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You own a plot of land which you have finally sold after 3
years.You made a profit (capital gain) by selling your plot of
land.You want to save on your capital gains tax (Tax on the profits
you have made by selling the plot of land).
So how can you do this?
Since you
have sold the land plot after 3 years you have made a long term capital gain.
Your long term capital gain is taxed at 20% with an
indexation benefit.You still
have to pay taxes on your long term capital gains even though you have an
indexation benefit.
What if you don’t want to pay capital
gains tax at all?
You can make use of Section 54 F to save on your long term
capital gains by selling your plot of land.You can
claim a tax exemption under Section 54 F on the long term capital gains
obtained on the sale of a long term asset other than residential property say a
land plot.
The capital gain is exempt if invested in :
o
The
purchase of a residential house/property within 1 year before or within two
years of the sale of the plot.
o
You
construct a new residential house within a time period of 3 years after selling
the plot.
How much of capital
gains tax can you save?
o
If
the long term capital gains obtained from the sale of your plot of land is
equal to or less than the cost of the new house purchased then the entire
capital gain is exempt from tax.
o
If
the long term capital gains obtained from the sale of your plot of land is
greater than the cost of the new house purchased then the amount up to the cost
of the new house is allowed as a tax exemption. The amount which exceeds the
cost of the house is taxed at 20% with an indexation benefit.
o
You
can purchase only a single residential house only within India no matter how
high the capital gain.
What if you already own
an apartment?
You can still avail the benefits of Section 54 F on the long
term capital gains on selling your plot of land if you already own a residential
flat.You should not own more than a single house (other than the
house you would buy on the sale of the plot of land).
Simply put:
Your own flat + The flat you buy on selling your plot of land
you enjoy long term capital gains tax benefits under Section 54 F.
What if you sell your new house a year later?
If you sell your new house in a time period less than 3 years
from the date of acquisition ( Date you purchased the house) then the long term
capital gains you enjoy under Section 54 F are reversed (taken back) and the
LTCG will be taxable in the year of transfer of the new house.
You can deposit your long term capital gains in a capital
gains account scheme before the due date of filing your income tax returns.You can withdraw this money and then invest in the
residential house/property within the time specified (3 years)
If you do not buy/construct a new house within the specified
time frame (3 years) the money not used (invested in the capital gains account
scheme) will be taxed as a LTCG in the financial year after 3 years of the sale
of the plot of land.
Invest in tax saving bonds?
You can claim a tax exemption under Section 54 EC on the long
term capital gains obtained on the sale of the plot of land provided you invest
the capital gains within a period of 6 months of the sale in certain specific
long term bonds such as the REC and the NHAI bonds.
These bonds have to be held for at least 3 years (lock in of
3 years) and the interest earned on these bonds is taxed.You are exempted only INR 50 Lakhs in tax saving bonds even
if investments are made over two financial years.
So make use of Section 54 F and Section 54 EC and save on the
LTCG on the sale of your plot of land.
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