The capital gains exemption under Section 54 of the Income-tax Act of 1961 has a stringent three-year lock-in period. The previously claimed exemption is revoked and becomes taxable if the taxpayer sells the newly acquired property within this time. Even after the Income-tax Act, 2025 was introduced and went into force on April 1, 2026, this provision is still in place.
The previously exempted capital gains will be regarded as income in the year of sale if the lock-in condition is broken after April 2026, according to transitional provisions under Section 536(2)(h) of the new law. For instance, the tax obligation will occur in the same fiscal year if the property is sold in FY 2026–2027. However, there is no requirement for a new return for the earlier year because the initial eligibility and exemption computation will still adhere to the rules under the older 1961 Act.
NRIs must present a current Tax Residency Certificate (TRC) in order to receive benefits under the India–UAE Double Taxation Avoidance Agreement. Companies must deduct tax at the ordinary domestic rate, which is usually 20% plus surcharge and cess, if they do not have a current-year TRC.
NRIs might not have instant access to the TRC because UAE officials typically only grant it after 183 days of stay in a calendar year. They are unable to claim lower taxes at the time of dividend payment in certain situations. However, they can file Form 41 with their income tax return after obtaining the TRC.
This enables them to obtain a refund of any excess tax deducted and claim treaty advantages, which lower the tax rate to about 10%. Although there is a delay in relief, the procedure guarantees compliance while allowing taxpayers to take advantage of international tax agreements.
