Selling an inherited flat for Rs 2Cr. How do I avoid paying massive capital gains tax?

Question

I recently inherited a property and I am planning to sell it for around Rs 2Cr.

The capital gains will be roughly Rs 1Cr.

I want to use this money to buy a new house, but I haven't found the right property yet. How do I protect this Rs 1Cr profit from the taxman in the meantime?

Mohan Gupta · Accepted Answer

Under Section 54 of the Income Tax Act, you can completely avoid paying tax on real estate capital gains by reinvesting the profit into a new residential property. First, it is important to know that inheriting the property itself attracts zero inheritance tax in India. The tax liability only kicks in now, when you sell the asset and realize that Rs 1Cr capital gain. To claim the exemption, the rules give you a specific timeline to reinvest. You must buy a ready-to-move-in property within 2yr, or construct a new house within 3yr. However, since you haven't identified a property yet and the ITR filing deadline is approaching, you cannot just keep that Rs 2Cr sitting in your regular savings account. If the money is in a normal account when you file your taxes, it becomes fully taxable. To protect it, you must deposit the capital gains portion into a specialized Capital Gains Account Scheme at a designated bank before filing your return. This proves to the government that you intend to use the funds for a house purchase within the allowed timeframe. Failing to park the funds in this specific account is one of the most expensive mistakes investors make, often costing them lakhs in avoidable taxes. Disclaimer: All information shared above are strictly for educational and informational purposes only. It should not be construed as financial or investment advice.

Selling an inherited flat for Rs 2Cr. How do I avoid paying massive capital gains tax?

More from Mohan Gupta