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Is There A Way Avoid Paying Tax On Long Term Capital Gains?

Adhil Shetty

I have recently sold a house property and have made some gains from it. What are the various ways to save taxes on Long Term Capital Gains on property? — A. Agarwal

Answer: 

Gains on sale of a property after a holding period of two years or more are called Long Term Capital Gains (LTCG).

LTCG on property sale is taxed at a 20% rate (plus cess) with indexation benefit. However, you can save such tax using the following methods.

  • Sec 54 F: It allows you to save tax on LTCG on the sale of non-residential property by investing the sale proceeds in a residential property within the prescribed period.
  • Sec 54: It allows you to save tax on LTCG on the sale of residential property by investing in another residential property. From FY 2019-20,  you can invest up to Rs. 2 crore in this manner in up to two residential properties, once in a lifetime.
  • Sec 54EC: You can invest the entire capital gains in an eligible bond within 6 months of realization of said gains. The lock-in period under such an investment is three years. You can invest in the capital gains bond issued by NHAI or REC.
  • Put money in capital gain account: People who are not immediately ready to reinvest the sale proceed of property in another residential property can put the money in a capital gain account with a scheduled bank. Money invested in such an account is not eligible for creating a mortgage. Interest earned in such an account is taxable at the applicable slab rate of the individual.\

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