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Exemption u/s 54 available if home loan taken

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Ankur Singhal

Student

35 Points Posted on 16 August 2023

Mr X Sold the residential property in 2023-24 & capital gain from property is Rs 60 lakhs. He purchased the new residential property in 2023-24 for Rs 70 lakhs but he has taken home loan for Rs 30 lakhs. Whether emption u/s 54 will be available in the portion of home loan?? Exemption available will be Rs 60 lakh or 40 Lakh ?

Replies (3)

Quick Summary

This discussion explores whether a home loan impacts the capital gains tax exemption under Section 54. The user sold a property for Rs 60 lakhs in capital gains and purchased a new one for Rs 70 lakhs, with Rs 30 lakhs financed by a home loan. The core question is whether the home loan portion qualifies for the exemption and if the exemption is limited to Rs 40 lakhs or the full Rs 60 lakhs.

Dhirajlal Rambhia

SEO Sai Gr. Hosp.

121543 Points Posted on 16 August 2023

Rs. 60 lakhs...

sabyasachi mukherjee

Profession

19978 Points Posted on 17 August 2023

House loan not on sec 54

Aashok Kumar Sharma

Finance/Compliance Consultant

73281 Points Posted on 07 November 2026

Yes. Loan funding doesn't defeat Sec 54:

• Sec 54 requires the capital gain to be "invested" in a new residential house within the time limits. It doesn't require that the same sale proceeds be used. Tribunals (e.g. Mumbai and Delhi ITAT) have consistently allowed Sec 54 where the new house was purchased with a home loan, as long as the purchase is within 1 year before or 2 years after the sale (or construction within 3 years).

• Exemption = the lower of the capital gain and the cost of the new house (capped at Rs 10 crore).

• If the new house was bought within 1 year before the sale, the gain can be applied against it (even if loan-funded at that time).

• Interest on the home loan isn't part of the "cost of the new house" for 54 (separate 24(b) deduction).