to avoid long term capital gains tax

Sura 1
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I had bought a plot (agricultural land) in Delhi in 2002 in my name for Rs 55,000 and decided to sell the same in 2011 for Rs 5 lakh (demand). In order to avoid LTCG taxes, I have two options: (i) to buy another plot of agricultural land in Delhi/Assam and (ii) to buy a builder's flat (co-owner with my wife) for Rs 25 lakh in Delhi. I would also apply for home loan of Rs 20 lakh from a public sector bank. Kindly tell me the implications of the two options with regard to LTCG taxes.

section-54b section-54f agricultural-land long-term-gains capital-gains

Thank you very much. I have still an extended query: the residential flat that I am planning to buy would cost Rs 25 lakh and would be in joint ownership with my wife. Also I plan to apply/get home loan of Rs 20 lakh from a bank. Will this home loan thing affect the LTCG tax anyway? Sura

Sura•

Home loan application won't affect the LTCG benefit. If you buy a property for more than 5 lacs (selling price of land), there won't be income tax payable as per section 54F.

Pankaj Batra•
1 Answers

As agricultural land lies in Delhi, it should have been covered under a municipal area, so land will be considered as capital asset. Long term capital gain will arise as its being sold after three years.

Under section 54B, you can buy another agricultural land anywhere in India with cost more than capital gains arising (around 4 lacs, computed by indexation method) from old land sale.

Under section 54F, you may buy residential house property with cost more than sale consideration of old land (5 lacs). If you buy joint property, your share towards its cost should be more than 5 lacs.

In both the above cases, new sale has to be done within two years from land sale. If new property is not purchased by income tax return filing date, amount should be kept in capital gain account scheme.

Also, please follow below conditions for section 54F:

  1. Possession of new property must be taken within two years from sale of old property. Or new house can be constructed within three years of sale.
  2. You should not be owning more than one residential house(flat/house/apartment) at the time of buying new property.
  3. If total residential houses owned by you is two (including new property), you should not buy another one within next three years of purchase. Or in next three years, total owned residential houses should not be more than two.
  4. New property should not be sold before next three years.
Pankaj Batra5212
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