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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.

1,608 Responses

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  1. Pradeep B says

    Do one need to pay capital gain tax (LT or ST) on sale of agriculture land in Maharashtra state

    • Pankaj Batra says

      Yes, you need to pay tax on sale of agricultural land if it comes under municipal limits.

      • Pradeep B says

        Thanks for the revert Pankaj. What happens in case of agricultural land falls in Grampanchayat jurisdiction with very less village population.

        • Pankaj Batra says

          In case it falls in a municipality area or within 8 kms from the local limits of any municipality or cantonment board, it would be treated as capital asset, otherwise not.
          If it’s a capital asset, then on sale, long term capital gains would apply and would be taxable.

  2. raghavendra says

    I had a plot purchased in 2005 and sold in 2015. LTCG is around 4 Lakhs.
    Proceeds have been spent due to other loans ,crdeit cards and medical operation.

    Can I but another plot in2 years time to avoid tax?

    • Pankaj Batra says

      There is no tax benefit available if you buy/invest into plot.

      • raghavendra says

        Suppose I buy a House,cai I save tax.?
        Since I have spent all the amount and not inveted in any bonds,my requirement is whether I can buy another house in 1-2 years to save tax.

  3. Sandeep Karemore says

    Sir I have Purchased plot in 2010 for Rs. 500000/- and make a sale deed as par govt rate worth Rs. 150000/- . Now In 2015 I would like sell my plot for Rs. 1000000/- and the buyer want to make a sale deed worth Rs. 1000000/- but govt rate of the plot is near about Rs. 300000/- …. If the buyer pay the Rs.1000000/- to my account through DD, Is this amount is taxable to me…. If yes please suggest me for tax exemption.

    • Pankaj Batra says

      Long term gains would be computed on actual sale price or govt rate, whichever is higher.
      You can save tax on gains, by investing into another residential house property or buying capital gain bonds.

  4. sunil says

    sir. mujhe 22acre agriculture land sell krni he. kisse contact kare better rate ke liye plz reply my email

  5. ayush says

    Hello sir, if I am selling my flat to fund my higher education will I still have to pay ltcg tax or will I get a rebate/deduction against my college fee??

    • Pankaj Batra says

      There won’t be any tax benefit available against college fees.

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