A person may reduce the capital gains tax by complying with the provisions specified under The Income Tax Act. The Act contains provisions regarding taxation of capital gains arising out of transfer of house property. Capital gain tax is leviable on sale/ transfer of house property. What constitutes a sale and transfer has been specified under the Income Tax Act. The capital gain tax is computed on the indexed cost of the asset purchased, which is deducted from the consideration received / receivable by the assessee. The indexed cost is computed according to the indexation rates notified by the Income Tax Department for each year. The asset transferred should include buildings or lands appurtenant thereto and a residential house. Further the income of the house property should be chargeable to tax under the head 'Income from house property' . Other immovable properties, although owned by an individual, are not eligible for this exemption. The capital gains should arise from the transfer of such a long-term capital asset. The house must be held for a period of more than 36 months before the date of sale or transfer. The house property may be selfoccupied or rented out. In order to avoid being liable to pay capital gains tax, the assessee can either purchase a residential house within a period of one year before or two years after the date on which the transfer took place, or construct a residential house property within a period of three years after the date of transfer. In either of these two cases, instead of the capital gain being charged to income tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions: In case the amount of capital gain is greater than the cost of the residential house so purchased or constructed , the difference between the amount of the capital gain and the cost of the new house shall be charged the income of the previous year. In case the new house is sold within a period of three years of its purchase or construction, then for the purpose of computing capital gains in respect of the new asset the cost shall be nil; or In case the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged to tax at all. In case the new house is sold within a period of three years of its purchase or construction , then for the purpose of computing capital gains in respect of the new asset, the cost shall be reduced by the amount of the capital gain. The amount of the capital gain which is not appropriated by the assessee towards the purchase of the new assets made within one year before the date of transfer of the original asset, or which is not utilised by him for purchase or construction of the new asset before the date of furnishing the return of income, should be deposited by him in a specified bank. The amount should be deposited before furnishing the due date of filing Income Tax Return. The amount can be utilised in accordance with the scheme which the Central Government may frame in this behalf. The proof of such deposit should be attached with the Income tax return. The amount, if any, already utilised by the assessee for the purpose of purchase or for construction of the new asset together with the amount so deposited, shall be deemed to be the cost of the new asset. In case the amount so deposited is not utilised wholly or partly for the purchase or construction of the new asset within the period specified, then the unutilised amount shall be charged as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires. The assessee shall be entitled to withdraw such amount in accordance with the provisions of the scheme. It is to be noted that the benefit is available only to individuals and to the Hindu undivided family. No other category of assesses are eligible for this concession.
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