Personal Finance

Your Taxes

Sanjiv Chaudhary | Updated on January 24, 2018 Published on March 29, 2015


I sold a flat and a housing plot and bought a new flat. Can the capital gains from the sale of both properties be adjusted against the purchase of the new flat? Or is the adjustment restricted to the capital gains of only one property? I also understand that in order to avoid tax, the capital gains that are made can be invested in National Highway or Rural Electrification bonds.

S Sivasubramanian

According to the provisions of Indian income tax law, any capital asset held for more than three years (other than specified securities) will be treated as a long-term capital asset (LTCA). Long-term capital gains (LTCG) on transfer of such LTCA shall be computed by deducting from the gross sale consideration received or accruing on sale of the LTCA the following amounts: the indexed cost of acquisition of the asset, the indexed cost of improvement and expenditure incurred wholly and exclusively in connection with such transfer.

Assuming that the property sold is LTCA, the aforesaid LTCG, if any, can be exempt from tax by reinvesting the LTCG (in case of sale of flat) and net sale proceeds (in case of sale of housing plot) in a new residential property located in India within the specified time frames (i.e. within one year prior to date of sale or two years from the date of sale for purchase of property or within three years for construction of the house property).

One of the specified conditions requires that while claiming LTCG exemption under Section 54F, you should not own more than one house (other than the new house) on the date of sale of the old land.

Based on a recent ruling, you can claim exemption of the capital gains from the sale of respective properties and invest in one property subject to the fulfilment of other conditions specified.

The LTCG from sale of your flat and net sale proceeds of the housing plot invested in the residential property as per the aforesaid provisions shall be claimed as exempt from tax and the balance, if any, shall be taxable at a flat rate of 20 per cent (excluding education cess and surcharge).

The LTCG can also be invested in specified bonds issued by the National Highways Authority of India or Rural Electric Corp. Ltd within six months from the date of sale of property subject to a cap of ₹50 lakh and fulfilment of specified conditions.

Please note that the investment in a new property or specified bonds has a lock-in period of three years. Accordingly, if the new property is sold or the bonds are converted into cash within a period of three years, the exemption claimed from LTCG in respect of old property shall be revoked.

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