How to save capital gain tax in case of senior citizen

First, income tax exemption will depend on whether the gains are short term or long term.

In case, the house has been sold by your father before end of three years of ownership, it will be considered as short term gain and whole gain will be added to your father's taxable income. No exemption is available on short term gains.

In case its a long term gain (house kept for more than three years), then first capital gains will have to be computed with indexation rules.

Below is an sample computation:

Purchase Year = A
Purchase Cost = P
Cost Inflation Index (CII) for purchase year = X

Sale Year = B
Selling price = Q
CII for sale year = Y

Indexed Purchase price = P x (Y/X) = R
Long term capital gain = Q - R = S
Income tax on capital gain = S x 20%

Now, in order to save this 20% tax fully, under section 54, your father can buy another residential property (single owned or jointly) with his share of cost more than long term gains (S).

Few more points:

1. In case your father's income does not have any other income and gains fall below taxable slab limits applicable to your father, then also no income tax is payable. If its more than that, difference amount will be taxable @ 20%.
2. As per section 54, if he wants income tax deduction, new property must be in his name. It can be jointly owned by you and your father, but cost of his share of ownership should be more than capital gains.