Reinvestment of the capital gains into another residential property provides exemption from paying capital gain tax. Some notable points —- such reinvestment for tax saving is only available for a property that is long-term in nature, i.e. it has been held for over three years. The reinvestment has to be done within two years of sale (in case the new property is being constructed, the time limit is increased to three years). In case residential property is being sold, only the capital gain portion needs to be reinvested.
Where commercial property is being sold, the net sale proceeds (as against only the capital gain portion) after deducting brokerage and other incidental expenses have to be reinvested.
And lastly, the reinvestment has to be necessarily into another residential property only and not in any commercial property.
