How to claim capital gains exemption on sale of plot of land


I own a 1 BHK flat in Mumbai where I am staying. I have another 2BHK property in Surat given on rent.  In addition to these two residential properties I also own a plot of land, which I am holding since 2002.  If I sell this plot of land can I get the benefit of capital gains exemption if I buy third residential house and let it out?

Since you have held the plot of land for more than 24 months the capital gains arising on sale of this plot of land are to be treated as long term capital gain. The taxable long term capital gains shall be computed by deducting the indexed cost of the plot (by applying cost inflation index to the value of the cost of purchase of the plot) from the net sale consideration received on sale of the plot. 

As per Section 54 F you can claim capital gains exemption arising on sale a capital asset, other than a residential house, if you invest the sale consideration for purchase of a residential house within specified time. However, if a person owns more than one residential property on the date of sale of such other asset, he cannot claim the exemption under Section 54F. Since you already own two residential house, you cannot claim the exemption available under Section 54 F. 

However, in order to save long term capital gains tax, you have the option under section 54EC. As per provision of Section 54EC, you have to invest the amount of indexed long term capital gains in bonds of specified institutions like National Highway Authority of India( NHAI) or Rural Electrification Corporation of India (REC), Railway Finance Corporation within six months from the date of sale of the plot of land.. These bonds have a duration of five years. Interest earned on these bonds is taxable as regular income. The money received on maturity of such bonds is fully exempt.

Balwant Jain is a tax and investment expert and can be reached on jainbalwant@gmail.com and @jainbalwant on Twitter.

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