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| NEW DELHI: As per the Finance Bill, 2007, the date when you make a long-term capital gain could make all the difference in terms of taxation under the Income-tax Act, 1961. It would give advantage to persons having long-term capital gains after October 1 in a financial year. Say, you sell your residential house which you owned since the past 30 last years for Rs.2 crore and say that the cost of your house after indexation is Rs. 40 lakh; you thus make a long-term capital gain of Rs.1.60 crore. If you now do not wish to invest the capital gain of Rs.1.60 crore in another residential house and at the same time you wish to save incometax , your option would be to invest the capital gain in the capital gains bonds for a minimum period of three years as provided for in section 54EC of the Act. However as per the Finance Bill, 2007, this investment in bonds is restricted to Rs. 50 lakh per financial year. Further, as per the already existing provision of section 54EC, such investment has to be made within six months from the date of sale of the house. Suppose you sell your house as shown in the example above in September 2007, you can invest upto Rs.50 lakh in these bonds and the balance of Rs.1.10 crore will be subject to income-tax. However if you sell your house in November 2007, then you can invest Rs.50 lakh in bonds before 31.3.2008 and make a further investment of Rs.50 lakh in bonds during April 2008 as you will still be within the period of six months during which such investment has to be made. You will thus be taxed on Rs.60 lakh only instead of Rs.1.10 crore and so after taking into account the proposed rate of taxation you could save upto Rs.11.33 lakh by way of tax by selling your house after October 1. Of course, if you sell your house, say on October 2, you will have to invest in the bonds by April 1, and to avoid last day difficulties such as availability and allotment of bonds you should keep some grace period. The other option available to avoid payment of income tax on long term capital gain on transfer of property used for residence is provided in section 54 of the Act. In such a case the capital gain can be invested in purchase of a new residential house within a period of one year before the transfer or two years after the transfer or by constructing a residential house within three years after that date. |
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