it is not compulsory to purchase property after selling one .Tax provisions provide for exemptions for capital gains from the sale of a house if the taxpayer invests the gains in a residential property within two years from the date of sale or constructs another house within three years.

the sale of a property involves short-term capital gains tax if it is sold before the completion of three years of purchase. Such gains are taxed at the same rate as applicable to any other income of a taxpayer.

However, if the property is sold after three years of purchase, the resultant gains — known as long-term gains — are taxable at a fixed rate of 20%. That apart, the taxpayer is entitled to avail the benefit of an inflated cost of acquisition of the property as prescribed. Also, you might be able to avoid paying tax on long-term capital gain arising from sale of the house, and also have an option to reducing the tax burden.

1. No law compels you to purchase a property after selling one. It is your prerogative as to how you desire to use the amount you have received from the sale of the house.

2. The tax implications will be determined having regard to the time duration between the purchase and sale of the property. Sale of a property involves short term capital gains tax if it was sold before the three years have elapsed since the date of purchase. The tax authorities will consider the profit you generated by the sale as regular income for that year and the tax will be computed and applied accordingly.

3. On the contrary, if you have sold the property after three years of its purchase then you are required to pay long term capital gains tax at the rate of 20%. In addition to this, you might be able to avoid paying tax on the sale of the house, and you also have options for reducing the tax burden following the sale of real estate. The capital gains are exempted from the sale of a house if the taxpayer invests the gains in a residential property within two years from the date of sale or constructs another house within three years from the date of sale.