Long term capital gains on residential property

Tax queries 790 views 3 replies

rahul chaurasia

Dy. Manager

25 Points Joined April 2014

Dear Experts

i got the different opinion about tax exemption on the long term capital gain by selling of residential property and it made me not coming to any conclusion.

Some experts say that Total sale consideration to be invested in new Property and some says that only the Capital Gain with indexation benefit to be invested in new property.

So please clear me about this issue and also the impact of home loan in the property sold and purchsed. For clarification i am taking an example...

May 2010 : purchase of home in 9.5 L (home loan taken 8.0 L from LICHFL)

Amount spent in Transfer, Registry, some repair : 0.5 L

Apr. 2014 : Sell of home in Rs. 27.0 L (out of this Balance of Home Loan paid = 6.0 L)

After indexation benefit the LTCG will be around Rs. 13 L

I want to purchase a underconstruction flat completing before Dec 2014.

Ques 1. is there any effect of Home loan taken in the calculation of LTCG.

Ques 2. How much amount i need to invest?? LTCG 13 L or Total Sale Consideration 27 L.

Ques 3. If i purchase a house of 25 L and i take home loan of 20 Lac, in this case can i save the Tax on My LTCG.

Ques 4. for saving LTCG Tax.. can i invest some money in purchase of new house and rest of money in Capital gain Bonds?

Ques 5. if i purchase new house for my Wife Name, can i get the exemption on the LTCG Tax?

Ques 6: can i invest the amount in 2 properties partialy to get LTCG Tax exemption.

Replies (3)

Income Tax Wala: (Fin. Expert)

Chartered Accountants

2015 Points Joined August 2010

Ans. 1: No effect of home loan taken initially and later it was repaid in calculating LTCG.

Ans2; . as per section 54 of IT act 1961 only capital gain portion on sale of residential property need to invest in new residential house to get to full benefit.

Ans3: Yes you can save tax because there is no such condition that same funds should be used in new property to be purchased. And this is well decided in given case law (Ishar Singh chawla v. CIT 2010 130 TTJ 108)

Ans 4: as per your explanations your LTCG is 13 Lac and cost of new house is around 25 Lac, here conditions of section 54 fulfilled.

But if you invest partly LTCG in buying new house and partly in REC/ NHAI bonds than you are absolutely at right path. you are eligibile than after.

Ans 5: yes you are eligible to get exemption u/s 54 but you will not be able to get the benefit interest and principal amount paid on home loan (if EMI will be deducted from your bank account)

Ans 6: yes you can invest in two property to get the full benefit of LTCG .

Mihir

Wealth Manager

5293 Points Joined December 2008

Yes, only the computed LTCG has to be invested to claim exemption u/s 54. Bonds can be purchased within 6 months, property can be purchased within 2 years and property can be constructed within 3 years.