How to Avoid Capital Gains Tax After Selling a Plot?

A very close friend of mine told me that a landowner could indeed make significant capital gains on the sale of their capital asset, which is land. He knew I had inherited many land parcels and I was curious about knowing how to avoid capital gains tax after selling a plot. He told me that agricultural land in a remote area in India is not regarded as a capital Asset. Therefore, the sale of it does not result in capital gains. He asked me to make absolutely sure Income Tax views my asset as a capital asset before I determine how your capital gains will be taxed.

Capital gains tax while selling plot

Generally speaking, a capital asset is anything you own for your own use or for investment. All types of property are included, whether they are mobile or immobile, tangible or intangible, fixed or circulating.

Examples include a home, land, furniture for the home, investments in stocks, bonds, mutual funds, etc.

Once you sell a capital asset, the distinction between the buying value of the asset and the sum you sell it for constitutes a capital gain or a capital loss. Capital gains and losses are classed as long-term or short-term.

If Land or home property is kept for 36 months or less than 24 months less than that Asset is classified as Short Term Capital Asset.With respect to that investment, you as the investor will either experience a short-term capital gain (STCG) or a short-term capital loss (STCL).

A property such as land or a house is considered a long-term capital asset if it has been owned for longer than 24 or 36 months. On that investment, you will either experience a long-term capital gain (LTCG) or a long-term capital loss (LTCL).

On STCG or LTCG, you might be required to pay capital gains tax.

How do I save capital gains tax on selling building plot? 

Capital gains tax on Short term gains is inescapable and no exclusions are available to decrease your tax payment. Nevertheless, you can claim deductions to minimise the tax payment on long-term gains.

Saving Capital Gains Tax by claiming Exemption u/s Section 54EC

• Capital gains from the transfer of any long-term asset can always be reclaimed as tax-exempt per Section 54EC of the Income-Tax Act by investing in designated bonds within 6 months of the transfer of the Asset.

• Such bonds can be issued by the National Highways Authority of India and the.

• Depending on which is lower, the exemption is equivalent to the investment or the capital gain. If you transfer or accept a mortgage against such bonds within 3 years, the capital gain would become taxable.

• These are redeemable after

  three

  years and

  need to

  now no longer

  be

  bought

  earlier than

  the lapse of

  three

  years from the date of sale of the

  residence

  assets

  . The Bonds issued u/s 54EC for saving of LTCG on sale of

  assets

  will now have a lock-in

  length

  of

  five

  years

  in preference to

  three

  years from FY 2018-19.

• You are allowed a

  length

  of 6 months to

  put money into

  those

  bonds,

  however

  earlier than

  the Income Tax Return

  submitting

  date (

  to say

  this exemption).

• You can

  make investments

  of at most of Rs 50 lakh

  at some stage in

  an economic

  12 months

  in

  those

  bonds.

Saving Capital Gains Tax u/s 54F

If you want to sell your land and buy a house, you must meet the following conditions:

• You can use all the proceeds from the sale (from selling your land) to purchase a new building or build a new apartment.

• When using part of the money, a deduction is made in proportion to the amount invested compared to the selling price.

• The investment timeframe is the same as for capital gains from home ownership.

• You must not own more than one home before making this investment. Capital gains deducted (from sale of land) are taxable if you purchase another home (other than the new home) within 2 years of transferring the original property or build a new home within 3 years.

• If the new home is sold in three years, the claimed deduction is chargeable as a long-term gain.

• This newly bought or built house must be located in India.

• Proceeds must not be invested in commercial real estate or other vacant land.

I hope this explains to you how to avoid capital gains tax after selling a plot.