Buy bonds or house to reduce your tax liability on long term capital gains from sale of land.

Someone asked on Yahoo Answer-replied by me on 10/11/06
I bought a piece of land about 4 yrs ago and am planning to sell it. I am expecting decent profit on this sale. I want to know about the current capital gains tax rates. I believe there is a provision for lower capital gains tax rates if benefit of indexation is not utilised. I also want to know about where I can invest my capital gain (together with interest rates and lock-in periods) to enable me to save on capital gains tax.

The tax rate on long term capital gains of land is 20%. Thus , in your case , it will be 20% .Explanation ot Section 112 of the I T Act makes it clear that ONLY securities or units have the benefit of option regarding indexation i.e 10% tax without indexation or 20% tax with indexation scheme.

As far as saving on LTCG is concerned , you can take the benefit of Section 54EC by investing whole of LTCG in bonds issued by

1. National Highways Authority of India
2. Rural or Electrification Corporation Limited,or

within SIX months from the date of transfer .

You can also take the benefit of Section 54F of the I TAct for saving tax on long term capital gain tax by investing the Sale Value of the long term capital asset in any residential house within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house .
Remember this benefit is not available to you in following cases
i) owning more than one residential house, other than the new asset, on the date of transfer of the original asset; or
(ii) purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or
(iii) You constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and