capital gain tax on sale of a land and purchase of new home

Hi pankaj, My dad had a plot in bangalore since 30 years and we sold it in 2010 march for 50 lacs and constructed a new home in Mysore for 38 lacs. The old plot was in my dad's name and the newly built house is in my mother's name. Can you please tell in detail about the capital gain tax we should pay and can it be avoided by any chance?

asked Mar 08 '11 at 00:10 by Anupama Bellave 1111


Computation of income tax:
Purchase Year = 1981-82, Purchase Cost = X, Cost Inflation Index (CII) for purchase year = 100
Sale Year = 2010-11, Selling price = 5000000, CII for sale year = 711
Indexed Purchase price = X x (711/100) = 7.11X
Long term capital gain = 5000000 - 7.11X = Y
Income tax on capital gain = Y x 20% = T

In order to save income tax arising from capital gains, a new house must be bought on name of same person. As new house is in your mother's name, income tax will have to paid on capital gains.

As capital gain is arising from sale of a plot, whole of the sale amount (50 lacs) must be invested in another residential property to save tax fully. This is as per section 54F of income tax act.

Under section 54EC, Another way to save income tax is to invest whole sale proceeds in capital gains bonds issued by NHAI, REC etc.

answered Mar 10 '11 at 11:51 by pankaj 5.2k320

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Asked: Mar 08 '11 at 00:10

Seen: 1,714 times

Last updated: Mar 10 '11 at 11:51