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Plot owner selling at 80 Lakhs: Can I save tax on long-term capital gains?

Ramalingam Kalirajan |6302 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Aug 06, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more

Asked by Anonymous - Aug 06, 2024Hindi

I bought a plot in 1996 at R.1.6 Lakhs. It is likely to fetch 80Lakhs if I sell. 1. Can I invest the sale proceeds in buying an apartment and save tax on long Term Capital Gains? 2. If so, what is the lead time I have to buy an apartment? Thanks.

Ans: Capital Gains Tax Analysis
Property Purchase Details

You bought a plot in 1996 for Rs. 1.6 Lakhs.
Its current market value is about Rs. 80 Lakhs.
This shows a significant increase in property value.

Capital Gains Calculation

Your capital gain would be around Rs. 78.4 Lakhs.
This is the difference between purchase and sale price.

Capital Gains Tax Analysis
Property Purchase Details

You bought a plot in 1996 for Rs. 1.6 Lakhs.
Its current market value is about Rs. 80 Lakhs.
This shows a significant increase in property value.

Capital Gains Calculation

Your capital gain would be around Rs. 78.4 Lakhs.
This is the difference between purchase and sale price.
It's a long-term capital gain as held for over 24 months.

Tax Saving Option

Yes, you can save tax by investing in a new house.
This is allowed under Section 54F of Income Tax Act.
You need to buy one residential house in India.

Time Limit for Purchasing New Property

You have two options for the time limit.
Buy within 1 year before the sale of your plot.
Or buy within 2 years after the sale of your plot.

Construction Option

If you plan to construct a house, you get 3 years.
This 3-year period starts from the date of sale.
Construction must be completed within this time.

Important Conditions

The entire sale proceeds must be invested in new house.
If partial amount invested, tax exemption will be proportional.
You shouldn't own more than one house on sale date.

Capital Gains Account Scheme

If you can't buy immediately, there's a safe option.
Deposit the money in Capital Gains Account Scheme.
This gives you time to find a suitable property.

Tax Implications

If conditions are met, you save tax on entire gain.
Any amount not invested will be taxable.
Tax rate on long-term capital gains is 20% with indexation.

Professional Advice

Consider talking to a Certified Financial Planner.
They can guide you on best tax-saving strategies.
This ensures you make the most of your property sale.

Finally

You have a good opportunity to save tax.
Plan your property purchase within the given time limits.
Proper planning can help you save a significant amount.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in

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