saving capital gains tax on sale of residencial apartment

Dear all,

1. I own a residencial apartment in NCR, which I acquired in 2003.

2. I plan to sell my said apartment (at a profit). Please clarify what tax liabilities will lie on me after such sale (including Income Tax, Capital Gains Tax, TDS etc).

3. Please also guide me regarding ways/options available for saving Capital Gains Tax on the profit after the subject sale, especially with regard to the following :

  • purchase agricultural land (in a village in UP) and construct a farm house on the same (at a higher cost than the profit received after the sale of the flat).
  • gifting the amount equal to the profit received (to wife/relatives) ? If yes, please clarify the limits of Gift Tax exemption.



Long-term capitals gains are taxed at 20.6 per cent after indexation. Indexation helps you inflation-adjust the cost. Or, indexation facto in inflation during the holding period by adjusting the cost of acquisition of the property upwards, thereby, bringing down the tax liability. For instance, the value of rupee ten years ago wasn’t the same as it is today due to inflation. So, if you are asked to pay tax on your profits derived from reducing actual cost from the sale proceeds, it would be unfair. Reason: The sale proceeds are derived from the current value of rupee whereas you paid as per the value ten years ago.

The Income Tax (I-T) Department releases the Cost Inflation Index (CII) each financial year. For calculating capital gains, the cost should be multiplied by CII of the year of sale and divided by the CII of the year of property purchase. This essentially adjusts or inflates the cost to current levels reducing the capital gains. Say a property was bought in the financial year (FY) 2000-01 for Rs 50 lakh. The same is being sold now for 2 crore. A simple subtraction would show a long-term capital gains of Rs 1.50 crore.

On adjusting for inflation the capital gains is Rs 1.03 crore. The CII for FY 00-01 was 406 and for the current year is 785.

If the cost is adjusted with the ratio, the revised cost is Rs 97 lakh, bringing the capital gains down to Rs 1.03 crore. Your net tax saving = Rs 9.6 lakh (20.6 per cent).

I am trying to cover all the issue related to saving of tax under section 54 of Income tax act-1961.

Innumerable ways and options are available for saving capital gains. For example, in the first place invest in a residential house property or a flat to make investment so as to see that capital gains are exempted. Likewise, if a person were to make the investment in REC or NHAI bonds then also he enjoys complete exemption from the long-term capital gain payable by him in respect of capital gains due.

As per section 54 capital gain arising from the sale of the long term residential property can be saved if we buy or construct a residential house property for long term form the capital gain amount.

Important points in this regard are given below

1.     Section benefit can be availed only by Individual and HUF assessee

2.     Sale should be of long term residential building or lands appurtenant thereto

3.     Income of house property should be chargeable under the head of "income from house property"

4.     Capital gain arising from sale of above said property will be saved up to the amount used in to


1.     Purchase a residential house within year before the date of transfer of old house or within two year after the date of transfer of old house. or


2.     Construct a house with in three year from date of transfer of old house property.

5.     Capital gain is saved up to the amount which is used in to buy /construct new house, if amount used for house purchased/construction is less than the amount of capital gain than the balance amount will be taxed as long term capital gain.

6.     If the new house will be sold within three year from the date of purchase or construction as the case may be than while calculating capital gain of the cost of new house will considered as under.


o    If cost of new house is less than the capital gain arising from old house: cost of new house will be nil.


o    If the cost of new house is more than the capital gain arising from old house :cost of new house will be :total cost of purchase/construction minus capital gain on sale of old asset .

7.     If amount of capital gain arising from the sale of old asset is not used as per point 4 before the due date of furnishing of income tax return or furnishing of return whichever is earlier than the balance unused amount should be deposited in designated banks under capital gain account scheme 1988 .

8.     if capital gain amount unused has not been deposited under the scheme as per sr no 7 than the amount of capital gain will be taxable in the previous year as long term capital gain itself no matter it is actually used by the assessee for the purpose of sr no 4

9.     if the amount deposited in capital gain scheme as per sr no 7 wholly or partly has not been used with in the three year from the date of transfer of old asset and purpose given under sr no 4 than the unused amount will be taxable in the hand of the assessee in the previous year in which three years expires from date of transfer of old asset as long term capital gain.




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