How can I
save on capital gains tax if I want to sell a plot of land that I own?
— S. Baghel
Ans by by Ms. Parizad Sirwalla, KPMG
In the
absence of complete facts, we have assumed that you have held the plot of land
for more than 36 months from the date of acquisition and accordingly the gains
shall be termed as long-term capital gains (LTCG).
LTCG can be
claimed as exempt from tax by investing the net sale proceeds in a new
residential property within the specified time frames (within one year prior to
the sale date or / two years from the sale date or / within three years for an
under-construction property).
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| Parizad Sirwalla, KPMG |
This is subject to specified conditions such
as you should not own more than one house (other than the new house) on the
date of sale or purchase / or construct any residential house (other than the
new house) within a period of one / or three years, respectively, after the
sale date.
If you are
unable to invest the sale proceeds in a residential property before the due
date (31 July) of filing personal tax return, then the unutilized sale proceeds
could be deposited into Capital Gains Account Scheme (CGAS) and you could claim
an exemption in the year of sale of the plot of land.
However, you
should invest the amount deposited into CGAS towards purchase or construction
of a new residential apartment within the aforesaid investment time frames.
Alternatively,
the LTCG could be invested in specified bonds issued by the National Highways
Authority of India or Rural Electric Corp. Ltd within a period of six (6) months
from the date of sale subject to a cap of Rs.50 lakh per financial year.
The
investment in 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 with respect to the old property shall be
revoked. If you take any loan or advance against the security of the said
bonds, the same shall be deemed to be converted into cash.
The amount
invested in a residential property or / specified bonds as per the domestic tax
laws can be claimed as exempt from tax and the balance amount, if any, shall be
taxable at a flat rate of 20 %.
Additionally,
surcharge, if applicable, and education cess shall be applicable. While calculating
LTCG, the cost of acquisition and improvement, if any, shall be inflated / or
adjusted by applying the cost inflation index notified by the tax authorities.
Please note
that if the plot of land has been held for less than 36 months (3 Years) from
the date of acquisition, the resulting gains shall be termed as short-term
capital gains.
About Ms. Parizad Sirwalla..
Ms. Parizad Sirwalla is Partner (TAX) at KPMG
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