I own a house in which I stay. I plan to sell a residential land (not agricultural land) in Kerala, which I inherited this month. The land was purchased by my father in 1962. Can I save long-term capital gains (LTCG) tax by investing the net sale proceeds in a residential property?
The capital gains arising from sale of residential land that you inherited recently shall be termed as (LTCG) since the land has been held for at least 36 months from the date of original acquisition. Since you had inherited the land while determining the period of holding, the period of holding of your father has also been factored in.
As you do not own more than one house (other than the proposed new house), on the date of sale of land, you could avail exemption under section 54F of the Income-tax Act in respect to LTCG made from sale of land by investing the net sale proceeds into a new residential house within one year before or two years after the sale date of land. Alternatively, you could invest the sale proceeds for constructing a new house; the construction should be completed within three years from the sale date.
As the land was acquired by your father before 1 April 1981, you can take the fair market value (FMV) of the property as on 1 April 1981 as the cost of acquisition. There is no specific provision in the Act for determining the FMV of the property. You may refer the ready reckoner available for the purpose of stamp duty valuation.
While computing LTCG, the purchase cost should be indexed based on cost inflation index published by the income- tax department and LTCG shall be taxable at a flat rate of 20.60% (including education cess).
If you are unable to invest the sale proceeds into new residential property either partly/entirely by the due date (31 July) of filing your personal tax return for the relevant financial year, then you should deposit the unutilized sale proceeds into Capital Gains Account Scheme (CGAS) to avail an exemption from LTCG for the old land. However, you should ensure that the amount deposited into CGAS should be utilized for the purchase or construction of new residential property within the prescribed time frame. If you are unable to do so, then the unutilized amount shall be taxable as LTCG from the end of three years from the date of sale of land.
Further, note that the tax exemption availed under section 54F could be revoked if you purchase or construct another residential house (other than the new house) within a period of two-three years after the sale date of old land or the new house is sold within three years from the date of purchase.
Additionally, you could also invest into specified bonds issued by the National Highways Authority of India or the Rural Electrification Corp. Ltd within the time limit and subject to prescribed conditions under the Act.
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