How to save long-term capital gain tax on sale of Residential house property under section 54 of Income tax Act ?

Exercise one of the following options to save LTCG tax

  1. Buy or construct ONE house property and save LTCG tax


  1. The ONE house purchased within 1 year before the date of transfer or 2 years after the date of transfer or construct ONE house within 3 years after the date of transfer.
  2. Other than ONE above you neither purchase, within a period of 2 years after such date of transfer nor construct, within a period of 3 years of such date of transfer, another house property.
  3. You do not sell this new house within 3 years of purchase/ construction.
  4. The New house purchased/ constructed within India.
  5. You do not own more than 1 residential property (other than the new one) on the date of transfer.


  1. Invest in 5 years Capital Gain Bond Bonds under sec 54EC in NHAI / RECL /IRFC (AAA rated as highly stable) up to Rs 50 lakhs (Interest 5.75%pa taxable).


  1. Invest within 6 months but before the date of filing income tax return.
  2. Can not be offered as security against loans.

Net yield from the above Capital gain bonds is worked out to be @8% pa (after considering 20% LTCG tax benefit and tax on interest on the bond @30%)

In view of the above one may consider exploring other options of investments with higher returns. For example, Post tax return on Balanced Mutual fund works out @13%pa assuming return of @15%CAGR based on past average return of balanced fund over 5 years.

However past return on mutual funds do not guarantee future performance since they are subject to market risk.

Kishore S Hegde


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