Hello Sir/Madam, After selling of my land in Bihar (approx 300dhur in 3 to 4 financial years), how to manage my finances? PLS Advise how to save capital gain taxes as i am alone who needs to handle it.

Ans: To save tax, you can acquire house property and get exemption u/s 54F. As per section 54F, if you want to buy a residential house property from long term capital gain from sale of shares then you must buy the residential house property 1 year before or 2 years from date of such transfer of shares or construct the house property within 3 years from date of transfer of such shares. If amount can not be utilised before filing return then amount should be kept in CGAS.

To get the benefit of Sec 54F, person should not own more than one house property on the date of transfer of asset and not on the date of acquiring new residential property.

Ans: You have to first calculate the capital gains after indexation and than you can either pay tax or invest in capital gain deposits.
Sunil Lala, CFP
https://m.facebook.com/slwealth/

Ans: Just wanted to understand, was the land in your brothers name when he passed away. If yes, then has the distribution happen as per your brothers written Will in place. If not, then as per Hindu Succession Act, it goes to Mother, Brothers wife and brothers children in equal proportions.

Only if none are present it goes to siblings unless you have taken proper NOC from Mother and Brothers wife.

Assuming this is in place, yes your portion of 15 lacs will be subjected to capital gains tax unless reinvested in 54EC bonds or residential house property (assuming conditions are satisfied).

Please consult your CA before moving ahead.

Ans: You’ve done well to ask this question before executing the transaction.
A capital gain of Rs. 40 lakhs is sizeable.
Your awareness of alternatives shows good planning.
Let’s assess your options carefully from all angles.

» Understanding the Type of Capital Gain

– Sale of empty land results in capital gain.
– If held for more than 2 years, it becomes long-term capital gain (LTCG).
– In your case, it is assumed to be LTCG.

– LTCG on land is taxed at 20% with indexation.
– Health and education cess at 4% will also apply.
– Effective tax will be about 20.8% on indexed gains.
– On Rs. 40 lakhs gain, tax will be around Rs. 8.3 lakhs.

» Gifting to Adult Child – Pros and Cons

– Gifting to an adult child is tax-free at the time of gift.
– There is no tax on the giver or receiver for gift of immovable property.

– But future capital gain will not disappear.
– The cost of acquisition is carried forward to the child.
– Holding period is also inherited.

– When the child sells the land, capital gain tax will apply.
– The child will pay tax based on your original purchase cost.
– Hence, capital gain remains the same. Only taxpayer changes.

– If your child has no other income, tax liability may reduce.
– But this is seen as tax avoidance strategy by IT department.
– If intention is only to save tax, it can raise compliance flags.

– Also, once transferred, control is lost.
– Future sale, timing, reinvestment – all will be in child’s hands.
– You may also expose family to potential disputes later.

– So, gifting to child does not erase tax liability.
– It just shifts the tax from you to your child.

– Hence, not a strong tax-saving tool in most cases.

» Investing in Capital Gain Bonds – Section 54EC

– You can invest in specified bonds under Section 54EC.
– These are bonds issued by REC, PFC, NHAI, IRFC, etc.
– Lock-in is 5 years, interest is taxable.

– Max investment allowed is Rs. 50 lakhs in a financial year.
– But in your case, capital gain is Rs. 40 lakhs. So it fits.

– Invest within 6 months from date of sale.
– Interest is approx. 5.25% to 5.5% currently.
– Interest is paid annually and taxable as per your slab.

– Advantage: Full exemption on capital gain tax.
– Disadvantage: Low return, and funds locked-in.

– Ideal if you don’t need money immediately.
– Also suitable if you're not looking for high returns.

– But returns post-tax may be less than 3.75%.
– Over 5 years, that’s quite low.

– Choose this route only if you’re risk-averse and want surety.

» Reinvestment in Residential Property – Not Preferred by You

– Section 54F allows exemption if capital gain is reinvested in house.
– But you already own two residential houses.
– So, Section 54F benefit is not available to you.

– Also, you clearly mentioned no interest in further real estate.
– So, we rule out this option.

» Paying Capital Gain Tax – And Reinvesting the Balance

– If you sell and pay LTCG tax, approx. Rs. 8.3 lakhs goes to tax.
– You get approx. Rs. 31.7 lakhs as post-tax proceeds.

– You can reinvest in mutual funds via SIP or lumpsum.
– This helps build long-term wealth.

– Equity mutual funds can generate 11–13% return over 8–10 years.
– This route gives better liquidity, growth, and flexibility.

– Unlike bonds, you are not locked-in for 5 years.
– You can access funds as per needs.

– You may pay tax again at time of redemption.
– But if sold after 1 year, gains up to Rs. 1.25 lakh are exempt.
– Gains above that are taxed at 12.5% only (new rule).

– Still, your overall tax burden stays lower compared to Section 54EC route.
– Over time, your corpus may also grow significantly.

» Why Not to Choose Index Funds or ETFs

– Many suggest index funds or ETFs for low cost.
– But these have major limitations.

– Index funds don’t offer downside protection in volatile markets.
– They just mimic the market. No active effort to protect capital.

– Actively managed funds are run by expert fund managers.
– They can adjust sector allocation, change stocks, exit weak bets.
– That helps in better returns and risk control.

– Especially in India, active funds often beat index funds.
– Index funds also carry hidden risks like tracking error.
– Returns may lag behind the actual index.

– Hence, for a strategic investment, choose actively managed funds.
– These work better for wealth creation with flexibility.

» Why Regular Mutual Fund Route Through Certified Planner is Better

– Direct plans look attractive due to lower expense ratios.
– But they offer no guidance, no review, no rebalancing help.

– Many investors underperform due to wrong fund choices.
– They also panic during volatility and exit at wrong time.

– Regular plans through a Certified Financial Planner (CFP) come with expert hand-holding.
– Planners help in choosing right schemes based on goals and risk.
– They also monitor and review performance regularly.

– More than return, what matters is staying disciplined and goal-focused.
– That is only possible through guided investing.

– Over long term, regular plan + CFP gives better net outcomes.
– This is true even after accounting for slightly higher expense ratio.

» Important Notes Before You Decide

– Do not rush the transaction.
– Keep all sale documents, purchase deeds, and registration records ready.
– Indexation benefit applies only with proper documentation.

– Consult a tax filing expert or CA before executing.
– Plan timeline so that you don't miss the 6-month window for bonds.
– Also watch your overall income to avoid higher tax slab due to capital gains.

– Avoid taking action just based on someone’s suggestion.
– Gifting property for tax evasion is often flagged by IT department.
– Always look for legally compliant and financially sound routes.

» Finally

– Gifting to adult child won’t eliminate capital gain tax.
– Capital gain bonds under 54EC give tax exemption, but with low return and lock-in.
– Paying tax and reinvesting balance in mutual funds gives growth, flexibility, and liquidity.
– Avoid index funds and direct plans.
– Prefer actively managed funds through a Certified Financial Planner.
– This keeps your wealth creation journey safe and systematic.
– Think long-term. Choose the route that suits your goals and comfort.

Best Regards,
K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

https://www.youtube.com/@HolisticInvestment