Me and my wife are co-owners of a residential flat since November 2016. I am paying the EMI of the loan taken against the same flat.My wife is expected to sell some land. Can the whole amount received from the sale of this land be utilized to pay the outstanding bank-loan with a view to save capital gains tax? Please also refer to the related rules.
Can the Capital gains tax be saved only when one purchases land for land or residential flat for residential flat? Which rule governs this matter?
Dear Sir,
Here is my reply to your query:
Income Tax Exemption on the Capital Gain cannot be availed by repaying the loan amount of some house property.
Income Tax on Capital Gain on the house property can be saved if the amount of the sale proceeds can be wither invested in the other house property or the capital gain bonds as mentioned in section 54EC of the income tax act.
Thanks and Regards
Divya Chugh
Dear Sir,
Hope you are doing well !!
Home loan and Capital Gains Exemption are two separate things. You can claim the Capital gain exemption only if you use the money from the sale of the property to buy another house. The purchase of new house has to be done one year before the sale of the house or 2 years after the sale of the house. The property should be bought in the name of the seller. Income tax department is not concerned if you used the sale money for repaying the home loan or not.
There are numerous slabs and sections under which you can save on tax if you reinvest your long-term capital gains.
Section 54: Under this section, you can avoid tax on capital gains from the sale of a house property if you reinvest the money to buy another property. You can claim tax exemptions under this section if you buy the new property one year before the sale or two years after the sale. In case it is under construction, the new property should be ready within three years of the old property’s sale.
Section 54EC: You can claim tax exemption by using the amount you gain from selling an asset to buy bonds issued by NHAI and REC.The bonds should be bought within 6 months of the sale of the asset. The maximum amount you can invest in this way is Rs. 50 lakh. It will lock your money for 5 years.
Section 54F: You can claim total tax exemption by using the money you gain from selling any asset (except a house property) to buy a house property, which needs to be bought one year before the sale or two years after thse sale. For under-construction properties, the new property should be ready within three years of the asset’s sale.
Capital Gains Account Scheme (CAGS): if you do not get a chance to invest in a profitable property immediately and still want to save your long-term gains from being taxed, you can invest your capital gains in CGDAS by approaching any public sector bank. The timeframe for the purchase or construction of the property remains unchanged in this case as well. But you can utilise this account momentarily so that you save your gains from being taxed and have more time to finalise a property for reinvestment.
It is required to deposit such unutilised capital gain in the capital gains account before furnishing return of income but not beyond due date for furnishing return of income.
Normally, the due date of filing Income Tax return is July 31 for the previous Financial Year. Under extraordinary circumstances, it can be extended by the Finance Ministry.
Hello,
To claim an exemption under section 54/54F, the new house property must be purchased either within one year prior to the date of sale or within two years after the date of sale of the old property.
In your case, since the new flat was purchased in Nov. 2016, you cannot claim the exemption for the repayment of home loan for such flat.
Home loan principal repayment will be available as deduction u/s. 80C while the interest part will be available as a deduction u/s. 24 under the house property.
I hope that this answer satisfies your requirements.
Regards,
CA Hunny Badlani
There are two sections governing exemption for the purchase of house property from the sale proceeds of either house property or any other long term capital asset under Sec. 54 and Sec. 54F respectively.
While Sec. 54B provides an exemption for investment in agricultural land from the proceeds of the sale of another agricultural land.
Hi
No, the exemption shall not be granted in such case as the property was purchased before 1 year limit from the date of sale in accordance with section 54F.
Section 54F of the Income tax act shall be applicable for claiming exemption from capital gains.
You won't be able to save capital gain tax as this would be covered under section 54F and according to it you need to purchase a flat before 1 years of sale and in your case you have purchased it before this so repaying such loan won't help.
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