• Exemption from LTCG by repaying home loan

Hello 

I'm planning to purchase an under construction property currently(May 2024). I will use 30% of my own funds and avail of 70% loan. The property will be available for possession in Dec 2026(2.5 years from now). What I wanted to do was the following
After I get possession of my new home in Dec 2026, I will sell off my current flat(in which I'm residing) and pay off the home loan on the new flat(both will be approximately same amount). Can I avail of tax exemption for LTCG by doing this ?
Or will it be the case that I have to pay LTCG on the sale of my current property ? If so, this adds a considerable cash outflow for me (as all the money I got from my current property will go towards repayment of loan and I have to additionally pay the LTCG)
Please advise if this is the case and is there any way to exempt from LTCG in this case
Asked 2 months ago in Capital Gains Tax

- Exemption would be available but it may be subject to litigation. You are required to utilize only capital gain amount to avail exemption

- Ensure TDS deduction on each installment on purchase of under-construction property

- Alternatively you can sell the property currently and utilize the proceeds for construction of the new property. It will save you from availing loan and if you decide to reside in the rented property then you can claim exemption against HRA. Construction should be completed within 3 years from the date of sale of the property and you have to open capital gain account scheme if total LTCG is not utilized before the filing of ITR of the year in which property is sold

 

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Vivek Kumar Arora
CA, Delhi
4885 Answers
1069 Consultations

5.0 on 5.0

Litigation means scrutiny by the Income tax department and may disallow the benefit of exemption

Vivek Kumar Arora
CA, Delhi
4885 Answers
1069 Consultations

5.0 on 5.0

Current Plan:

  • You plan to sell your current property and use the proceeds to repay the home loan on your new property.
  • The sale of your current property will generate LTCG, and you intend to use this amount to repay the home loan.
  • Tax Implications:

  • Exemption under Section 54:

    • To claim the exemption, the LTCG should be utilized in purchasing or constructing another residential property.
    • Repaying a home loan is not explicitly covered under Section 54 for claiming the exemption.
    • Thus, using the sale proceeds to repay the home loan may not qualify for exemption under Section 54 and could be subject to litigation or scrutiny by the Income Tax Department.


  • Alternative Approaches:


    • Capital Gains Account Scheme:

      • If you sell your current property and do not immediately reinvest the LTCG, you can deposit the amount in the CGAS to claim the exemption. The funds can later be used for construction or purchase as per the timelines mentioned.


    • Purchase/Construction within Timeline:

      • Ensure that the LTCG is used within the stipulated time frame for purchasing or constructing the new property to avail of the exemption.

For detailed, personalized advice, consider a phone consultancy.

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Thank you.

Shubham Goyal

  1.  

Shubham Goyal
CA, Delhi
269 Answers
4 Consultations

5.0 on 5.0

It depends when you purchase the property. Property is considered as purchased when it is registered in your name and you have the possession. So if you get possession in 2026 and sell the old property in 2026 then you can claim exemption against sale of old property.

 

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Thank you.

Naman Maloo
CA, Jaipur
4288 Answers
98 Consultations

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