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Sec 54 Read with Sec 71

CA.Xialdin (Risk Analyst) (43 Points)

09 March 2010

My Client had sold Residential House Property (Not SOP) somewhere in April. Had a Housing Loan on it (From the Money received, he paid back the Housing Loan). Now the problem is that He needs to Invest in either Residential HP or Deposit it in Prescribed Bank Account. He has a Business Loss...The Question is can the Business Loss be written off against Long Term Capital Gain (I think thats allowed). Does he need to Invest Capital Gains after the Setoff u/s. 71 and repayment of Housing Loans or Gross Capital Gains without the Setoff and without deducting the Housing Loan from it???

Please Help asap as March 31st is Approaching...

Kind Regards

CA. Xialdin

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10 Replies

C.Balaji (Learner) (1867 Points)
Replied 09 March 2010

First of all.....Thanks for posting a Good Query...........

According to me........

Sec 54 - Transfer of a Res. house and purchase / construction of a Res. house..........

Business Loss can be set off against LTCG.............

But I dont think Housing Loan Repayment from the Sale consideration can be claimed.....

Therefore Long term Capital Gain reduced by Business Loss should be invested in a Res. house..

But waiting for other views......

i.e. LTCG should be invested in Res. House...........without adjusting loss......

Chintan Shah (-) (534 Points)
Replied 09 March 2010

Dear Xiadin,

Consider the below example:

Cost of acquisition 20 Lacs

Housing loan (outstanding balance) Rs. 10 Lacs (Since principles have been paid regularly, it is always less than cost of acquisition.)

Sale consideration 50 Lacs

Indexed cost of acquisition say 30 Lacs

So Capital gains is Rs. 20 Lacs though you receive Rs. 50 Lacs as sale consideration. The amount to be invested in new house property is Rs. 20 Lacs. Rest Rs. 30 Lacs which represents the indexed cost of acquisition can be used in any manner. Therefore you can use it to pay the housing loan.

Hope this clears the doubt.

Regards,

Chintan

CA Dhiraj Ramchandani (CA, M. com) (10823 Points)
Replied 09 March 2010

Agreed with balaji about posting this query here..

Moreover, there is nowhere written about the same.. I mean, though chintan explained in a better way... But still, i think it is nowhere written (in my knowledge) that a person should INVEST in new property without setting off any losses or expenses..

llllVICTORllll (Internal Auditor) (511 Points)
Replied 09 March 2010

I have a continuation to above doubt.... now business loss has been set off against LTCG,
Housing loan has been completly paid off, could the interest part of the loan be taken as expense from house property under sec 24b?and also the standard 30% deduction?(as now there is no house currently could we claim loss from house property) and principle part be taken under 80C?.. if it could be done, then the above said clients tax burden can be reduced isnt it?

megha (Working ) (71 Points)
Replied 09 March 2010

Yes... if in the year under consideration, if you have earned certain income under the head " income from house property" then u can claim the deduction of interest actually paid in the year under consideration. and regarding principal .. i am not very sure. i suppose , it will be allowed for the months for which the income was shown from that property.

CA Dhiraj Ramchandani (CA, M. com) (10823 Points)
Replied 09 March 2010

Hi victor... I think u should consider few things overhere...

The moment property is sold and all the considerations are carried out as per above discussion :

A. There is no loan now [So, there is no more interest part also].

B. If IHP & loan itself is not there, how can u ask for deduction u/s 24 b [For the interest which is not to be paid even]

C. The interest part paid (say for the period during which HP was not yet sold) in the year, that can be claimed from IHP (if it is there for that period).

D. And yes, if there is any income from IHP, ofcoarse for that part u can claim 30% SD.

E. Now, in this year loan is paid off, the complete amount is paid off.. That means, principle as well the interest part. So, the principle part you can claim for deduction undoubtedly in that particular FY

Max Payne (employed) (2569 Points)
Replied 09 March 2010

Originally posted by : CA.Xialdin
	My Client had sold Residential House Property (Not SOP) somewhere in April. Had a Housing Loan on it (From the Money received, he paid back the Housing Loan). Now the problem is that He needs to Invest in either Residential HP or Deposit it in Prescribed Bank Account. He has a Business Loss...The Question is can the Business Loss be written off against Long Term Capital Gain (I think thats allowed). Does he need to Invest Capital Gains after the Setoff u/s. 71 and repayment of Housing Loans or Gross Capital Gains without the Setoff and without deducting the Housing Loan from it??? Please Help asap as March 31st is Approaching... Kind Regards CA. Xialdin

Dear Xialdin,

I am approaching this from another starting point.

1. Current year business loss can be set off against this year's capital gain, but not brought forward business loss.

2. The question of set-off should be considered if there is capital gain remaining after re-investment. Because first u have to compute capital gain as per chapter IV and then come to set off and carry forward of losses. HE HAS TO RE-INVEST BEFORE, NOT AFTER, SET OFF u/s 71.

3. Regarding HL repaid,

U have taken the cost of the house or indexed cost for computing capital gain, and thats all as far as computing capital gain is concerned.. The HL repaid qualifies for 80C and 24(b) deductions.

Principal - 80C u can claim against income from all sources, except LTCG u/s 112, and 115BB incomes. STCG can also be reduced by 80C deduction since it is not the type referred in sec 111A.

Hence u can claim 80C, only if there is a eligible income from proper head.

Interest - 24(b) can be claimed in computing income from house property.

Repayment of the loan is only application of income. It should not be considered in computing the capital gain.

C.Balaji (Learner) (1867 Points)
Replied 09 March 2010

Dear G.K. Anna......

Thank you for explaining it clearly and properly......

nilesh dube (Service ) (74 Points)
Replied 09 March 2010

Agree with the views of ordinarily resident evil. Very good explanation of the query.

Sharad Suman Das (art) (141 Points)
Replied 10 March 2010

Xialdin Sir,

1st u hav 2 calculate net capital gain by ddeducting index cost from sale consudertion recieved then u can easily set off current years business loss from amount of capital gain (remember only currenr years business loss can be set off against capital gain not the brought forward losses)

Secondly while calculating the capital gain u will 1st u have to re invest the amount for calculating exact amount of capital gain and question of set off comes only after reinvestment.

deduction in respect of repayment of housing loan can be availed U/S 80C and interest thereof is deductible U/S 24B.