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Tax Expert - Answered on May 19, 2023

CA Tejas Chokshi has over 20 years of experience in financial planning, income tax planning, strategic and risk advisory, banking and financial products and accounting and auditing.
He is an information system auditor, a forensic auditor and concurrent bank auditor.
Chokshi, who has a master’s degree in management, audit and accounting from Gujarat University, has completed his CA from the Institute of Chartered Accountants of India.... more

Question by Ravindra on May 11, 2023Hindi

I sold the house and got a profit. Now I want to invest this Long Term Capital Gain to purchase Plot. Is it possible to purchase the plot ?

Ans: In India, you can utilize the long-term capital gains from the sale of a house to purchase a plot of land and potentially avail certain tax benefits. The provisions related to the reinvestment of long-term capital gains are covered under Section 54F and Section 54EC of the Income Tax Act, 1961. Here's an overview of these provisions:

Section 54F - Exemption on Investment in Residential Property: Under this section, if you have sold a residential property (other than an inherited property) and have made a long-term capital gain, you can claim an exemption from capital gains tax by investing the proceeds in a new residential property. However, there are specific conditions that need to be met:

a. Investment in Residential Property: The entire amount of the long-term capital gains must be invested in purchasing a new residential property within one year before or two years after the date of sale of the original property. Alternatively, you can construct a residential property within three years from the sale of the original property.

b. Ownership and Lock-in Period: The newly purchased or constructed residential property should be held for a minimum of three years. If you sell or transfer the new property within this lock-in period, the capital gains exemption claimed under Section 54F will be revoked.

c. Restrictions on Multiple Properties: It is important to note that if you own more than one residential property, except for the new property being purchased or constructed, you will not be eligible to claim the exemption under Section 54F.

Section 54EC - Investment in Specified Bonds: Under this section, if you have made long-term capital gains from the sale of any asset, including a house, you can claim an exemption by investing the capital gains amount in specified bonds issued by the National Highway Authority of India (NHAI) or the Rural Electrification Corporation (REC). Here are some key points:

a. Investment in Bonds: The entire long-term capital gains amount must be invested in these specified bonds within six months from the date of sale of the original asset.

b. Lock-in Period: The specified bonds have a lock-in period of five years. You cannot transfer or sell the bonds before the completion of this period.

c. Limit on Investment: There is a maximum limit of Rs. 50 lakh for investment under Section 54EC in a financial year. If the capital gains amount exceeds this limit, you can only claim an exemption up to Rs. 50 lakh.

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