Tax Planning on Capital gain on Land .

 

Action / Transaction	Tax Incidence.
Mr. R hold a plot of Land. He will divide the same into plot A and plot B and transfer the Plot B to his son Mr. S by way of gift	1.    Mr S requires to pay stamp duty to get the gift of land in his name from his father. 2.    The gift is between father and son and hence Mr. S not require to include the gift in his taxable income u/s 56(2)(vii)/(x) of Income tax act.
Mr R and  Mr S both sold the Plot A and Plot B.	1.    For Mr. R there is Long term capital gain as he is holding the land for more than 2 years. 2.    For Mr. S, even though  his holding is less than 2 years, since he had obtained land by way of gift , the period of holding of previous holder will be also counted. It will be more than 2 years and hence Long term capital gain. 3.    For computation of capital gain refer the table A given below.
Mr. R and Mr S purchase a new residential property within 2 years from the date of sale of land. (refer section 54F all conditions)	1.    Both are entitled for exemption under section 54F. 2.    For computation of Exemption u/s 54F refer the table B given below.

 

Table A :

Particulars	Mr. R	Mr.S	Remarks
Sale Consideration	1000	1000
Less:  Indexed Cost	600	600	There is no cost for Mr. S so as per section 49(1) of Income tax act, the cost of previous owner should be considered.
Long Term capital gain	400	400

 

Table B

Value of New Home	800	1000	1200
Long Term capital gain	400	400	400
Exemption u/s 54F	800*400/1000= 320	400	400
Taxable capital gain	80	NIL	NIL
Exemption u/s 54EC  by way of investment in Bond (max 50 Lakhs)	50
Taxable capital gain	30	NIL	NIL