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How can we save capital gains tax on sale of property? My wife and I are senior citizens.
May, 13th 2019

My wife and I sold a property for Rs 80 lakh in 2018 and made longterm capital gain (LTCG) of Rs 46 lakh. We had purchased two properties with a combined worth of Rs 24 lakh in 2017 and one property worth Rs 21 lakh in 2018. Both of us are senior citizens and my pension is our only source of income. How can we save tax on our capital gain?

Amit Maheshwari, Partner, Ashok Maheshwary and Associates replies: LTCG on the sale of a residential property is exempt under Section 54 of the Income-Tax Act, if the capital gain is invested in a residential house one year before the date of the sale of the house or two years after the date of sale of the house. You will be able to avail of the exemption on the purchase of one house only.

You will not be eligible for one time exemption for investment in two houses as this is available on the sale of properties on or after 1 April 2019. So, it will be best if you claim exemption for the house purchased in 2018, as it seems to be the costliest and also falls within the one-year purchase window. We have assumed that the properties under discussion are residential and are owned in equal proportion by you and your wife.

I purchased a plot of land in January 2018 and started constructing a house in January 2019. If I sell a part of the house in February 2020, will the gains be considered long-term or short-term?

It is possible for you to treat the land and the building as separate assets. You can bifurcate the sale amount between land and building on the basis of the market value of each of them. Since the land is being sold after holding for more than 24 months, the gain will be long-term. You will get indexation benefit on the cost of the land. Since the constructed house would be held for less than 24 months, the gain will be short term.

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