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Do I need to pay income tax on the plot I sold to the government?

"If the plot was not rural agricultural land, you will have to pay long-term capital gains (LTCG) tax. "

Jan 21, 2019, 10.53 AM IST
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" The tax should be paid in the same year in which the compensation is received."
A plot I owned for the past 30 years was recently acquired by the government and I received Rs 40 lakh as compensation. Will I have to pay income tax or LTCG tax? How can I save tax?

Amit Maheshwari Partner, Ashok Maheshwary and Associates replies, "If the plot was not rural agricultural land, you will have to pay long-term capital gains (LTCG) tax. The tax should be paid in the same year in which the compensation is received. You can save tax under Section 54F by using the entire compensation to purchase a house within two years from the date of the plot’s acquisition, or construct a new house within three years. If you are unable to use the amount within the due date of filing the income tax return, it can be deposited under the capital gains account scheme and should be used within the above-mentioned time frames to avail of tax benefits. The other option is to invest the capital gains in bonds of companies like the Rural Electrification Corporation of India or the National Highways Authority of India within six months from the date of the plot’s acquisition."

I recently purchased a plot in Bengaluru. How long do I need to hold it so that gains from its sale qualify as long-term. Also, how can I save tax on LTCG?

Shubham Agrawal, Senior Taxation Advisor, TaxFile.in replies, "You need to hold the plot for at least two years for the gains from its sale to be treated as long-term capital gains (LTCG). If you don’t own more than one house, you can save LTCG tax by using the sale amount—not just the capital gains—to purchase a house in India. You may purchase a house within one year before the sale of the plot, or within two years after its sale, or construct a house within three years after the sale. Deduction will be allowed on a proportionate basis, if entire sale amount is not invested. Another way to save tax is to invest in bonds issued by the National Highway Authority of India or the Rural Electrification Corporation. Here, the investment is capped at Rs 50 lakh. You are allowed up to six months from date of sale to invest in these bonds, but you need to invest before the due date for filing the income tax return. Also, you need to hold these bonds for at least three years."
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

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