Reji (None) 01 June 2013

Capital gain and home loan

I am going to book a flat which is under construction, I will be taking home loan for this. The expected delivery time is Dec 2014. I've another property, which I am planing to sell and use that amount towards repaying this home loan. The approximate capital gain from this transaction would be 12L. I would like to know what are my options in saving from capital gain tax.

1. Repay home loan

2. Homeloan repayment is not considered for capital gain, instead I've to make the payment 12L directly to the builder (well before the actual registration of the property)

3. Invest 12L in capital gain tax bonds and only use the balance amount (my original investment) to prepay the loan.

4. Since the booking of new flat is done much ahead of the sale of the old properry, I won't be able to use the capital gain 12L in this new flat.

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3 Replies

R RAJAGOPALAN (ADVOCATE) 02 June 2013

The problem has to be resolved in the light of the provisions of Sections 54, 54EC, and 54F of the Income Tax Act 1961.

Presumptions: In 'booking a flat' presumbaly you have entered into a 'Construction Agreement' with the Builder to have the house/flat completed before 31-12-2014, wherefore you are constructing the house although through the Builder. It is also presumed that the 'property' you propose to sell is a 'House Property' the income from which is assessable in your hands under the head 'Income from House Property', and that you held it for more than 36 months.

Reply: Option1. If you sell the existing House Property before 30-11-2014 or on a date beforebefore (so that the construction of the new House Property would be within 3 years after the sale of the existing House Property), and the cost of construction of the new Flat is more than Rs 12 L (the amount of Capital Gains you are deriving from the sale of the existing House Property), no Capital Gains will be assessable, in view of Section 54..

Note: Section 54 does not require that the same funds as derived from the sale of the existing House Property, must be utilized for the construction of the new house property - Ishar Singh Chawla v CIT 130 TTJ (Mum.); the source of funds is quite irrelevant.

Option-2 Avail yourself of the benefit of Section 54EC - Invest 12L in Capital Gains tax Bonds, under Section 54EC and use only the balance amount to prepay the loan.

Reji (None) 03 June 2013

Thanks a lot for the clatification!

Rajesh 25 September 2016

Sir i purchased a property in 2002 & sold it in march 2016 with capital gain of Rs 31 lakh. further i purchased another property in april 2016 in 67 lakh where Rs14 lacs of capital gain was utilised.

The rest amount Rs. 53 lakh was paid through housing loan. I have Rs. 17 lakh i my hand .kindly clearify the following

1. The availe the capital gain tax benefit whether i need to repay the housing loan

2. keep the amout under capital gain / bond or

3. to keep the amount for own use.

Regards

Rajesh