Ways to Save Capital Gains Tax on Sale of Property in India..

 a) Invest in a Residential House (Buy / Construct)  (Under section 54F)

 The seller of the property can claim for tax exemption if he buy another essential property. However, the amount of investment & exemption depends on the type of Capital asset sold.



 The seller has two options, either he can buy another house within two year from sale of property else he can build a house in three years.   Buyer can also buy a house 1 year prior to selling the house and still can avail the benefit under section 54.

However, following conditions needs to be adhered
1. You can only invest in Residential property. This means you cannot invest in a commercial property or land to save tax.

2. You should not own more than one house prior to the investment.
If the new house is sold within three years, the deduction claimed will become taxable as a long-term gain.

3. If any additional house (other than the new residential house referred above), is purchased within a period of two years or constructs within a period of three years after the date of transfer of capital asset, then the original exemption will be taxed as capital gains in the year in which the additional residential house is acquired

Capital Gains Accounts scheme -   If you could not invest the amount in another property before due date if filing the returns, you can deposit the amount into a bank account under the Capital Gains Accounts Scheme, 1988. Such amount would have to be utilized for the purchase or construction of the new asset within the prescribed time period. Unutilized amounts would be taxable as income of the previous year in which the period of 3 years from the date of the transfer of the original asset expires.

b) Invest in Capital Gain Bonds (Section 54EC)

Irrespective of the type of property, here you nee to just Invest profit (capital gains) into Capital Gains Bonds. You can invest in NHAI or REC Bonds upto 50 lakhs in an year.
There is a Lock in of 3 years for such investment.  If you transfer or take a loan against these bonds within three years, the capital gain will become taxable.

Important Note –  If you have Capital gains from Under Construction Property / Commercial / Non Agricultural Land –    then this option is more beneficial as you need to invest only profit amount & not the entire sale amount.