Long Term Capital Gains Tax on Sale of Properties Some of our Senior Citizen Friends have been inquiring about the ways in which they could save the LTCG when they sell their properties. The general rules on the LTCG are easy and any tax advisor can explain these provisions. Provisions of Section 54EC of the I-T Act, 1961 have a very interesting stipulation for getting relief from the Capital Gains Tax. One can make good use of this Section to save Taxes specially when you sell some property. The Income Tax laws provide for taxes on long-term capital gains at 20 per cent for individuals and foreign firms and 30 per cent for domestic companies. However, Section 54EC of the I-T Act, 1961, provides relief from capital gains tax. Under this Section, gains on transfer of a long-term capital asset can be exempted from tax, if the money is invested in bonds of specified institutions such as NABARD, the Rural Electrification Corporation (REC), SIDBI or the National Highway Authority of India. Such bonds are redeemable after three years. However, to save tax, you have to invest in these bonds within six months from the date of transfer of the original asset. Thus, investing in these bonds will effectively mean that your money is locked in for three years. If you want to buy a new property one or two years after transferring the original asset, you will have to either wait or look for alternative funds. After the lock-in period or on the maturity of the bonds, the investor is free to put in his money in any kind of asset. The interest on the bond is taxable. On the other hand, State Bank of India, offers SBI Capgains Plus Scheme where lock-in period is absent, a slightly higher interest rate compared to the capital gain tax saving bonds is offered. The proceeds of the sale of the capital asset can be parked in the fixed deposit scheme under the Capgains Plus plan at an interest rate marginally higher than what bonds under Section 54 EC would fetch. The interest earned will be taxed at prevailing rates. However, unlike the bonds under 54 EC, the depositor cannot put the money in a different kind of asset. The plan stipulates that re-investment should be made on the specified asset only. Therefore, this scheme is a boon for people who have sold their property but havent been able to purchase the property within the stipulated period. Once a final decision is taken on the property you want to reinvest in, you can opt for an exit from SBI Plan, but you will need to get a certificate of consent from the assessment officer.
Posted on: Tue, 24 Jun 2014 03:40:57 +0000