Question: I had bought a plot of land in January 2004 for Rs. 5 lakh and offered it in March 2021 for 59 lakh. How a lot tax will I’ve to pay or what can I do for saving the tax. (Name withheld on request)
Answer: Since the plot was held by you for a interval greater than 24 months, the achieve on sale of this shall be handled as long run capital achieve. The long run capital achieve shall be calculated by deducting the listed price of buy of the plot from the sale value. The price inflation index for 2003-2004 was 109 whereas for the yr 2020-21 it was 301. Based on the respective price inflation index of buy and sale, the listed price to your plot involves Rs. 13.81 lakh. Therefore, the listed long run capital features shall be Rs.45.19 lakh. You need to pay tax at flat fee of 20% and cess of 4% on such tax if you don’t want to avail any avenue for exemption of long run capital features.
In order to avoid wasting tax on long run capital features on sale of this plot you may have the next two choices.
First choice is to take a position the sale consideration to buy a home inside two yr or get a home constructed inside three years from the date of sale of the plot as per the provisions of Section 54 F of the Income Tax Act. In case the complete sale consideration isn’t utilized for acquisition of a residential home earlier than the due date of submitting of your earnings tax return, which as prolonged is thirtieth September 2021, you want to deposit the unutilized quantity in an account below Capital Gain Account Scheme with a financial institution. This cash must be used inside the authentic time of two years or three years for goal of buy or development of the home. In case you fail to take action the identical will change into taxable in your hand after expiry of the interval.
The second choice is to take a position the listed long run capital features of Rs. 45.19 lakh in capital features bonds of specified monetary establishments inside a interval of six months from the date of sale of the plot below part 54EC of the earnings tax Act. Please notice that you just can’t make investments greater than 50 lakhs below Section 54 EC in a single monetary yr. The bonds have a period of three years and presently carry annual rate of interest of 5%.
Please notice that in case you don’t make investments the complete sale consideration for buying the home or make investments full listed capital features within the bonds, you’ll get exemption solely proportionately.
Balwant Jain is a tax and funding professional and may be reached at [email protected]
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