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Business News/ Money / Calculators/  Invest LTCG in another house or specific bonds to save ontax
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Invest LTCG in another house or specific bonds to save ontax

Investments in NHAI and REC bonds will have to be made within 6 months from the day of transfer

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I have just sold my ancestral house in our village in Andhra Pradesh. I want to use the money to invest in India itself. What would be the most tax-efficient way of doing so?

—Anmol

I presume that you have sold your ancestral house property located in Andhra Pradesh after holding it for a period of at least three years and accordingly the gains arising out of the sale would be considered as long-term capital gains (LTCG).

You could consider investing the capital gains from sale either in another residential house or in bonds issued by the National Highways Authority of India (NHAI) or Rural Electrification Corp. Ltd (REC), which are redeemable after three years.

You may note that the investments in the bonds issued by NHAI and REC will have to be made within six months from the day of transfer and cannot exceed 50 lakh in the year of transfer as well as in the subsequent financial year. If the cost of the securities purchased is more than the net consideration on the residential house sold by you, the whole of the capital gains will be exempt from tax.

In case the cost of the securities purchased is less than the net consideration, the exemption will be limited to that proportion of capital gain as it bears to the cost of acquisition of the securities over the net consideration.

If you wish to invest in a residential house, you can appropriate the capital gains towards a residential house purchased one year before or two years after the date of transfer or against a residential house constructed within three years after the date of transfer.

In case the cost of the new residential house purchased or constructed is less than the capital gains, the difference between the amount of capital gains and the cost of the new house would be taxable.

In case the cost of the new residential house is equal to or more than the capital gains on your existing house, then the entire amount of capital gains would be tax exempt.

If you are not able to entirely invest the amount of capital gains in the year of transfer, you could deposit the funds in a bank account under Capital Gains Accounts Scheme before the due date of filing your return of income for the relevant financial year and utilize the amount subsequently for the purchase or construction of a house property within the stipulated time period.

However, this facility is not available in case you wish to invest in bonds.

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Published: 20 Nov 2014, 05:59 PM IST
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