I purchased a flat for Rs 9 crore before selling a property inherited through Gift Deed. How can I save tax?

Pankaj, a retired military officer, inherited a property through a gift deed from his father in March 2020. The current value of the property is about Rs 18 crore and the current indexed value is Rs 12 crore. Pankaj recently shared with us that he wishes to sell the inherited property and move to a flat. In March this year, he purchased a flat for Rs 9 crore. Pankaj asked how much time he had to sell the inherited property to avoid LTCG tax.

Pankaj also shared that after all expenses, the net residual funds would be about Rs 4-5 crore. “How should I invest this to get an assured post-tax 3/6 monthly payout of about 7% per annum as my retirement safety?” he asked.

Shruti K.P, Partner, INDUSLAW, has answered Pankaj’s query:

We have assumed that the property inherited by you is a residential house property (“RHP”). Note that under Section 54 of the Income Tax Act, an individual can save long-term capital gains tax arising on the sale of RHP by purchasing a new RHP in India within 1 year before the transfer, or within 2 years from the date of transfer or by constructing an RHP in India within 3 years from the transfer date.

In your case, since you have already purchased a flat, it is advisable to sell the inherited property within 1 year of such purchase i.e. by March 2024. Further, note that the new RHP should be locked in for a period of 3 years from the date of its purchase. If the new RHP is sold within a period of 3 years from the purchase date, then the exemption claimed earlier under Section 54 will be withdrawn.

Also Read: Sold a flat? Do this in ITR if the buyer registered Sale Deed at less amount to avoid Stamp Duty

Separately, please consult an investment advisor to make the optimum choice of investment depending on your retirement objectives.

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