our firm provides practical, compliant, and tax-efficient solutions tailored to the needs of NRIs.

Conclusion

The ITAT Hyderabad ruling highlights the importance of proper enquiry and verification in assessment proceedings involving exemption claims under Section 54F.

NRIs owning residential property outside India must ensure that exemption claims are supported by proper documentation and compliance with applicable tax provisions. Careful planning and professional guidance are essential to ensure compliance with Indian tax laws and avoid reassessment or litigation.

For professional assistance in NRI taxation, capital gains planning, and cross-border tax compliance, NRIs may seek expert guidance from experienced tax professionals.

Also Read: 

ITAT Delhi Ruling: Reassessment under Section 147 Invalid for Non-Residents Covered by Section 115A(5) – Major Relief for NRI and Foreign Companies

Supreme Court Caps TDS on Foreign Remittances at 10% Under DTAA | Section 206AA Cannot Override Treaty Benefits

ITAT Mumbai’s Landmark Ruling: Section 69 Cannot Override Section 5(2)

ITAT Mumbai Clarifies: Once Form 10EE Filed, Section 89A Relief Automatically Applies Every Year