The sell my property and got profit. I want to invest this profit in Long Term Capital Gain Bonds for 5 years. ( As per IT rules, it should be invested within 6 months from date of sell) Is it necessary to keep this profit in separate account in bank (Long term capital gain account) OR to keep it in normal saving a/c.?

Ans: To save tax, you need to invest at least Capital Gain part of the transaction, in :
(a). Purchase of a Residential Property, with in time limit of one year before or two years after the sale of property generating Capital Gain.
(b). Purchase Capital Gain Bonds, issued by NHAI etc.
(c). You may spend Rs.60 lakhs (Rs.90.00 - 30.00 lakhs), as per your choice.
(d). In your question, last option suggested by you seems to be a good choice, which will ensure increase in your monthly income and also take care of Capital appreciation (provided the property is residential).
Most welcome for any further clarifications. Thanks.

Ans: 1. Calculation of Long-Term Capital Gains
Step 1: Determine the Sale Price
Sale Price: Rs 85 lakhs (amount for which the property was sold)
Step 2: Determine the Cost of Acquisition
Initial Purchase Price: Rs 27 lakhs (as per registered document)
Step 3: Adjust for Inflation
To calculate LTCG, the cost of acquisition is adjusted for inflation. This adjustment is done using the Cost Inflation Index (CII) provided by the Income Tax Department.

CII for the Year of Purchase (2010): Refer to the index published by the government for the year 2010.
CII for the Year of Sale (2023): Refer to the index for 2023.
Step 4: Calculate Indexed Cost of Acquisition
Use the formula:


Step 5: Calculate the Long-Term Capital Gains
LTCG
=
Sale Price
−
Indexed Cost of Acquisition
LTCG=Sale Price−Indexed Cost of Acquisition

2. Tax Implications
As it is sold before July 2024, the long-term capital gains are taxed at 20% with indexation benefits. Additional tax benefits may apply depending on the investment options you choose.

3. Saving on Long-Term Capital Gains Tax
Investment in Residential Property
If you reinvest the gains into another residential property, you can claim an exemption under Section 54 of the Income Tax Act.

Conditions: The new property must be purchased within two years of selling the old property or constructed within three years. The exemption is applicable on the amount of capital gains reinvested.
Investment in Capital Gains Bonds
You can invest up to Rs 50 lakhs of capital gains in specified bonds under Section 54EC to claim an exemption. These bonds must be held for a minimum period of five years.

Eligible Bonds: The bonds are issued by the National Highway Authority of India (NHAI) or Rural Electrification Corporation (REC).
Investment in Rural Development Bonds
Under Section 54EC, you can also invest in rural development bonds. These bonds also have a lock-in period of five years.

Reinvestment in Residential Property
To fully utilize the exemption, reinvest the entire long-term capital gains amount into a new residential property. Ensure compliance with the time limits mentioned.

4. Final Insights
Here’s a summary of actions you can take:

Calculate Indexed Cost: Use the CII to adjust the cost of acquisition for inflation.
Calculate LTCG: Determine the gain by subtracting the indexed cost from the sale price.
Explore Exemptions: Consider reinvesting the gains in a new residential property or capital gains bonds to reduce or eliminate tax liability.
Implement these strategies to manage your tax liability effectively. Always ensure you comply with the conditions specified under the Income Tax Act for exemptions.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Hello;

I suppose this was a residential property and the property proposed to be purchased is also residential property and you do not own more then 2 houses at this time.

In this case you should purchase a residential house either 1 year before the date of sale/transfer or 2 years after the date of sale/transfer. In case you are constructing a house, then you have an extended time, ie. you will have to construct the residential house within 3 years from the date of sale/transfer.

Best wishes;