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How to save capital gains from sale of house?

Q: I had purchased 1BHK flat in pune in 1993. In 2002 I was able to buy another 2BHK flat which is now self occupied. I now intend to sell the 1st flat and invest the entire proceeds in buying another house (with balance amount as loan from bank) which may be self occupied and existing 2BHK given on rent. Will the capital gains received on sale of 1st house be fully exempt from tax under relevant existing sections and also under DTC if sold after 1st April 2012.

Also please advise on the tax treatment under DTC after April 2012 for your recomendation to invest in commercial property.

Ans: You can save the capital gain tax by investing only the amount of capital gain after indexation benefit in new  house. In other words it is not necessary to invest the entire proceeds from sale of house to save capital gain. However, if you need money for buying house than you can invest entire sale proceeds. 

If the house is not let out for a minimum of 300 days during the financial year than it will be liable for wealth tax @1%. This is applicable as per present law and there is no change proposed in DTC for vacant house. So ensure the occupancy more than 300 days for rented property.


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