Investing long term capital gain from property sale

One option to avoid tax on LTCG from property is to invest the profit (after indexation) into infrastructure bonds. But, these bonds seem to give a return of about 5.25%. Given that the market rate today is at least 2% more than this, does it make sense to take this route?

Are there any better options (other than reinvesting in another property or paying 20% tax)?

None but can invest in CGAS, for short period 2 years.
Capital Gain Account Scheme
A capital gain account scheme allows an investor to enjoy tax exemptions without purchasing a residential property. The Government of India allows the withdrawal of funds from this account only to purchase houses and plots.


Here is a very rough attempt at solving this problem you have presented. I will try to refine it further when I am not so sleepy!

So the question is saving 20% income tax spread over 5 years of lock in period plus 5.25% every year in returns as opposed to say market returns of 10% per year (28% cumulative over 5 years) to 13% per year (47% cumulative over 5 years) in equities if you pick the right Mutual Funds or Stocks? Please note the cumulative tax rates are on the post tax amount.

20% you lose in tax by investing in equities or mutual funds can be recouped if you make 3.75% more every year for 5 years + 5.25% which turns out to be 9%. So I guess if you make more than 9% every year you should be able to beat the returns of the CGAS.

Here is my calculation. Kindly correct me if I am wrong:

In [7]: (1.10)**5

Out[7]: 1.6105100000000006

In [8]: (1.13) ** 5

Out[8]: 1.8424351792999991

In [9]: .80 * 1.6105

Out[9]: 1.2884000000000002

In [10]: 1.84 * .80

Out[10]: 1.4720000000000002

In [20]: (1.0375) ** 5

Out[20]: 1.2020998056030279