Long Term Capital Gain Exemption Rule

Tax planning 534 views 4 replies

Donati

Self occupation

115 Points Joined March 2017

This is regarding LTCG arising from the sale of a residential flat.

My client purchased a flat in 2006 and a second flat in 2021 (in the same building, with a home loan still running). He had planned to sell the first flat within 2 years of purchase of 2nd flat but could not do so because of leakages from the building terrace. This year, 2024, he purchased a third flat (due to its proximity to the school) on a home loan. Now he is in a situation where he has to sell the first flat to pay off one of the home loans.

The query is: If he sells the first flat (purchased in 2006) within 2 years of purchasing the third flat, can he claim exemption on LTCG?

Is it necessary to invest the total sales proceeds, or just the LTCG amount (after indexation)? The third flat is an old resale flat, and it is priced lower than the one I plan to sell. So, even if I include the improvement cost for the third flat, I won't be able to use the entire sale proceeds on it.

What about investing in government bonds to avoid tax? Am I eligible to do that? For how many years should I stay invested in them?

Thanks.

Replies (4)

Dhirajlal Rambhia

SEO Sai Gr. Hosp.

211457 Points Joined July 2016

Change your understanding. It is not two years from purchase of another flat, but ONE year from .....
If the above condition gets satisfied, only capital gain need to be invested, not entire sale consideration...

Donati

Self occupation

115 Points Joined March 2017

Sir, thanks for the prompt reply.
Yes you are absolutely right. The new residential property should be purchased either one year before the sale or within two years after the sale of the old property.
Does the number of flats owned during the buying of a new flat or the selling of the old flat count.

Thanks.