Selling shares and MF worth Rs 60 lakh. Can I get capital gains tax exemption by investing it in an under-construction residential project?

I am a 75-year-old retired bank official, and my wife is 67. I receive a monthly pension of Rs 40,000, and my sons live in different cities. I plan to buy a two-bedroom flat for Rs 80 lakh in an upcoming gated community old-age home project, using the proceeds from the sale of shares and mutual funds. The landlord has assured completion of the project within two years and has offered a 10% discount for upfront payment. I want to know if I will be eligible for tax exemption on capital gains from the sale of shares and mutual funds worth Rs 60 lakh if I pay the entire amount before 31 March 2025, for the unfinished project. If I and my wife jointly purchase the property, will we both be eligible for a proportionate capital gains tax exemption?

Umesh Kumar Jethani Founder, ApkiReturn: To qualify for a capital gains tax exemption under Section 54F of the Income-tax Act, invest the Rs 60 lakh proceeds from selling your shares and mutual funds in a residential property within three years. Ensure that the full amount is paid before 31 March 2025, and the property must be completed within this period. The 10% upfront payment discount does not affect your exemption eligibility. If you and your wife jointly purchase the property, each of you can claim capital gains exemption in proportion to your contribution if the following conditions are satisfied:

The tax exemption is only available to the spouse who has realised capital gains from selling the asset.

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If only one of you has earned capital gain, the exemption can still be claimed by the other spouse, with the gains proportionate to their investment in the property. This set-up ensures that both the spouses potentially benefit from the tax exemption depending on the individual contribution and capital gains for each.

I purchased a flat in May 1993 for Rs 1.48 lakh and plan to sell it now for Rs 14 lakh. Could you help calculate the capital gain and applicable tax? Additionally, please advise on the available options to save on capital gains tax. This is my second and, currently, the only residential property.

Amit Maheshwari Tax Partner, AKM Global: When you sell your flat for Rs 14 lakh, which was originally purchased in 1993 for Rs 1.48 lakh, the profit from the sale qualifies as long-term capital gain (LTCG), as the holding period exceeds 24 months. Under the proposed 2024 Budget, resident taxpayers (individuals or Hindu undivided families) have the flexibility to choose between two tax options for properties acquired before 23 July 2024: 12.5% tax without indexation, or 20% tax with indexation. The tax liability under the 12.5% option, without indexation, amounts to Rs 1,56,500, while the tax liability under the 20% option, with indexation, amounts to Rs 1,72,552. It can be inferred that the 12.5% tax rate without indexation would be more beneficial due to the lower tax liability. To further reduce your capital gains tax, you can purchase a new residential property within two years or construct one within three years of the sale to claim an exemption on the LTCG under Section 54. Additionally, Section 54EC allows you to invest in specified bonds, such as those from the NHAI or REC, within six months, with a maximum investment limit of Rs 50 lakh and a five-year lock-in period. Therefore, you can consider investing your capital gain in the modes mentioned above to avail of the tax benefits.

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