In case of property, if you have sold the old property and bought a new one with the entire amount, than you need not pay capital gains tax. However, if you have not purchased a new property, than a capital gains tax would be applicable, unless you invest in specified bonds under section 54 EC

What are bonds issued under 54EC?

Bonds to avail of benefits under 54EC are issued by government entities like the National Highways Authority and Rural Electricfication Corporation Ltd.

The bonds are issued for a period of three years and the interest rates are well below the prevailing market rates. You must invest the proceeds from the gains within a period of six months and the cap on the amount is fixed at Rs 50 lakh per fiscal year.

The bonds have a lock in and cannot be pledged, sold are transferred before completion of three years from the purchase of the bonds and in case it's transferred then the amount of capital gains exempted on investment in these bonds will be made taxable in that previous year as long term capital gains.

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If you have purchased a house for Rs 50 lakhs and sold it for Rs 1 crore after five years, than you need to pay capital tax on Rs 50 lakhs. It could be lower than 50 lakhs after calculating indexation benefits. Even if the gains after indexation works to Rs 40 lakhs, than you need to invest Rs 40 lakhs in Bonds that are issued to avail benefits under section 54EC of the IT Act.

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