Buy one house within two years from the date of sale of the inherited house or construct another house within a period of three years. For this you don't have to invest the whole money as only the indexed long-term capital gains are computed as capital gains.
I think you should invest in bonds of Rural Electrification Corporation or National Highway Authority of India within a period of six months from sale of the inherited house. It is to be noted that only Rs 50 lakh is the maximum limit for saving capital gains tax.
Thanks, Anyone who owns a property is liable to pay tax on the income you generate from the property on an annual basis. The taxation value of the property is derived from the rent received or the notional rent. In case, the property is self-occupied, the annual value is taken as nil.
It is true that the real state industry is looking for tax reduction. To get more details you can read the article Realty firms want exemption of SEZ from MAT at commonfloor.