I have an ancestral property — a plot of land in Mumbai purchased in 1950 by my grand father. I have got the plot transferred on to my and my sister’s name and would be selling it off around next week for Rs 4 crores. I want to have about Rs 1.5 crore liquidity in form of bank deposit or interest bearing deposit and the rest in property.

Could you suggest how I can go about investing the sale consideration so as to save on long-term capital gains tax?
Karan G Doshi
Via email

According to Section 54F, the long term capital gain arising from the transfer of any capital asset — not being a residential house — will be exempt if the assessee has purchased or constructed a residential house subject to the fulfillment of conditions given hereunder:
n The capital gain arises from the transfer of any long-term capital asset (i.e the original asset) other than a residential house.
n Within a period of one year before or two years after the date of transfer or sale of original asset, the assessee purchases a residential house or constructs a residential house within three years after the date of transfer/sale of original asset.
n If the amount of net consideration is not appropriated or utilised for the acquisition of the new asset before the due date of furnishing the return of income, it should be deposited in a bank’s capital gains accounts scheme.
n The cost of purchase or the consideration of new asset is not less than the net consideration in respect of the original asset.
n On the date of transfer of original asset, the assessee:
(a) does not own more than one residential house, other than new asset,
(b) does not purchase within one year or construct within three years after that date, any residential house, other than new asset and
If these conditions are satisfied, the capital gain will be wholly exempt. If only a part of the net consideration is invested in the new asset, then only proportionate gain will be exempt.
Since the plot was purchased in the year 1950, the fair market value (FMV) of the plot as on April 1, 1981, will get substituted and you will also be eligible for the cost inflation index. Further, each co-owner of the plot will be eligible to invest Rs 50 lakh in capital gains bonds specified under Section 54EC.
Your capital gains tax liability on the sale of plot for retaining Rs 1.5 crores in liquid form will largely be determined on the FMV adopted as on April 1, 1981. Higher the FMV, lower will be the capital gains tax liability.

I have paid Rs 1 lakh as tuition fee for my son. Apart from this, I don’t have any other head under the relevant Section 80C. Can I claim the entire Rs 1 lakh as the deduction?
Shashidhar
Via e-mail

The entire amount paid as tuition fees can be claimed as deduction under Section 80C subject to a ceiling limit of Rs 1 lakh.
However, expenses incurred towards donation, development fees, etc cannot be considered as incurred towards tuitions fees and hence will not qualify for deduction under Section 80C.

(Kamal Rathi is a chartered accountant, representing Rathi & Malani, a Hyderabad-based accounting firm. Readers can mail their queries on income tax to kamalrathi.ca@gmail.com)