I bought a flat in 1998. I bought a second flat in Nov 2019 where I have taken a loan to be repaid in 5 annual installments over the next 5 years. Can I avoid capital gains tax if I sell my old flat and use the capital gains to repay the loan. Is there a time limit by which I should sell and use the money to repay the loan.
If I am unable to sell my old flat before the deadline, what are the other options to avoid capital gains tax ?
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.
Technically you can purchase a new flat before 1 year of sale of old flat or after 2 years or construct a new flat within 3 years.
You can use the amount to repay loan and claim exemption from capital gain.
If you are unable to sell property in due time you can invest the amount in bonds mentioned under section 54EC.
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Thank you
Hello,
Yes, you can claim exemption u/s. 54 for repayment of home loan from capital gains amount.
As per Sec. 54, the new house property can be purchased up to 1 year to the date of transfer of old house or up to 2 years from the date of transfer of the old house. Since you have purchased the new house property in Nov. 2019, you have time up to Oct. 2020 to sell the old house property.
I hope that this answer satisfies your requirements.
Regards,
CA Hunny Badlani
If you miss the deadline for exemption u/s. 54/54F, you can invest the capital gains amount in 54EC specified bonds within 6 months from the date of transfer of the house property.
Hi
In order to claim exemption for investment in new property, the old property should be sold before Nov 2020.
Hello Sir,
You need to sale the old property on or before Nov 2020 to get capital gain exemption.
If you are not able to sale the old property on or before Nov 2020 then you can invest the capital gains of up to Rs 50 lakhs in bonds of NHAI or REC, within six months of its accrual and get the exemption u/s 54EC.
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 either 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
