Investment Strategy to avoid Capital Gain in case of Purchase and Sale of House Property

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CA Final Student
337 Points Joined February 2025

Case Scenario:

2 Houses to be sold, owned by a single owner.

1 House – 100% Ownership – 2.6 Cr Sale value (Sale in FY 24-25, Purchase in FY 85-86 for 2 Lakhs)

1 House – 50% Ownership – 2.6 Cr Sale value (Sale in FY 25-26, Purchase in FY 01-02 for 12 lakhs).

Investment to be made in 2 houses.

Questions:

  1. Can investment be made in 2 houses? If yes? What conditions are to be fulfilled, or which provisions of Income Tax are to be adhered to?
  2. What shall be the Investment strategy to avoid or decrease minimum capital gain tax?
  3. Maximum amount of investment to be made?
  4. Amount of minimum capital gain tax to be paid or No tax paid?
  5. Can Indexation be claimed ?
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On 17 April 2025 at 11:40 Report
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Master in Accounts & high court Advocate
9047 Points Joined December 2011

Capital Gains Tax Implications When selling two houses and investing in new properties, it's essential to understand the capital gains tax implications. Key Considerations -

*Long-term capital gains (LTCG)*: Both properties have been held for more than 24 months (for property purchased after March 31, 2017) or 36 months (for property purchased before April 1, 2017), making them eligible for LTCG treatment. -

*Indexation benefit*: For properties purchased before April 1, 2017, indexation benefit can be claimed to reduce taxable gains. -

 *Exemption under Section 54*: If the sale proceeds are invested in a new residential property within a specified period, exemption from capital gains tax can be claimed.

Investment in Two Houses Yes, investment can be made in two houses.

However, the exemption under Section 54 is limited to one residential house in India.

Conditions for Exemption To claim exemption under Section 54, the following conditions must be fulfilled: -

 *New property purchase*: The new property must be purchased within one year before or two years after the date of sale of the original property. -

 *Construction of new property*: Alternatively, the new property can be constructed within three years from the date of sale of the original property. -

*Residential property*: The new property must be a residential property in India. Investment Strategy To minimize capital gains tax, consider the following strategies: -

 *Invest in one residential property*: Claim exemption under Section 54 for one property, and pay tax on the gains from the second property. - .

*Utilize the exemption limit*: If possible, sell the properties in different financial years to maximize the exemption limit.

 Indexation Benefit Indexation benefit can be claimed for properties purchased before April 1, 2017. This benefit helps reduce taxable gains by adjusting the cost of acquisition for inflation.

 Tax Calculation The tax calculation will depend on the specific details of the properties, including the sale price, purchase price, and indexation benefit (if applicable).

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On 17 April 2025 at 12:01


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