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Capital gains from sale of property

Yamini Kaur (yaminikaur@gmail.com) (31 Points)

04 August 2011

I have purchased a flat in the current financial year and taken a loan from a bank for the same.My EMIs start next month. I have another house which I might be able to sell this year.

Can I use the capital gains from the sale of the first house (have owned it for 10 years now), towards the prepayment of my current loan against the new flat ? What is the best way to amortize the capital gains from the sale of this house since my loan for the second house is already in place to able to save tax ?

Thanks,

Yamini

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10 Replies

Ankur Bhatia (Chartered Accountant) (35 Points)
Replied 04 August 2011

Hi Yamini,

Sec 54 provides for exemption of Long Term Capital Gain arising from sale of Residential House. The exemption is available if assessee buys a residential house one year before or within two years from the date of transfer of Residential House on which Long Term Capital Gain has arisen.

Thus, if you sale off your first house within 1 year of purchase of new house you can claim exemption u/s 54 of Capital Gain to the extent of amount invested (if Capital Gain > Amount Utilised).

If you are satisfied with the answer visit the link below to get answer to such queries:

https://www.facebook.com/pages/Tax-Sawaal-QueriesHelp/171513896253607

1 Like

Yamini Kaur (yaminikaur@gmail.com) (31 Points)
Replied 05 August 2011

Thanks Ankur for your response. Can I ask you one more question on the same vein ?

Can I use the capital gains from the sale of the first house towards prepayment of my bank loan on the second house ? Would that be same as 'amount invested' in the new house ? The concern is that it would go towards payment of the principal and not interest ? Does that matter ?

Thanks,

Yamini

Mihir (Wealth Manager) (5293 Points)
Replied 05 August 2011

Find out the prepayment charges of the bank.

Yamini Kaur (yaminikaur@gmail.com) (31 Points)
Replied 05 August 2011

Hi Mihir,

We already took a loan which has no prepayment charges anticipating this scenario.

Thanks,

Yamini

Mihir (Wealth Manager) (5293 Points)
Replied 05 August 2011

Read section 54F.

CA Saiyum khan (Practicing CA) (685 Points)
Replied 05 August 2011

The loan can be repaid out of the capital gain arises from the sale of the first house. The exemptions u/s 54 will still be available.

1 Like

Shah Tarun (Student) (800 Points)
Replied 05 August 2011

Originally posted by : Yamini Kaur
	Thanks Ankur for your response. Can I ask you one more question on the same vein ? Can I use the capital gains from the sale of the first house towards prepayment of my bank loan on the second house ? Would that be same as 'amount invested' in the new house ? The concern is that it would go towards payment of the principal and not interest ? Does that matter ? Thanks, Yamini

Yes,Surely You can claim exemption,

Condition is not of Prompt payment,You can claim the deduction of purchase amount shown in the "Deed",

It does not matter that whether you are paying it from money recieved from sale of "Property",

In the eyes of law proof is your "Deed" not the payment of loan.

In short your re-payment of loan constructs 'amount invested' in new property and stands eligible for Exemption,

1 Like

Mayank Lohana (Owner) (33 Points)
Replied 05 August 2011

Exemption under section 54 can be claimed only when invested amount is own fund . if invested amt is borrowed fund than exemption can not be claimed . and repayment of loan out of sale proceed of house property will be treated as amount invested for section 54.

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