MONEY MATTERS

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Taxation

Sumeet Arora: I bought a commercial office property in Delhi in 2000 and I have been using the same for business purpose. Now I want to sell it. Kindly let me know how long-term capital gains (LTCG) will be calculated and how I can save tax on it. Can I save tax if I do not invest the proceeds in another property?

Archit Gupta, Founder and CEO of ClearTax, replies: You have held this property since 2000. Therefore, it will qualify as a long- term capital asset as you have held it for more than two years. Gains arising from the sale of this property will incur LTCG tax at 20 per cent with indexation. To calculate the actual capital gain from the property, you have to subtract the indexed cost of acquisition ( ICOA) from the sale price. This is how ICOA is calculated: Actual cost of acquisition x Cost Inflation Index ( CII) of the year of sale ( FY2018/ 19)/ CII of the year of purchase ( FY2000/ 01).

You can save tax on LTCG by investing the gains in purchasing or constructing another house property. The time limit for the purchase is either one year before the sale or two years after the sale. In case of house property construction, the time limit is three years after the sale. This exemption is available under Section 54F.

If you do not want to buy/ build another house property, you can still save tax by investing the gains in the bonds specified under Section 54EC of the Income Tax Act, 1961. It must be done within six months from the date of sale. However, such investments for any fiscal year is restricted to a maximum of ` 50 lakh. These bonds could be NHAI bonds or REC bonds, redeemable after five years.