I am now retired and have sold my house and am using about 75 per cent of the sale proceeds to buy accommodation in a senior citizen community. How can I use the balance in a tax efficient manner?
Rajesh Goswami, Gurgaon
The sale proceeds of a house attract capital gains tax, which is the tax that you need to pay on the gains from the sale proceeds of the house you mention, assuming you owned this house for a long period of three years or more. In which case, you will be eligible to claim indexation of the costs of acquisition, with the gains being taxable as Long-Term Capital Gains (LTCG); if not, the gains would be taxable (without indexation) as Short-Term Capital Gains (STCG).
You can benefit from the tax exemption available on capital gains tax by reinvesting the capital gain in a new residential property situated in India, within one year before or two years after the sale date of the old house. If the amount invested in the new property is lesser than the LTCG arising on sale of the old property, your parents could consider investing the remainder amount in ‘long-term specified assets’ being bonds issued by the National Highway Authority of India and the Rural Electrification Corporation Ltd. These bonds are redeemable after 3 years from the date of investment.