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Selling 50+ years old land, how 2 save tax?

Shobha (N/A) (29 Points)

22 April 2012

Hi,

My father-in-law had purchased 7 acre land near Surat, Gujarat more then 50 years ago. Now the property is herited to me, my kids, and my nanand and we are going to sell it for about 4 core out of which my share is of about 40 lakhs. It is a Non-Agricultural land. Now my friend told me that the tax will be around 30%, and i can save tax by investing in property by purchasing a home or buying capital gain bond. Can someone please tell me if its true or not also how much tax can i save by this method, and please suggest me any other ways to save tax?

Thanks

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5 Replies

praveen (Chartered Accountant) (6971 Points)
Replied 22 April 2012

Any question Join us on facebook and our experts will help you.

Yes what you have heard is right.

First of all calculate the capital gain that will arise out of this sale.

Capital Gains would the amount of money you will be receiving less the indexed cost of acquisition.

First findout what your father in law had paid to purchase the land. then apply the inflation index.

The resultant figure is the capital gain for which you will have to pay tax on.

BY THE WAY THE RATE OF TAX ON LONG TERM CAPITAL GAIN IS NOT 30% BUT IT IS 20%

If you want to get more help on this matter please contact me at mrpraveen @ live.com

Any question Join us on facebook and our experts will help you.

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CA Siddhi Gupta (Consultant (RAS)) (145 Points)
Replied 27 April 2012

Any person (including NRI out of NRO account on a non-repatriable basis) and Hindu undivided family (HUF), through its Karta, can make investments (not exceeding Rs 50 lakh in a given financial year) in the two bonds notified by theGovernment of India. In case only part investment is made, the amount of deduction gets reduced in proportion to the investment.

The two corporations which have been notified by the Government of India as being eligible for issue of these bonds are (a) National Highway Authority of India (NHAI) and (b) Rural Electrification Corporation (REC).

The investment has to be made within six months from the date of the transfer in order to be eligible for claiming the benefit of deduction under section 54EC.

Kishore Dichwalkar (PRACTICING CHARTERED ACCOUNTANT) (45 Points)
Replied 27 April 2012

In your case your share is only Rs. 40 lacs. Since the property was purchased by your father-in-law 50 yrs ago, you have to find out its Fair Market Value as on 1.4.1981 and then using Cost Inflation Index you have to find out its indexed cost of acquisition. Sale Proceeds received minus Expenses of Transfer minus Indexed Cost of Acquisition will give you the Long Term Capital Gain. In case of inherited property cost to the previous owner will be treated as cost of acquisition to the present owner. After doing this calculation whatever share of capital gain you received will be subject to tax. You can save tax as stated in earlier posts.

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Swarup Dutta (Assistant Auditor) (42 Points)
Replied 28 April 2012

Any long term capital gain can not be calculated merely deducting purchase / acquisition cost from sale value. The purchase/acquisition cost will be increased by yearly in dexed cost. In calculating chargeable capital gain such indexed value will be deducted from the sale value.

You can save such tax by investing in Specified Bond or House Property.

Mayur Jain (IPCC student) (42 Points)
Replied 01 May 2012

MRS SHOBHA IT WILL BE BETTER TO INVEST THE AMOUNT OF 40 LAKHS IN SPECIFIED CAPITAL GAIN BONDS i.e. BONDS OF N.H.A.I.,R.E.C.I.,NABARD...

SO THAT U WILL BE GETTING EXEMPTION U/S 54EC ND MAXIMUM ALLOWABLE AMOUNT IS 50 LAKHS

AS IF U PURCHASE A RESIDENTIAL HOUSE THEN U MUST BE HAVING ONLY 1 OTHER RESIDENTIAL HOUSE AND MAXIMUM LIMIT OF EXEMPTION IS PROPORTIONATE AMOUNT INVESTED

IT WILL BE BENEFICIAL TO PURCHASE CAPITAL GAIN BONDS

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