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How to Save Long Term Capital Gains Tax (LTCG)

Posted in Finance, Income Tax, India, Investment.

Buying and Selling of Property, Plots, Flats, Land, Independent Houses, Floors or any other form of residential property is a frequent activity in present scenario. Especially with so much activity in the real estate sector, it has been considered to have given good returns. The attractive home loan schemes have made it even more lucrative. However, the transactions are often subject to complicated income tax structure. Here is one case that may solve some of your queries.

When you are about to sell a piece of land for a profit, it is quite likely that Capital Gains Tax would be imposed in the form of Long Term Capital Gain (LTCG). This remains a concern for a lot of people that how can they possibly avoid Capital Gains Tax arising out of the Long Term Capital Gain. In the present article we are discussing an example case.

In the present case the example assessee, an individual, is in the process of transferring a long term capital asset not amounting to a residential house and the proceeds are to be utilised to buy a capital asset amounting to residential house.

The treatment of capital gain on the transfer of capital asset not amounting to residential property is under consideration. Section 54F of the Income tax Act 1961 deals with the current situation.

Where the assessee is an individual, and capital gain arises from the transfer of any long term capital asset (not being a residential house) which in the present case is a piece of land (not amounting to agricultural land) and the assessee has within a period of one year before or after the date on which the transfer of the original asset has taken place, has purchased a  residential house (new asset) or has constructed a residential house within three years; the capital gain shall be dealt as per the following conditions:

  1. If the cost of the new asset is more than the net consideration received in respect of the original asset, the whole of such capital gain shall not be charged to capital gain tax as per section 45 of the Income Tax Act.
  2. If the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears the cost of the new capital asset shall not be charged to capital gain tax as per section 45 of the Income Tax Act.

However, the capital gains exemption enumerated in (a) & (b) above is subject to the some conditions. The benefits as discussed shall not be available if:

  1. If the assessee owns more than one residential house, other than the new asset, on the date of transfer of the original asset.
  2. If the assessee purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset
  3. If the assessee constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset.

If you have further queries on the subject of tax related queries, the experts in the panel would be happy to help you with sound tax advice.

1,593 Responses

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  1. S. L. AGARWAL says

    CAN A FATHER sell his plot which he purchased before 4 years and purchase a new plot in the name of her married daughter .what he should do to save LTCG TAX
    IS IT COMPULSARY TO SHOW ALL DETAILS in income tax return ? if not shown what is the penaltyalthough he has done all what is reqd to save LTCG TAX .
    can he purchase the new plot in joint name with her daughter and construct a room to save tax .
    is it compulsary to open capital gain account in bank even if whole amount is used .

    • Pankaj Batra says

      Purchasing a plot won’t provide any tax benefit, but if house is constructed on it, tax benefit would be available u/s 54F.
      Details has to be shown in ITR for same FY in which sale happened, else no tax benefit can be availed.
      Yes, new property can be in joint name. Capital gain scheme account is mandatory if construction is not completed before return filing.

  2. S.L. AGARWAL says

    respected BATRA JI many many thanks for giving reply of so many qoeries . one more query please .can a father sell his plot which he purchased before 4 years and purchase a house in thejoint name of his married son and married daughter. e.g. if father sells his plot for 20 lac and purchases a house for 36 lac and son takes a house lone of 16 lacs . is their any LTCG TAX IN SUCH CASE .
    IF circle rate of a plot is rs 20 lac but he gets only 18 lac and pays stamps on 20 lac but shows rs18 lac in return as he actually got 18 lacs what can happen .

    • Pankaj Batra says

      Yes, tax benefit can be taken in that case too.
      If circle rate is 20 lacs, you will have to show sale consideration as 20 lacs only.

  3. S.L. AGARWAL says

    IF I SELL MY PLOT WHICH I PURCHASED 4 years ago and book a flat in a new project and he gives possession letter just before 3 years while i make payment as and when demanded FROM THE AMOUNT OF PLOT . will i get LTCG TAX EXEMPTION

    • Pankaj Batra says

      In case you are purchasing flat and not constructing house, the possession of new flat should be within one year before plot sale and two years after plot sale, to get tax benefit.

  4. S.L. AGARWAL says

    if i sell my plot which i purchased 4 years ago in 20 lac and my LTCG is 10 lacs . how much amount should i keep in LTCG SCHEME ? RS20 LAC OR RS 10 LAC TO PURCHASE A HOUSE IN FUTURE

    • Pankaj Batra says

      As it was a plot, you need to keep sale consideration amount (20 lacs) into CGAS.

  5. m s balasubramanian says

    IF a property is purchased out of capital gains (LT) from a non residential property is there any holding period for the purchased property . If the purchase property is resold how capital gains will be treated

    • Pankaj Batra says

      @M S Balasubramanian
      New property should be held atleast for three years.

  6. vivek says

    My father purchased a land in 1998 for rs.75000 and planning to sold it for rs.800000.please tell me the amount of capital gain.can he claim exemption by investing in land or construction of additional floor in existing house property.
    did DLC rate has any role in calculation of capital gain

    • Pankaj Batra says

      Please find capital gain computation below:
      Purchase Year = 1998-99, Purchase Cost = 75000, Cost Inflation Index (CII) for purchase year = 351
      Sale Year = 2014-15, Selling price = 800000, CII for sale year = 1024
      Indexed Purchase price = 75000 x (1024/351) = 218803
      Long term capital gain = 800000 – 218803 = 581197

      He can save tax fully u/s 54F by investing sale consideration amount into residential house property. Investing into land won’t help in saving tax.

  7. vivek says

    Thnx for the reply sir.but i have a doubt about new residential property and additional floor in existing house property. whether he can claim exemption for construction of additional floor.

    • Pankaj Batra says

      Construction of additional floor on existing property can be claimed.

  8. Rajeev Tripathi says

    I have invested Rs 12.5 Lacs in August 2010 in Acre scheme (pre launch offer) . In this , developers offered 1/2 Acre developed land after 02 years or refund of Rs 20.5 Lacs. As developer could not acquire the required land so the scheme was not launched.I waited another 02 years but in vain. Developer is ready to refund Rs 20.5 Lacs as on today. I am a salaried employee in PSU & 30% income tax slab is applicable to me. I want to know following :-> (1) the difference amount of Rs 8 Lacs will be counted in Capital gain or not. (2) Indexation will applicable or not ? (3) What will be tax amount (4) How this tax can be saved ?

      • Rajeev Tripathi says

        Dear Pankaj sir,
        As Land was not alloted to me ( as scheme was not launched due to insufficient land acquisition by builder ) and it was only an agreement paper so how it can be treated as capital gain ? Is it only an interest income where normal income tax slab is applicable. Further can builder impose service tax on full amount of 20.5 Lacs @3.07 % ? Please clarify ! I have talked to income tax lawyer and according to him , it is only interest income and 30% tax is applicable on it .

        • Pankaj Batra says

          In case the total period was less than three years, whole gains would be added to taxable income and would be taxed as per slab rates.
          If your existing income (from salaries etc) comes under 30% rate, then gain would also be taxes at 30% rate.

  9. Yogesh says

    Dear Sir,
    My father had purchased Plot in 2.0 lacs in 2001, which he wants to sell in 10.0 lacs. Would he able to reinvest the amount from Capital Gain into purchasing of another plot ? How can we save the Tax by reinvesting into purchasing of Plot ? What will be the applicable taxes. Please suggest any alternative means to save the Tax. Thanks

    • Pankaj Batra says

      Your father can either buy a plot and construct house on same for getting tax benefit u/s 54F Or invest into capital gain bonds u/s 54EC.

  10. A N Verma says

    Dear Sir,
    My married daughter wants financial help from me for purchasing a house worth Rs 90 Lac jointly with her husband. I intend to help in following way:
    1. Sell one of my residential plot at approx 12 L ( purchssed in Rs 16500/- 10 yrs back.Whether it will attract tax under LTCG or It will be exempted. Proceed will be utilised within a year of sale.
    2. I want to take bank loan( eligible amount approx Rs 30 L). I intend to be Co applicant for bank loan. Can I become co-owner of house with my daughter and son-in-law to get tax benefit on accrued interest.I have already two houses one jointly with wife and another in my name.
    Thanx in anticipation of getting reply

    • Pankaj Batra says

      @A N Verma
      Generally, Investment in new house property has to be done by same person who has got gains. However there have been incidents where people have claimed for purchase done by their children/wife and won cases in court.
      But as you already have two house in your name, you won’t be able to claim benefit u/s 54F.

  11. Sham Sundar says

    Hi Pankaj ji,
    My parents have bought two 1bhks next to each other.
    One of them will be completing 3 years in coming march and
    other will complete only 1.5 year. We plan to show minimum profit in white on second &
    include its profit on first house so that LTCG can help reduce taxes.
    Wanted to know if we can take a new house on my name and show it as gift OR
    it has to be in joint name of my parent and myself.

    If under joint name, after how many years can it be changed to just my name ?

    • Pankaj Batra says

      Generally, Investment in new house property has to be done by same person who has got gains. However there have been incidents where people have claimed for purchase done by their children/wife and won cases in court.

      • Sham Sundar says

        Thanks for Pankaji.
        Can it be a property taken jointly in that case ?
        Can my parents buy a new property with my name added in it as first holder ?

        • Pankaj Batra says

          Yes, property can be purchased in joint ownership and your name can be added as first holder.

  12. Suraj says

    Hello sir
    my dad owned two property one is flat and other is banglow. Flat is for investment purpose . So not to have short term capital gain we sell it after 3 years. But now we get profit of Rs 800,000 on same, that increase our income tax.
    so can u suggest as now our profit showing between 1200000 to 1400000.

    • Pankaj Batra says

      In order to save tax on long term gains, you can either invest into another residential house property u/s 54 or buy capital gain bonds u/s 54EC.

  13. happy says

    i sold two residential plots in 2011 and got rs 30 lakh after holding the plots for more than 3 years. and then bought a flat worth 60 lakh by taking 30 lakh loan in 2011.the flat is still not ready for possesion which is likely only in 2017. now i want to sell this flat
    in 2015 jan, after holding it for more than 3 years- can i reinvest this money into any other flat.
    i also have a society flat booked but possesion might be given by march 2015.
    please advice how to get relief

    • Pankaj Batra says

      1. As possession for flat was not done within two years of plot sale, gains from plot sale in 2011 would become taxable.
      2. You can save tax on capital gains from under construction flat, if sale consideration amount is invested into another house property. But you should not be owning more than one residential house property at the time of sale u/s 54F.

  14. vinod kumar says

    Sir, My wife has sold a house in February, 14 and the capital gain earned out of it was invested towards payment of installment for a new house in April, 14. While filing IT return for AS 2014-15 she has not given the details of this capital gain and capital purchase as well but has postponed it for filling in the next year return. Now a notice have been received from IT. Our intention was not malafied bcoz at the time of filling we were confused because the capital gain was earned in AS 2014-15 and the new purchase was in the AS year 2015-16. We already owe a house of our own where we are residing.

    • Pankaj Batra says

      As capital gains was earned in AY 2014-15, either possession of new house property was to be taken before 31st July 2014 or amount needs to be invested into capital gain scheme account before 31st July 2014 and same should have been reported in ITR.
      Now you have no option but to explain your case to assessing officer to get it cleared.

  15. ANANT DATE says

    Dear Sir,

    You are requested to answer my queries on Capital Gain Tax Exemption.

    Details :

    I own a flat in Mumbai. I purchased it in 1971. I am going to sell this flat in March 2015.
    In this transaction there will be Capital Gain of Rs. 1 Crore. If I invest in March 2015 Rs.50 Lacs out of this sell in REC bond, I will be able to avail exemption wide section 54EC.

    Question 1

    Can I get additional 54EC exemption if I invest again in April 2015 Rs. 50 Lacs in NHAI bonds. Thus totaling exemption of Rs. 1 Crore from Capital Gain ?.

    Condition of Section 54EC will be fulfilled since my second investment is before 6 months from the date of sell. At the same time second investment is in not in same financial year.

    Question 2

    Is it necessary that the balance Rs.50 Lacs have to be kept in Capital Gains Bank Account, after first purchase of bonds till second purchase of bonds ?.

    Question 3

    Even if the said flat was on my name only, can I add my wife’s name as joint holder in 54EC bonds ?.


    Anant Date

    • Pankaj Batra says

      1. Yes, you can do it.
      2. Not necessary, if whole capital gains is invested before 31st July, 2015 (before return filing).
      3. Yes, you can invest in joint names.

      • ANANT S. DATE says

        Dear Sir,

        Thank you very much for the reply.


        Anant Date

  16. Harish says

    I have a flat and booked another flat in 2010 december under Construction plan. It is under contruction till today and payment has been done 95% in 2013. If today I sell ( more than 3 years) this under construction flat ;
    1. I shall get LTCG.
    2. Can I invest LTCG in another flat

    • Pankaj Batra says

      It would be long term gain from a capital asset (no residential house property) in case possession is not taken yet.
      You can save income tax under section 54F, by investing into another residential house property.

  17. suresh says

    Have sold a residential plot. The transaction has resulted in capital loss. Kindly advice as to how the consideration received would be treated.

    • Pankaj Batra says

      You can declare this loss in income tax return and in case any capital gain is there it can be adjusted against that.
      In case there is no capital gains this year, capital loss can be carried forward to next year so that it can be adjusted later.

  18. Pankaj says

    Dear Sir, My brother just sold his 3 Non agricultural plots at a consideration value of Rs 78 lacs total in August 2014. The sale deeds are registered and he has recfeived full payment. He had a long term capital gain of Rs 61 lacs from this sale however he transfered this 78 lacs amount to my father’s account from whom he has availaed loan for his business. Now he has no money physically as well as in bank account. My father passed away in December 2014. My query is – What is his tax liability in this case? Please suggest how to save the LTCG tax? If at all he has to invest full consideration of 78 lacs, he is not ready to block the entire 78 lacs in purchaing new property or buying low interest capital gain bonds . Any option you can please suggest?

    • Pankaj Batra says

      In case he wish to save tax fully, there is no other option but to block whole sale consideration.
      If he invests a lower amount, the tax would be chargeable proportionally.

  19. S.L.AGARWAL says

    i sold a plot for 25 lacs which i purchased for 2 lacs in 2005 .iwant to invest this amount in a newly started project . how much time will i be allowed to get possession as the project may take more then 3 years to compleat

    • Pankaj Batra says

      You need to get possession within three years from sale of plot.

  20. Krishnaraj says

    I sold residential land in Bangalore North for Rs.1,15,00,000 [ One crore and fIFTEEN lAKHS] IN January 2015. This land was bought for Rs.44,00,000/- [Forty Four Lakhs] in December 2011. I want to reinvest this entire money in buying a flat/apartment. How do I get exemption from Capital Gains tax and how much time do I have to make this reinvestment ? What are relevant IT sections in this regard, for further reading ?
    Kindly Advise. Thanks, Raj.

    • Pankaj Batra says

      You save tax u/s 54F. If you invest whole sale consideration into residential house property, then there won’t be any tax payable.
      Possession of new property should be taken within three years from land sale.
      If possession of new property is not taken before last date of income tax return filing, unused amount has to be deposited to capital gain scheme account.

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