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  1. Yes very much taxable as it is capital gains to you. The tax component would reduce if you use the entire gains to buy another property or invest the same in government bonds.
    However when you encash the bonds you would still be liable to tax.

  2. Money earned is taxed as Long Term Capital Gains.
    Calculated as follows:
    Take Full value of consideration(sale price)
    Deduct cost of aquisition after indexation
    Deduct cost of improvement after indexation
    Deduct expenditure on transfer.
    Balance is your capital gain.
    Pay 20% tax on the gain.
    Save tax by investing in another property of higher value or in Capital Gain bonds or Deposit the gain in Capital Gain A/c of a bank.