Buy property to skip LTCGT

QI own a property in Maharashtra, which is worth `60 lakh. This is an independent house built in 1992. Now I am planning to sell it. I was told that after disposing, the amount can be invested in bonds so that I need not pay capital gains tax at all. After that, I would like to buy a flat with half the amount. I would like to know the following:

1) Which capital gains bond are the safest and how much interest will I get? I am 62 years old. 2) Is it true that I need not pay tax at all?

3) Will I get half the amount to buy a flat? SHILPA DAS

Via email

A) Your query does not make any mention about the cost of purchase/construction of the house. The income on sale of your house will be treated as long term capital gains. The Fair Market Value (FMV) as on April 1, 2001, can be substituted for the actual cost of the house. You will also be entitled for cost inflation index, which is 2.89 times (for FY 2019-2020) of the fair market value adopted as on April 1, 2001.

The difference between net sale consideration received on the sale of the house and the indexed cost of acquisition computed above shall be your “long term capital gains” which is liable to be taxed at the rate of 20.8 per cent.

This tax liability can be avoided if the long term capital gains is deposited in bonds specified under Section 54EC within six months from the date of transfer or sale of the residential house. The investment under Section 54EC can be made in specified bonds redeemable after five years issued by Rural Electrification Corporation Limited, National Highways Authority of India, etc. The rate of interest on these bonds is around 5.75 per cent per annum and can be considered safe for investment. However, the amount invested in such bonds will not exceed `50 lakh. The capital gains tax liability can also be avoided by purchasing a house within a period of one year before or two years after the date of transfer or sale of the original asset or by constructing a residential house within a period of three years after the date of transfer or sale of original asset. Where the longterm capital gains amount is greater than the cost of house (new asset) the difference shall

The capital gains tax liability can also be avoided by purchasing a house within one year before or two years after the date of transfer or sale of the original asset or by constructing a residential house within three years after sale

be liable to tax.

In case the amount of capital gains is not utilised for the acquisition of the new asset before the due date of furnishing the return of income under Section 139(1), it should be deposited in an account with any specified bank or institution and utilized in accordance with the Capital Gains Accounts Scheme, 1988. Further, you can avail both the options i.e., investing in capital gains bonds as well as purchase/construction of a residential house.

QI am a senior citizen aged 76 years. I am a diabetic and suffering from blood pressure and ostomy. I am not having any health insurance as no insurance company is providing me health coverage due to my age and health issues. Am I eligible to claim exemption of `50,000 under Section 80D towards the treatment of the above-said diseases? KAMALAPATHI Via mail

A) You are not eligible to claim any deduction under Section 80D as it is applicable only for the premium paid on health insurance. Another Section 80DDB covers any amount actually paid for the medical treatment of self or his/her dependent for specified diseases mentioned in rule 11DD of the Income-Tax Act. As the diseases mentioned by you are not covered under the said rule, you will not be eligible to claim any deduction on the amount incurred for the treatment.

(The writer is a Hyderabad-based chartered accountant. He can be reached at info@rathiandmalanis.com)