My wife will receive Rs 3 crore from the sale of her ancestral property. What are the applicable tax rates for the capital gain, and how can we reinvest to minimise tax liability? We need funds for a car, international trips, and a healthcare FD. We have also invested Rs 1 crore in mutual funds and own property worth Rs 2 crore. Please suggest strategies to maximise financial benefits while meeting these needs.
Naveen Kukreja Co-founder and CEO, Paisabazaar.com: As the property is ancestral, the capital gain from its sale will attract 20% LTCG tax with indexation or 12.5% without indexation. Calculating the acquisition cost may involve complexities. Section 54 of the IT Act offers avenues to save or defer LTCG tax, depending on the type of property. Consult a tax adviser to determine the LTCG and explore suitable tax-saving instruments. Instead of investing in capital gains bonds under Section 54EC, which have a five-year lock-in period and low returns of 5.25% per annum, it may be better to pay tax and allocate the proceeds to financial goals and investments. Maintain six months’ expenses in bank FDs yielding over 7.5% for liquidity and safety. Next, purchase health insurance of at least Rs 1 crore, with a base health cover of Rs 5-10 lakh and top-up cover of Rs 90-95 lakh for relatively low premiums, to deal with unforeseen medical emergencies. You may purchase term insurance plan(s) covering 20 times your family’s annual expenses for ensuring financial security of your dependants in case of the unfortunate event of your untimely demise. Allocate the remaining proceeds in a 60:35:5 ratio across flexi-cap, multi-asset, and gold funds through 12-18 month SIPs. You can consider the direct plans of Parag Parikh Flexi Cap Fund and/or HDFC Flexi Cap Fund for the flexicap category; Nippon Multi Asset Fund and/or ICICI Prudential Multi Asset Fund for the multi-asset category and SBI Gold Fund and Aditya Birla Sun Life Gold Fund for exposure to gold.
Also read | Can I switch to the old income tax regime while filing ITR?I am a 43-year-old salaried woman and own a property in Thane, which I plan to sell for approximately Rs 1.6 crore. I do not have any immediate cash requirements and am seeking advice on how best to deploy this corpus for future goals, such as purchasing a larger home around 2030.
Vidya Bala Co-Founder, PrimeInvestor.in: If you are not planning to save on capital gains tax from this transaction, you can simply invest the proceeds. However, if you intend to claim tax exemption under Section 54 of the Income Tax Act, the house purchase must be completed within two years of the sale. Alternatively, you can invest in 54EC bonds, which have a lock-in period of five years. If you are comfortable paying the tax now and your goal is to let the investment grow until 2030, a balanced 50:50 mix of equity and debt may be suitable. For equity, consider index funds based on the Nifty 50 or Nifty Midcap 150, or active funds like Parag Parikh Flexicap. For debt, look at short-, medium-term, and floating rate debt funds such as Aditya Birla Sun Life Floating Rate Fund, ICICI Prudential Short Term Fund, and HDFC Corporate Bond Fund—under the growth option.
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