How income tax rule applies on residential residence proceeds — outlined

I’m salaried specific individual. I’ve supplied a residential property for ₹1.10 Crore inside the month of March 2023 which was purchased in June 2002 for ₹20 lakh. I don’t intend to buy one different property immediately. Can I nonetheless lower my tax obligation on the income from the sale?.

Answer: Income from sale of any capital asset along with a residential house is taxed as capital useful properties after deducting the value of acquisition from the net sale proceeds. In case the house is obtainable after 24 months, you are allowed take listed worth as your worth of acquisition for computing long term capital useful properties. In case the property is obtainable inside 24 months, the excellence is taxed as transient time interval capital useful properties on the slab payment related to you.

Indexed worth of an asset is computed by multiplying the value of acquisition by Cost Inflation Index (CII) of the yr of sale and dividing the similar by CII of the yr of purchase. In your case, the value of acquisition is ₹20 lakh and the listed worth will be spherical ₹63.05 lakh, taking 105 as a result of the CII for yr of purchase and 331 CII for yr of sale. The listed long term capital useful properties is ₹46.95 lakh (Rs. 110 lakhs – Rs. 63.05 lakhs). The related will be taxed @ 20.80% (20% with indexation + cess 4%).

Since you do not wish to buy a residential residence immediately, it might prevent tax on this long term capital useful properties by investing Rs. 46.95 lakhs in capital useful properties bonds of any of the required financial institutions like IRFC (Indian Railway Finance Corporation), PFC (Power Finance Corporation), NHAI (National Highway Authority of India) and REC Ltd. inside six months from date of sale of the property the place one could make investments most of fifty lakhs in a financial yr. The bonds have lock in of 5 years. The money obtained on maturity of these bonds is tax-free. These bonds presently provide 5.25% curiosity which is taxable.

If you alter your ideas inside six months and resolve to buy property eventually, you’ll deposit the amount of listed capital purchase in a checking account beneath the Capital Gains Account Scheme (CGAS) sooner than due date of submitting of the ITR which is thirty first July 2024 for salaried people. This money could possibly be utilized for getting a ready to maneuver in residential residence inside two years from date of sale of the property or inside three years for self-constructing a house or reserving an beneath improvement residential residence. There will be no tax on the capital useful properties if this money is used to utilized as above else it might develop to be taxable when the interval of three yr expires.

(Balwant Jain is a tax and funding skilled and could possibly be reached on jainbalwant@gmail.com and @jainbalwant on his twitter take care of)

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