How to invest capital gains on sale of residential sie

Hi,

I need urgent help from this forum. I am about to sell my residential site in Bangalore. Proceeds from the sale are liable for long-term capital gains tax.

I am aware that from the sale proceeds I can invest in bonds 54 ec bonds to the extent of Rs.50 lakhs. In this context, my queries are as under:

1. There is a lock-in period of 3 years with respect to 54 ec bonds. So is it correct to assume that at tne end of 3 years, I am free to do what I wish to you with the money?

2. If the amount from the sale proceeds (of my site) exceeds Rs. 54 lakhs is there no alternative for me but to pay regular income-tax on it - which I believe is 20%? Is there any other way to save the money without being liable to income tax

3. Finallly, maybe someone can answer an overall question: I am likely to sell my residential site for Rs.85 lakhs. What are the ways available to me save on capital gains tax ? Please suggest - in detail, if possible.

Dear Mr.Raghavan

1. Yes, you are right. You can use the fund you invest in NHAI/REC bonds after the lock in period of 3 years. It is like you help the government indirectly by lending your valued money to NHAI/REC for infrastructure creation in return for the Capital Gains exemption that the Govt grants you.

2. I did not understand your question. What did you mean by regular income tax? Long Term Capital Gains are taxable at 20% (plus surchareg, Cess etc) and your other "normal" income is taxable as per your income tax slab in which you fall into which could 10% or 20% or 30%.

3. Explaing all the provision in details here would be too lengthy. You will get to read about the options availble to your even rigth here at CAclub under various articles. For a brid's eye view on options available to you you can refer the table in the following link (subject to changes under Section 54EC enacted through Finance Act 2014 if any, since you are only going to effetc the transaction):

CAPITAL GAIN EXEMPTION 54,54B,54EC,54F AT A GLANCE

put it shortly, in your case you can take the benefit of Sec.54 (by investing in a new residential house property) or 54EC (by investing in NHAI/REC Bonds) or 54F (by investing in a new residential house property) subject to conditions mentioned therein. Please note that for claiming exemption under Sec.54 or 54EC, you need to invest only upto the amount of Capital Gains generated and not the entire sales consideration (85 lakhs in your case). However, if you propose to take the benefit of Sec.54F, you will have to invest the whole of net sales consideration in a new residential house property in order to claim exemption of the full amount of Capital Gains generated, otherwise, you will get only a proportionate exemption as per the formula given in that section.

Regards

Ajay