Capital Gain -54B,54EC,54F COMBINED

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Actually sir i am into a very big Dilemma to save on taxes {capital Gain} on the sale of land of my grandmother {Mother's mother}. My grandmother sold an ancestral land of agricultural but in urban limits of 1.70 acres which was sold for Rs1.30 Crores and a flat for Rs.12,00,000 in October 2008. 

How can i save the capital gain taxes which would be 20 %, i came to know about three options of saving the capital gain taxes which are as below:

  1. - She can invest up to Rs 50,00,000 in Tax saving Bonds.
  2. - She can purchase a agriculture land of the same amount.
  3. - She can purchase a Residential house of the amount, as she don't have any residential property in her name.

Now my queries are :
  1. Is the information i am having is correct? 
  2. Can my grandmother Invest the taxable income into all the three options clubbed together,which i have mentioned above.
  3. Can she gift the income to my mother and aunt (masi)? and would that be taxable in there hand or in my grandmother's hand? it cant be termed as tax free?
  4.  What would be the best available option to save on the capital taxes you will suggest.
  5.  Also i have heard that she have to invest the amount within 6 (six )months from the sale of land to save the capital gains. is that true?as some have also suggested me that in case of agriculture land i get one year time also to reinvest to save capital gain tax. or will i have to invest the amount before 31 march'2009?
  6. As the property market prices are going down i was thinking that if i get some more months like say another 5-6 months to invest the money into property to save on taxes, so will that be possible? Is there any option you can suggest Sir? I have heard about a Capital gain account which can be opened in SBI bank's in which account i can keep my money for two (2) years and will have to invest that amount into a residential property within a span of two years to save on capital gain tax.
  7. Also can she purchase a Residential plot ,other than residential house to save the taxes?
  8. What would be the lock in period of Bonds, residential property or the agricultural land which i intend to purchase, so that i can resale that without paying capital gains on them.
  9. Is there any provision of making the amount as gift into the name of her daughter  what would be the tax liability and how much would be the gift tax in that case Please kindly guide me to save on the taxes as the matter is bit complicated and i am not able to get the right advice form any one related to this Field.
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You have done your Home work very well ,and now its easy for me to answer your queries.

First of all, let me clear that whole of the sale consideration of the Land is not Taxable but only capital gain is taxable in her hand.

How to calculate capital gain.

Sale consideration after sale expenses=XXXX
Less: Indexed cost of acquisition.=XXXXX
Capital gain=XXXX

  • Calculation cost of acquisition:we will take Actual cost of land or value as on 01.04.1981 which ever is higher.
  • Cost of Indexation(check from here) :we will take Index of year in which asset was sold, divided by index of the year in which asset is given to your grand mother.

Example:suppose cost as on 01.04.1981 was 100000 and your grandmother becomes the owner of the asset in year 1990-91 and sold it in 2008-09 then cost of acquisition will be as under:

cost of acquisition(100000)   X   Cost inflation Index 2008-09(582) /cost inflation index 1990-91(182) =319780 say 3.20 lakhs.

so capital gain will be around 130-3.20=126.80 lakhs


To save the above capital Gain you have exactly three methods as you have already pointed out.

  1. She can invest up to Rs 50,00,000 in Tax saving Bonds.:Your views are correct but ,I would like to invite your attention that 50 Lakh Limit is for a financial year .As the assets are sold in October 2008 ,your six months will expire in April.So technically you can purchase 50 Lakh bonds in 2008-09 and next 50 Lakh in 2009-10.
  2. She can purchase a agriculture land of the same amount.:yes she can ,she have to purchase ,agriculture land amount equal to capital gain to save tax u/s 54 B with in 2 years from transfer of the original land .so she can purchase up to October 2010.
  3. She can purchase a Residential house of the amount, as she don't have any residential property in her name: yes she can u/s 54 F .To exempt the capital gain ,net sale proceed is to be invested in house.she can use this scheme even if she has own one residential house on date of transfer of the original asset( in this case agriculture land.)(two house under 54 F read details from Here)
Now Point wise answer to your queries are here under

Is the information I am having is correct? 
  • The detail is given above ,In case of bonds you can invest up to 1 crore(50lakh each in 2008-09 and 2009-10 Financial Year) . 
  • In case of bonds(section 54EC) :only capital gain is required to be invested
  • Agriculture land(section 54B) : only capital gain is required to be invested 
  • House u/s 54 F :net proceed is required to be invested.
Can my grandmother Invest the taxable income into all the three options clubbed together,which I have mentioned above.
  • All these option are independent to each other so your grandmother can use this option in any combinations ,as suitable to her .

Can she gift the income to my mother and aunt (masi)? and would that be taxable in there hand or in my grandmother's hand? it cant be termed as tax free?
  • If you are thinking that income tax can be saved by distributing the income by way of Gift then you are wrong .If your grand mother Gift this money to their daughters then their will no impact on capital gain tax of your grandmother.However if it had been done earlier by giving gift of land it self to their daughters , in that case tax will be calculated separately in your mother's and your Maasi's account.
What would be the best available option to save on the capital taxes you will suggest. 

  • As you are not interested in Land Purchase then you should try your hand with house and partial in Bonds.Capital gain can also be deposited if you think that you have better opportunities to invest which can give you better return after depositing the tax as compare to return on House purchased or bonds.If your thinking to invest in house with in two years time then go maximum for bonds .As in this case we have to deposit money in capital gain scheme first and then hose have a look in period of three years so total lock in period will be % years . so you should go for bonds ,if your planning to buy house after 2 years .(read this post for details-CAPITAL GAIN BOND U/S 54EC Vs CAPITAL GAIN PAYMENT)

Also I have heard that she have to invest the amount within 6 (six )months from the sale of land to save the capital gains. is that true?

  • Time Period for each section is given as under .6 month period is only under section 54EC i.e for bonds. 
  1. Section 54B : Agriculture Land is to be purchased with in 2 years from date of transfer.
  2. Section 54EC: with in 6 Month from  date of transfer.
  3. Section 54F : Can construct house with in three year or can buy house one year before and with in two year from date of transfer. 
As some have also suggested me that in case of agriculture land i get one year time also to reinvest to save capital gain tax. or will i have to invest the amount before 31 march'2009?

  • As per above answer, time limit has been explained.31 March 2009 is not a mile stone for any of the section explained above.

As the property market prices are going down i was thinking that if i get some more months like say another 5-6 months to invest the money into property to save on taxes, so will that be possible? Is there any option you can suggest Sir? 

  • Time Limit is already explained as per above.

I have heard about a Capital gain account which can be opened in SBI bank's in which account i can keep my money for two (2) years and will have to invest that amount into a residential property within a span of two years to save on capital gain tax.

  • If amount of capital gain arising from the sale of old asset is not used for section 54 B (agriculture Land) or House (section 54F) before the due date of furnishing of income tax return or furnishing of return which ever is earlier then the balance unused amount should be deposited in designated banks under capital gain account scheme 1988 .
  • if capital gain amount unused has not been deposited under the scheme then the amount of capital gain will be taxable in the previous year as long term capital gain it self no matter it is actually used by the assessee for the purpose as given in the two section above.
  • if the amount deposited in capital gain scheme as per above wholly or partly has not been used with in the three year from the date of transfer of old asset and purpose then 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.

Also can she purchase a Residential plot ,other than residential house to save the taxes?

  • On purchase of residential Plot only , there is no exemption.Moreover if you have availed exemption under section 54 F then if you will purchase a new house with 2 years and construct new house with in three years from date of transfer of agriculture land then tax saved by you, u/s 54F will be taxable in your hand.So future purchase of house is restricted .More over if your grand mother sold the House purchased to claim the exemption u/s 54 F with three years from date of purchase or construction then also tax exemption will be withdrawn.

What would be the lock in period of Bonds, residential property or the agricultural land which i intend to purchase, so that i can resale that without paying capital gains on them.
  • Lock in period for section 54 B agriculture Land and 54 EC is Three years.and for 54F already explained above.
Is there any provision of making the amount as gift into the name of her daughter. what would be the tax liability and how much would be the gift tax in that case. 

Hope these will resolve your queries.

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