I will be getting above Rs 2 crore from the sale of my grandfather’s property in Darbhanga. How do I invest this amount to avoid paying or minimise capital gain tax and get the benefit of tax exemption?

Ans: Here are some pointers to help you understand the options available regarding tax optimisation and indexation benefits for your situation in India. Remember, consulting a qualified tax advisor is crucial before making any investment decisions.

Capital Gain Tax and Exemptions:

In India, capital gains exceeding Rs 2 crore from the sale of immovable property (like land and buildings) are subject to a 20%

Long-Term Capital Gains (LTCG) tax.

However, you have two main options to avoid paying LTCG tax:

1. Invest in Residential Property:

• You can reinvest the Rs 2 crore or more (up to the total capital gain amount) in a new residential property within India within 2 years before or 1 year after the sale of the old property.
• This reinvestment fully exempts you from LTCG tax.
• Note that the new property must be purchased in your name, your spouse's name, or your minor child's name.

2. Invest in Capital Gain Bonds:

• You can invest up to Rs 50 lakh per financial year in specified bonds issued by the government under Section 54EC.
• This investment will partially exempt the invested amount from LTCG tax.
• The lock-in period for these bonds is 3 years.
• Remember, this option only covers a portion of the total capital gain.

Indexation Benefits:

• Indexation helps adjust the cost of acquisition of the asset for inflation, potentially reducing the taxable capital gain.
• You can use the Cost Inflation Index (CII) published by the government to calculate the indexed cost of acquisition.
• This will reduce your taxable capital gain, potentially lowering your tax liability.

Things to Consider:

• Both options above have specific requirements and limitations. Carefully evaluate your financial goals and risk tolerance before choosing an option.
• Consult a qualified tax advisor to understand the nuances of each option and its impact on your specific situation.
• They can also help you with indexation calculations and ensure you claim the maximum possible benefits.

Disclaimer:

This information is for general guidance only and does not constitute tax advice. Please seek professional advice from a qualified tax advisor before making any investment decisions.