Retired couple seeks advice on tax-saving investments after selling property

I sold a property for Rs130 lacs in this month. I bought it for Rs.18 lacs in August 2005. I bought in joint name of self and spouse. I got the sales payment equally in both names. We do not wish to buy another property as I am over 70 years of age and my wife over 67 years. How much should we each invest in CG Tax saving bonds to get exemption ? Both of us are filing returns separately.

Ans: 01. Based on available information, you may opt for LTCG with Indexation.
02. CG Tax Saving Bonds may be purchased for Rs.35.00 lakh each. It may reduce your tax payment significantly.
03. Please ensure to : (a) Purchase of Bonds with in 6 months from the date of sale of property & (b) Filling of your ITRs in time.
Most welcome for any further clarification. Thanks.

Ans: You are 40 years old.
Your wife is 33 and she is also working.
You have invested Rs. 6.5 lakhs in mutual funds over 7 years.
Now, the value is Rs. 10 lakhs.
You are planning to buy a land property.
You want to withdraw this amount for the down payment.
You already own one house without any outstanding loan.
You want to know the Long-Term Capital Gains (LTCG) tax situation.

Let’s understand your case from a 360-degree angle.

Understanding LTCG from Mutual Funds

You invested Rs. 6.5 lakhs

It has grown to Rs. 10 lakhs

The gain is Rs. 3.5 lakhs

This is considered Long-Term Capital Gain (LTCG)

LTCG from equity mutual funds has new tax rules

As per new rule:

LTCG above Rs. 1.25 lakhs is taxed at 12.5%

Gains below Rs. 1.25 lakhs are tax-free

The taxable LTCG in your case = Rs. 3.5L - Rs. 1.25L = Rs. 2.25L

So, only Rs. 2.25L is taxable at 12.5%

This is the rule for equity mutual funds
It does not matter how you use the withdrawn money
Whether you buy land or spend it, the tax is same

Clarifying Your First Question

You asked:
Can I claim LTCG exemption if I use the entire Rs. 10L for buying land?

The answer is No
You cannot claim LTCG exemption under Section 54F
Why?
Because you are buying land, not a residential house

LTCG exemption is only allowed:

If you use the gain to buy residential house property

Not allowed if you buy plot or land

Section 54 or 54F benefits apply only to house construction or purchase

Plot is not eligible for LTCG exemption

Also, you already own a house
This further limits exemption under Section 54F
Hence, no LTCG exemption allowed in your case

Clarifying Your Second Question

You asked:
Will my LTCG be Rs. 10L or Rs. 3.5L?

Answer is Rs. 3.5L only
LTCG is always calculated as:

Selling price – Purchase price

Rs. 10L – Rs. 6.5L = Rs. 3.5L

So, capital gain is not Rs. 10L
Only the growth amount (Rs. 3.5L) is taxed
Of this, first Rs. 1.25L is exempt
Remaining Rs. 2.25L is taxed at 12.5%

Clarifying Your Third Question

You asked:
Can my wife be first owner for tax exemption purpose?

Your wife does not own any other property
So, if she invests from her own funds
And she earns the capital gain
Then she may qualify for LTCG exemption under Section 54F
But, in this case:

The investment is from your mutual funds

You are earning the LTCG

So you are taxed, not her

Even if she becomes owner of property, that doesn't help your tax

Tax applies to the person who sells the asset
Not to the person who buys the property
So, transferring ownership to your wife won't avoid your tax
Also, if you gift her money, clubbing rules apply
Your gain is still taxed in your name

Hence, even if she is first owner, you can't avoid LTCG tax

Let’s Assess from a 360-Degree View

You are using mutual fund growth for buying land
This is a non-tax efficient approach
If your goal is long-term wealth
Better to use savings, not mutual fund gains

Why?

Mutual funds grow tax-efficiently

Withdrawal breaks compounding

You lose future potential gain

Real estate adds holding cost and low liquidity

Land also has legal and registration complexity

What could you do instead?

Partially fund from income or low-cost loan

Let mutual fund stay invested

Increase SIP instead

Focus on wealth creation over asset ownership

Investments: A Word of Caution

You are experienced in mutual funds
That’s a strong plus
Now, avoid breaking compounding
Rs. 10L today can become Rs. 35–40L in 10–15 years
If you use it now, that long-term benefit goes away

Instead, create a plan:

Part land payment from mutual funds

Rest from savings

Keep SIP going

Don’t fully redeem your mutual fund

Also, do not go for index funds now
They copy an index blindly
They fall completely when market falls
They don’t protect capital
They don’t outperform in volatile market

Actively managed funds perform better over time
They have professional managers
They take active decisions
They help manage downside risk
This gives stability in returns

Also, avoid direct funds
They may seem low-cost
But they give no advice
No guidance for asset allocation
No risk profiling or rebalancing
Investing through Certified MFD with CFP helps better
You get 360-degree support and handholding

Taxation Tip

Don’t forget to calculate LTCG tax while filing
No exemption on land purchase
Pay 12.5% on Rs. 2.25L = Around Rs. 28,000
Add cess also
Pay it before due date to avoid interest

Additional Tips

Keep all mutual fund statements for proof

Declare capital gains in ITR

Show redemption and reinvestment trail

Keep property documents safe

Consult CFP for long-term goal alignment

Finally

You’ve done well in mutual fund investing
But breaking this compounding needs caution
Buying land will not give you any LTCG tax relief
Your capital gain is Rs. 3.5L, not Rs. 10L
You are the one taxed, not your wife
Land purchase does not qualify for exemption
Instead of breaking mutual funds, consider better options
Re-align your portfolio with support of a Certified MFD with CFP
Continue your SIPs, plan your land buy smartly

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment