I purchased a residential flat for Rs 40 lakh three years back and now want to sell it for Rs 70 lakh and buy a commercial property (shop) for Rs 90 lakh. In such transaction (selling residential assets and buying commercial shop), does the regulations/rules allow me to adjust capital gain? Or, do I have to pay income tax on the capital gain? Please advise me on this.-Abhijit Bhattacharya

You cannot claim exemption of long term capital gains arising from a residential house by investing into a commercial premises. So you will have to pay the capital gains tax arising on the sale of the residential house or invest the capital gains in Capital gain bonds to claim exemption. For example if you had bought the residential house property before March 31, 2014 then the indexed cost of acquisition will be Rs. 49.50 lakhs approx. and the long term capital gains will be Rs. 20.50 lakhs (Rs. 70 lakhs minus Rs. 49.50 lakhs). You can invest Rs. 20.50 lakhs in 3 year 5.50% (taxable) NHAI or REC bonds to claim full exemption and use the balance sales proceeds to buy the commercial premises or pay Long term capital gains tax of Rs. 4.25 lakhs approx.. and use the balance sales proceeds to buy the commercial shop.

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When you do a financial calculation for most assumptions investments in capital gain bonds makes sense.

Please advise me on an investment plan with an amount of Rs 85 lakh which I am expecting to invest. I am a senior citizen and do not want any kind of risk. I would need at least Rs 40,000 monthly-A A Neelakantan

You have not mentioned if you have any income other than what you will get from your investment of Rs. 85 lakhs. For the purpose of the answer below it is assumed that you do not have any other income besides the income on this sum of Rs 85 lakh.

Secondly it is assumed that you have adequate medical insurance for yourself (and any body else whose medical expenses have to be borne by you) and so there will be no requirement to liquidate the amount for this purpose.

Thirdly it is assumed that you can consume the amount of Rs 85 lakh during your life time and it is not necessary for you to pass on the corpus to your heirs.

Fourth it is assumed that you are in your early 60’s and you would want the corpus to last for the next 25 years at least as well as provide for the amount of Rs 40,000 per month going up due to inflation.

Inflation is assumed at 6% per annum and it is assumed that it is possible to earn post tax return of 6% on low risk products.

As you can see that is a whole lot of assumptions being made which if they are incorrect will make the response non usable.

If all the above assumptions are correct then you could use up your entire sum of Rs 85 lakh to get Rs 40,000 per month inflated at 6% per annum in the next 18 years. Obviously, if you are in your early 60s, planning only till late 70s is clearly not enough. So, there will be no go but to make some investments that might carry some risk but will give you higher returns in the long term. Otherwise you run the risk of consuming all your money and running short of spending money in your lifetime.

With this back ground you can look at the following options - Rs 15 lakh in senior citizen saving scheme – which is a low risk product for five years (extendible to eight years) providing interest at 8.30%.

Rs 25 lakh in 8% RBI bonds (taxable) – please file an appropriate form to ensure tax is not deducted at source. Balance Rs 45 lakh in highly-rated, ultra short-term/short-term debt funds from where a systematic monthly withdrawal is set up to withdraw the remaining amount needed for expenses and an amount of Rs 25,000 is transferred to an equity saving fund (moderate risk) or a balanced fund (moderately-high risk). You can make this combination in any fund house. One suggestion is ICICI Prudential Flexible income fund with systematic transfer to either ICICI Prudential Equity income fund or ICICI prudential balanced advantage fund.

After the amount in the debt fund has been fully withdrawn you can set up a systematic withdrawal from the equity saving fund/balanced fund as applicable.

But as discussed, this solution is based on a number of assumptions. You should seek professional advice before proceeding further or taking any action as the facts of your case may be totally different.