I bought a Residential Plot from HUDA in Ambala in the yr 1998 and got the Conveyance Deed done in 2004. Now i am planning to sell it off as soon as I find a buyer. I am also planning to reinvest the sale proceeds into another Residential Property at the earliest. Please advise me on the following:-
a. My Capital Gains will be calculated from which year – 1998 or 2004.
b. Is there any Tax Liability till I reinvest in a Property.
c. How can I legally avoid the tax liability.
d. Is there a requirement to reflect the same in my IT Return if the deal closes within this financial yr.
e. Any tax liability on Capital Gains Account Scheme.

Rajiv Mehta , New Delhi

 Answer a: If the money was paid in for plot in 1998 and you were given the letter of allotment, the year in which you were allotted the land by HUDA , shall be year of acquisition. Compute capital gains from that year of allotment.

Answer b, C , D & E :

There is legal way of avoiding the tax. That is,  by way of claim of exemption u/s 54F or 54EC .

Under section 54F , if you purchase another  residential house within two years of sale of land  or construct within three years from the date of sale of land , then amount equivalent to use of sale consideration shall not be taxable .Read How To Minimise Tax On Huge Gains on Property Sale? and don’t forget that Exemption u/s 54F is Lost if Another House Purchased Within Two Years.

If you can not purchase the house within the financial year or before filing return of income, you can deposit the amounts of sales consideration in Capital Gains Account Scheme .Read How To Use Capital Gains Account Scheme To Save Tax?

Under section 54EC , you can get exemption equivalent to investment  in bonds issued by Rural Electrification Corporation (REC ) and NHAI .Read How To Make Tax Planning For Long Term Capital Gains? Remember to read interest on REC Bond Is Taxable Yearwise!

Remember that Capital Gains Account Scheme can’t be used for purchasing Bonds.

Filing of return

If you get the full amount or even majority of payment and possession of land is given to the buyer, the deal as far as I T Act is concerned has happened. In that case you will have to show in the return  for the financial year in which such deal has materialised.