Long term capital gain exemption on flat sale

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This discussion clarifies the rules around claiming exemption on long-term capital gains from selling a residential property. It explains that purchasing a commercial property generally does not qualify for exemption under Section 54 of the Income Tax Act. However, using the capital gains to repay a home loan for a property purchased within a specific timeframe before or after the sale can be eligible for exemption.

DIVYESH JAIN

DIVYESH JAIN (Querist)

06 April 2023 Dear Sir,

One of my client has sold his residential house property as X in February, 2023 and has long term capital gain on sale.

1)Can he claim capital gain amount exemption if he purchases a new commercial property as Y

He had purchased another residential house property as P on loan around 1.5 years back before selling the above mentioned residential property X in February 2023.

2) Can the capital gain amount of X be adjusted against the loan repayment of the property P.

Please help me resolve these 2 queries.

Thanks,
Divyesh Jain

CA Sanat Pyne

CA Sanat Pyne (Expert)

06 April 2023 1. As per the Indian Income Tax Act, a long-term capital gain on the sale of a residential house property can be exempted if the proceeds are utilized to purchase or construct another residential property. However, in the given scenario, your client intends to purchase a new commercial property, and therefore, he would not be able to claim exemption under Section 54 of the Income Tax Act.
2. The capital gain amount can only be adjusted against the cost of acquiring the new residential property Within a period of one year before or two years after the date of transfer of old house, which your client has not purchased in this scenario.

DIVYESH JAIN

DIVYESH JAIN (Querist)

06 April 2023 For the second point, if the property P was purchased 7 months back from the sale of another residential property X in February 2023, will he get the exemption incase of loan repayment in such case.

CA Sanat Pyne

CA Sanat Pyne (Expert)

06 April 2023 "For the second point, if the property P was purchased 7 months back from the sale of another residential property X in February 2023"

The LTCG being used to repay the home loan is considered to be fulfilling the criteria set under Section 54 and thus you are permitted to claim an exemption on the entire LTCG amount.

DIVYESH JAIN

DIVYESH JAIN (Querist)

06 April 2023 Ok, Thank you very much for the detailed information.

CA Sanat Pyne

CA Sanat Pyne (Expert)

08 April 2023 You are welcome.

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