How to save Capital Gains Tax on Sale of Land

Short-term or long-time period capital asset
Land is a short time period capital asset, while held for 36 months or much less (i.E. Up to a few years). If held for greater than 36 months, it’s far considered a protracted-term capital asset. So tax implications too range based on the period for which you personal an asset.

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How to calculate your capital profits
To arrive on the Short Term Capital Gains – From the entire Sale Price of the asset deduct fee of acquisition, expenses without delay to sale, cost of enhancements(if any) additionally deduct exemptions allowed underneath phase 54(as applicable, we’ll see underneath what these are) – > the resulting amount is the Short Term Capital Gain.
In case of Long Term Capital Assets, the best distinction is, one is authorized to deduct Indexed Cost of Acquisition/Indexed Cost of Improvements from the sale rate. Indexation is performed via making use of CII (price inflation index). This increases your cost base (and lowers your gains) on account that the purchase fee is adjusted for the impact of inflation.

What are the Tax Rates
STCG are protected to your taxable earnings and taxed at relevant tax prices foundation your slab. See modern slab charges.
LTCG are taxed at 20%

Exemptions out of your Gains that Save Tax
Section 54F (relevant in case its a long term capital asset)
If you are the use of your whole sale proceeds to shop for a residence property you can end up paying no tax for your gains when – You fulfill a majority of these situations

(a)Purchase one house inside 1 12 months before the date of transfer or 2 years after that

(b) Construct one residence inside 3 years after the date of transfer

(c)You do no longer sell this residence inside three years of buy or creation

(d)This new residence purchased or built need to be situated in India

(e) You should now not very own extra than 1 residential house (aside from the new one) at the date of transfer

(f)You do not buy inside a duration of two years after such date or construct inside a period of 3 years after such date any residential house (apart from the new one).

When you fulfill those situations and invest complete sale proceeds closer to the brand new residence – you received’t pay any tax in your gains. However, if you invest a part of the sale proceeds, the exemption could be the proportion of the invested quantity to the sale fee or exemption i.E fee of latest house x capital gains/internet consideration.

By Investing in Capital Gains Account Scheme
Finding a appropriate vendor, arranging the considered necessary funds and getting the office work in place for a new property can be a harrowing and time eating technique. Fortunately, the Income Tax Department is aware these boundaries.

If you have not been able to invest your capital profits till the date of submitting of earnings tax go back (generally thirty first July) of the monetary yr in that you have offered your private home, you are allowed to deposit your gains in a PSU financial institution or different banks as per the Capital Gains Account Scheme, 1988. And in your return claim this as an exemption out of your capital gains, you don’t need to pay tax on it. However, you should make investments this cash you have got deposited inside the duration distinct via the bank, if you fail to accomplish that, your deposit will be treated as capital profits.

Section 54EC (applicable in case it’s miles a long term capital asset)–Purchasing Capital Gains Bonds
What takes place in case you do no longer intend to purchase any other belongings, there is no need of making an investment the amount in a Capital Gains Account Scheme. In this sort of case, you can nevertheless shop the tax in your capital profits, by way of investing them in sure bonds. Bonds issued by way of the National Highway Authority of India (NHAI) or Rural Electrification Corporation (REC) had been distinct for this motive. These are redeemable after 3 years and need to no longer be sold earlier than the lapse of 3 years from the date of sale of the house belongings. You are allowed a duration of 6 months to spend money on those bonds – though which will declare this exemption, you’ll must make investments before the go back submitting date. The Budget for 2014 has targeted which you are allowed to invest a maximum of Rs 50lakhs in a financial 12 months in those bonds.

Proposed modification below Section 54EC
Budget 2018 has inter alia proposed an change to Section 54EC of the Income-tax Act. This segment presently offers for an exemption of long time capital profits(“LTCG”) on sale of any Long Term Capital Asset provided the capital gains are invested within 6 months from the date of switch, in certain long term specific property viz any bond, redeemable after 3 years and issued on or after the first day of April, 2007 by using the National Highways Authority of India constituted under section 3 of the National Highways Authority of India Act, 1988 or via the Rural Electrification Corporation Lim

Vide the budget, the authorities has proposed to amend the above section by limiting its scope simplest to capital profits springing up from long-term capital assets, being land or constructing or both. It is also proposed to provide that long-term unique asset, for making any funding below the segment on or after the 1 April 2018, shall mean any bond, redeemable after 5 years as in opposition to the sooner three years and issued on or after 1 April 2018 with the aid of the National Highways Authority of India or by using the Rural Electrification Corporation Limited or some other bond notified with the aid of the Central Government in this behalf.
This change will take impact from 1 April, 2019 and could, for that reason, follow when it comes to the evaluation 12 months 2019-20 and subsequent assessment years.