Sale of second flat - tax implications...

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Jithesh (Querist)
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01 June 2015 I booked a Second house in year 2012 from a builder and got possession last year (2014), am availing all tax benefits like interest on home loan I paid during the construction phase etc.

My query is if I sell this flat (second house) with-in first 5 years of purchase "to buy another flat" in a different location do I need to pay tax on sales of fixed assets or on the Income tax benefits I received from home loan?
Will 5 years be calculated from the date of possession or from the date of booking the house under construction linked plan?

ramprasad

ramprasad (Expert)
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02 June 2015 Sale of flat is subject to capital gain.
5 years should be computed from the end of financial year in which possession is taken

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Jithesh

Jithesh (Querist)
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04 June 2015 Dear Ram sir,
Thanks for the clarification.

If within 5 years of possession, I sell the house to buy another flat I believe tax will be computed only on the capital gain in excess of the cost of the new house; right?

I believe the sale will not have any impact the tax benefits I have already availed for 2 years; if I am buying a new house within 3 years of sale, kindly confirm?

Thanks

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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23 July 2025 Here’s a clear breakdown of the **tax implications on sale of your second flat** within 5 years and how it relates to your home loan tax benefits:

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### 1. **Capital Gains Tax on Sale of Flat**

* When you **sell the flat**, the sale is subject to **capital gains tax** (long-term or short-term depending on the holding period).
* The **5-year holding period** for residential property (for long-term capital gains) is counted from the **end of the financial year in which possession is received**, **not from the booking date**.

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### 2. **Utilizing Capital Gains Exemption**

* Under **Section 54 of the Income Tax Act**, if you **sell a residential property** and **buy another residential property** within the prescribed time (purchase within 1 year before or 2 years after sale, or construction within 3 years), you can **claim exemption from capital gains tax** on the sale.
* The exemption applies on the **capital gains amount invested in the new property**.

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### 3. **Impact on Home Loan Tax Benefits (Section 24 and 80C)**

* The **interest paid on home loan** during construction and post-possession can be claimed as deduction under **Section 24** (interest) and **Section 80C** (principal repayment).
* If you **sell the flat within 5 years of possession**, the **Section 24 interest deduction is restricted to Rs. 2 lakh per annum**.
* However, selling the flat **does NOT require you to repay the tax benefits already claimed on the home loan principal or interest paid during previous years**.
* The **restriction applies for interest deductions going forward** or if you continue to own the property.

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### 4. **Summary of Your Situation**

| Aspect | Tax Treatment |
| ----------------------------------------- | ----------------------------------------------- |
| Sale of flat within 5 years | Capital gains tax applicable |
| Holding period for LTCG | From end of FY possession received |
| Exemption on capital gains | Yes, if new house bought within prescribed time |
| Home loan interest deduction (Section 24) | Restricted to Rs 2 lakh if sold within 5 years |
| Effect on past tax benefits claimed | No recovery or reversal required |

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### 5. **Example**

* You got possession in 2014, so 5 years is counted from 31 March 2015.
* If you sell before 31 March 2020, capital gains will be short-term.
* If you buy another flat within 3 years of sale, you can claim exemption on capital gains.
* Interest deduction on home loan for this flat is restricted to Rs 2 lakh per annum if sold within 5 years.
* No impact on tax benefits already availed for interest paid during construction or earlier years.

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If you want, I can help you calculate the capital gains or draft a tax planning strategy for this sale and new purchase. Would you like me to?

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