New Delhi: Selling a plot of land or building can bring a big profit — but it also brings a tax bill. Here’s what you need to know about legally reducing that tax.
What is Capital Gains Tax?
When you sell a property for more than you paid for it, the profit is called capital gains. If you held the property for a long time (bought before July 23, 2024), it is treated as long-term capital gains (LTCG) — and special tax-saving options are available to you.
Option 1: Invest in Government Bonds (Section 54EC)
One popular way to avoid paying tax on your profit is to put that money into special government-approved bonds within 6 months of selling the property.
Key rules to remember:
You can invest a maximum of Rs 50 lakh per financial year in these bonds
Even if your sale happens near the end of one financial year and the 6-month window stretches into the next, the Rs 50 lakh cap still applies to each year separately
So if your gains are higher than Rs 50 lakh, this option alone won’t cover everything
Option 2: Buy a New House (Section 54F)
If the remaining gains are not covered by bonds, your son can save tax on the leftover amount by purchasing a residential house within the allowed time period.
Important conditions:
He must not already own more than one house on the date of sale
He needs to invest the proportionate sale proceeds (not just the gain amount) into the new house
Option 3: Just Pay the Tax
If you don’t want either of those you can simply pay the capital gains tax. For long-term gains on land bought before July 23, 2024, he gets to choose whichever is lower:
12.5 percent tax — calculated without inflation adjustment
20 percent tax — calculated after adjusting for inflation (indexation), which reduces the taxable profit
Choosing the lower of the two keeps the tax outgo to a minimum.
