Can I use the capital gains or money received from the sale of a property to repay the housing loan of existing property? Often we get the questions I have bought this flat 2 years back and currently paying housing loan on the same. I want to sell my old flat and from the money received will repay the loan of my flat which was bought 2 years back. Will I have to pay any Capital gain tax? or If I sell a property and use the sale proceeds to pay off the Home Loan taken for purchase of a residential house, whether I can claim exemption under section 54/54F?
Home loan and Capital Gains Exemption are two separate things. You can claim the Capital gain exemption only if you use the money from the sale of the property to buy another house. The purchase of new house has to be done one year before the sale of the house or 2 years after the sale of the house. The property should be bought in the name of the seller. Income tax department is not concerned if you used the sale money for repaying the home loan or not.
When you sell the house within five years of the end of the financial year in which it was purchased, the tax benefits under 80C which were claimed earlier will have to be reversed. The tax deduction claimed for the principal repayment, stamp duty and registration under Sec 80C are reversed and the amount becomes taxable in the year of sale. Only the deduction of the interest payment under Section 24B is left untouched.
Timing is important in finance. In case of a house you not only need to see the appreciation in value of your house, but it’s equally important to keep an eye on the calendar to avoid paying a hefty amount as tax. This article gives an overview on how various aspects of selling a house such as Home Loan and Tax, Capital Gains on Sale of House, Save tax by investing your Capital Gains and answering questions on when money from the sale of property can or can’t be used to repay the housing loan?
Table of Contents
Home Loan and Tax
Tax benefits on a home loan are available to all the joint owners. Please note that ownership in the property is a must if you want to avail any tax benefits against the property. The Indian Income Tax Act allows both Principal repayment as well as Interest repayment as eligible deductions from your income can only be claimed when the construction of the property is complete. The period from borrowing money until construction of the house is completed is called pre-construction period. Interest paid during this time can be claimed as tax deduction in five equal instalments starting from the year in which the construction of the property is completed. Our article Tax : Income From House Property and Income from House Property and Income Tax Return discusses it in detail. For An individual.
- The principal can be claimed :
- Up to the maximum of Rs. 150,000 under Section 80C. This is subject to the maximum limit of Rs 1,50,000 across all 80C investments such as EPF,PPF,Insurance Premiums etc. Before FY 2014-15 the limit for 80C was 1 lakh.
- Principal Repayment can be considered as a valid investment under section 80C only if it is made for a self occupied house or you are not living in the house due to work
- Interest on the home loan can be claimed:
- As a deduction under Section 24 under the head Income from house property.
- You can claim up to Rs 200,000 or the actual interest repaid whichever is lower. The limit before FY 2014-15 was 1.5 lakh. Our article Tax and Income From One Self Occupied property explain it in detail.
- If the house is given on rent, there is no restriction on the interest amount.
- Co-owners and Co-Borrowers can claim deductions in the ratio of ownership.
- The certificate issued by the housing loan company, showing the split between principal and interest for the EMI paid, is required for claiming tax benefits.
Conditions for Home Loan are as follows. Our article Joint Home Loan and Tax explains it in detail
- The home loan must be for purchase or construction of a new house property.
- The property must not be sold in five years from the time you took possession. Doing so will add back the deduction to your income again in the year you sell. Also, if a house is sold within five years of the end of the financial year in which it was purchased, all the deductions claimed under Section 80C with respect to the property are added to the taxable income in the year of sale.
- If you sell a house within two (three years before 1 Apr 2017) years of buying it, the tax benefits on the principal repayment and interest paid on the home loan are reversed. These then need to included in your income when you file your tax return.
If you own more than one property and none of these are let out, only one is considered to be occupied by you and you will have to pay tax on a deemed rental income from the other properties. Our article Tax and Income from Let out House Property discusses it in detail.
When you pay interest on a home loan for a Self Occupied House Property, you may end up with a loss under the head ‘Income from House Property’ in your Income Tax Return. In case of a Let Out Property there can be a Loss too – when your Net Annual Value is less than the Deductions allowed.
Capital Gains on Sale of House
Real estate, land, house, is regarded as an asset. Gains or Loss which arise from the sale of capital assets,such as Gold, Debt Mutual Fund and Property etc are subject to tax under the Income-tax Act, under the head Capital gains. Capital gains on the sale of house/land are:
- If a property is sold within two
threeyears of buying it, it is treated as a short-term capital gain. This is added to the total income and taxed according to the slab rate. - If a property is sold after two
threeyears from the date of purchase, the profit is treated as a long-term capital gain and is taxed at 20% after indexation. The indexation of purchase price helps to reduce the net capital gain, thereby slashing the tax burden for the seller. Our article How to Calculate Capital gain on Sale of House? discusses it in detail. Our article Cost Inflation Index from Financial Year 1981-82 to Financial Year 2011-12 covers Cost Inflation index in detail and our article Cost Inflation Index,Indexation and Long Term Capital Gains explains on how to calculate Long term capital gains. (three years was before 1 Apr 2017)
How to Save tax on Sale of House Property
When you sell your house, you are liable to pay tax. The tax paid on the capital gains is called Capital Gains Tax. The sale proceeds will be calculated on the basis of the valuation adopted by the state’s Stamp Duty and Registration Authority and will not be the amount mentioned in the deed of conveyance. This is intended to cover the cases where a portion of the sale price is received by the seller as unaccounted for cash.You can save the capital gain tax in 3 ways.
- Purchasing Another Property: The Income tax act allows an exemption on capital gains to the extent these have been invested in purchasing a new house property.
- You have to invest the amount of capital gains and not the entire sale proceeds.
- The sale proceeds should be invested only in a residential property, not a commercial property or a vacant plot of land.
- You should not own more than one house and in India (from AY 2015-16)
- You can claim tax exemption under Section 54 on the long-term capital gain on the sale of a house by using the entire profit to either buy another house within two years or construct one in three years. If you had already bought a second house within a year before selling the first one, you could still avail of the tax exemption. The date of commencement of the construction of the new house is not material. To get the benefit of section 54,you must construct the new house within the prescribed period from the date of sale of the old house.
- Section 54F gives you exemption from the capital gains if you sell any asset. But, the new property is a residential property.
- By Investing in Capital Gains Account Scheme: If capital gains have not been invested in a property, the gains can be deposited by opening a capital gains account in a PSU bank or other banks as per the Capital Gains Account Scheme, 1988. This deposit can then be claimed as an exemption from capital gains, and no tax has to be paid on it.
- Purchasing Capital Gains Bonds: If you do not intend to purchase another property, then tax can be saved on capital gains, buy investing them in certain bonds under Section 54 (EC) within six months of selling the house. Bonds issued by the National Highway Authority of India (NHAI) or Rural Electrification Corporation (REC) have been specified for this purpose. These are redeemable after 3 years and must not be sold before the lapse of 3 years from the date of sale of the house property. However, you can invest only up to Rs 50 lakh.
Can we use the money received from selling a property to repay the housing loan of an existing property
If I sell a property and use the sale proceeds to pay off the Home Loan taken for purchase of a residential house, whether I can claim exemption under section 54F?
Exemption under section 54/54F can be claimed if the sale proceeds are utilized within one year before or 2 years after the date of transfer. So where a house is bought one year before the date of transfer by taking loan and you sell your house property and use that amount to pay back the loan, such repayment should be taken as fulfilling the condition of using the sale proceeds.
I have bought this flat 2 years back and currently paying housing loan on the same. I want to sell my old flat and from the money received will repay the loan of my flat which was bought 2 years back. In this situation would I have to pay any Capital gain tax?
Capital Gains Exemption under section 54/54F can be claimed if the sale proceeds are utilized max one year before or 2 years after the date of transfer. As the flat has been purchased by you 2 years before the sale of the property, therefore capital gains exemption will not be allowed in this case.
I am going to book a flat which is under construction, I will be taking home loan for this. The expected delivery time is Mar 2016. 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 20 Lakh and I have held it for 3 years. I would like to know what are my options in saving from capital gain tax. Since the booking of new flat is done much ahead of the sale of the old properly,will I be able to use the capital gain of 20 lakh in this new flat to repay home loan?
In booking a flat you have entered into a Construction Agreement with the Builder to have the house/flat completed before 31-03-2016, wherefore you are constructing the house although through the Builder. 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 you have held it for more than 36 months.
If you sell the existing House Property before 31-03-2016 or on a date before such 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 the amount of Capital Gains you are deriving from the sale of the existing House Property Rs i.e 20 lakh no Capital Gains will be assessable, in view of Section 54.
If amount of Capital Gains is more than the home loan prepayment then invest the balance amount in Capital Gains tax Bonds, under Section 54EC
I bought a flat two years back on loan in Noida. Now, I’ve received an offer in Bengaluru with the option of buying another apartment close to my office. But, this apartment is still under construction and will take another year to be completed. Can I sell my apartment in Noida to cover the loan and use the profit to make a down payment on the new house? Will it be hard to get a home loan for the second apartment? What are the tax implications on the sale and purchase?
You can consider selling your apartment in Noida to cover the purchase but do a cost-benefit analysis before going through with the transaction. If you sell the house in Noida, you will have to pay short-term capital gains tax on it as you are selling the property before holding it for three years. The profit on the property will be taxed as per your slab. But, if you hold on to the property for one more year, it will be considered a long-term investment and capital gained from it will be taxed at 20% with indexation.The long term capital gains can be used to buy the new apartment. So, check which of the two options will leave you with more money in hand, meaning the difference in tax paid added to all transaction costs. Getting a loan on a second house depends on many factors including outstanding loan amount, EMI on existing loan, current salary, credit score and so on.
I own a house and inherited a second property, which has been given on rent. About a year ago, I purchased a third property as investment on loan. Will I get tax rebate on the loan as it is my third investment in property? If I sell the house I inherited and the new apartment to buy a property, will I have to pay capital gains tax? Ref:BusinessToday
Tax deduction on the principal amount of the loan, under Section 80C, up to a maximum of Rs 1.5 lakh is available for any number of houses. Further, under Section 24, deduction on interest paid on the loan is up to a maximum of Rs 2 lakh if the property is occupied by you, but there is no cap on deduction if the property is not occupied by you. Also, if the property is rented out, you can deduct the interest paid from the rental income. Also, if you own more than one property and none of these are let out, only one is considered to be occupied by you and you will have to pay tax on a deemed rental income from the other properties.
Capital gains from the sale of your inheritance and new apartment will be treated differently. Assuming that the inherited real estate was bought over three years ago, long-term capital gains will be applicable on the sale. If you reinvest this money to buy another property, no tax is payable. Note that indexation benefit is only applicable for the number of years you have owned the property.
On the other had, capital gains from the sale of the new apartment, which is assumed to have been held for less than three years, will be taxable as per your tax slab irrespective of whether you reinvest the profit to buy or construct another house.
A good reference for similar questions on sale of house/property is TaxGuru’s Exemption under Section 54, 54EC & 54F -FAQs & case laws
I’m planning to purchase a flat in ready to move-in condition with possession in Jan 2022, through home loan. I am also selling agriculture land(urban area), of almost same amount, which should be registered in by July 2023. Can I use the capital gain from this sale to repay my home loan, and claim tax benefit; without opening any Capital gain Account and just repay my loan from the money receipt to my bank for this sale.
I have booked under construction property in Sept’2018. Now in Aug 2022, planning to buy a new property. Can I sell the old property(Dec 2022) after taking loan for new property and use the capital gain to repay the new home loan?
Hello
i hv long term capital gain of sold house property. I am Salaried employee.
By-mistakenly, i paid whole amount in repayment of Home loan, to minimize the burden of EMI’s for “2.5 years old property.”
seeking your guidance further to claim LTCG tax exemption.
In addition to this, sold property was on loan// so i paid interest too till 13 years.
So will it be beneficial for same//
in short,
the total capital gain amount, within a month i hv invested in home loan repayment only (but for 2 year old property). so experts suggestion needed. i strongly feel tax must be exempted.
Have you got any Income-tax notice?
How the income tax laws are interpreted varies If wishes were horses…
I sold 1 property which i bought 10 years back, i understand i have to pay LTPG tax. However if use the amount received to make the re-payment of my existing Housing loan from a 5 year old property, will it be considered as exemption on property gain tax.
As explained in the article
Home loan and Capital Gains exemptions are two separate things.
You can claim the Capital gain exemption only if you use the money from the sale of the property to buy another house.
The purchase of new house has to be done one year before the sale of the house or 2 years after the sale of the house.
The property should be bought in the name of the seller.
Income tax department is not concerned if you used the sale money for repaying the home loan or not.
if i have bought property in 20Lakh, i sell it on 30lakh after 4 year. My capital gain is 10 lakh. please clear:
1. 10 lakh is taxable not 30 lakh?
2. for exepmtion, i need to buy a home worth10 lakh or more, not 30 lakh?
Hello – I do own two apartments.
Now, I am planning to buy a third one by taking Home loan. The supposed completion date of this new one is Dec 2022.
At some point of time, I would like to sell the 2nd apartment (7 years old) and repay part of Home loan. Am I eligible for LTCG exemption?
If yes, what is the time period should I sell & repay in order to avoid the LTCG?
I plan to sell a house which was contructed 6 years ago and on which I have taken housing loan was taken. The outstanding loan amount is Rs 20 lakhs. Will this amount be exempted from capital gains if the outstanding loan is paid off just before ( a month ) selling this house ?
No, the capital gain calculation looks only at selling price, cost price and CII.
Good afternoon! I have purchased a new property in May 2019 and intend to sell off my old property in Oct 2019. Pls can you advise if i can use the proceeds of the sale of my old property to offset the loan of my new property without attracting long term capital gains tax? Thanks.
i received a vacant site (situated next to my old house)housing property last nov 2018 from my father share after his death in 2013. My father has received the same from my grandfather. My grand father had purchased the same in 1948. now the market value of the site is 1.6Cr which i want to sell to clear my loans.
I want to know the below mentioned details:
1. Can i clear a gold loan of 50 lakhs which is kept in bank.
2. what is the capital gains i have to pay on this amount.
3. If i split this property and give 50% to my wife & we both sell it together, will the tax be less.
please advice me as i have selling to clear my debts and hand loans.
Hi Sir,
Thanks for the informative article. I have a couple of queries on saving the LTCG tax. I am sorry if you have answered this earlier.
1. I have a plot which I bought in 2009 and I am planning to sell it now in March 2019 or April 2019. I will calculate the LTCG and the LTCG Tax. To save the LTCG Tax, do I have to invest the entire Sale Amount or only the LTCG Amount in Capital Gains Bonds from NHAI/REC?
2. I have a home loan running from April 2015. If I use the entire sale amount to pay off the home loan, will I still have to pay the LTCG Tax? I guess the answer is No from what you have mentioned in your article but I wanted to be sure.
Thanks for the help in advance.
Hi,
We purchased our old flat (fully own by my mother) in 2000 at 15 lac.
we sold this flat in 2019 at 49 lac.
Now we’re looking for new property which cost us 55lac (own by my mother & Co-owned by me).
Out of this 55 lac, we’re planning to pay 40 lac from previous sale amount
& reaming 15 lac as loan.
So My question is balance 9 lac rupees is taxable under long term capital gain ?
First, you need to calculate the Capital Gain for your mother which is as follows:
CII of the Purchase Year: 2001 month: Apr : 100
CII of the Sale Year: 2019 month: Jan : 280
Purchase Indexed Cost:4200000
Sale PriceL 4900000
Difference between sale and indexed purchase price: 7,00,000
So Long Term Capital Gain for her turns out to be only (at 20%):1,40,000 (1.4 Lakh)
This is all she needs to invest in another property to save Income Tax, To claim the full exemption
The new residential property must be purchased
either 1 year before the sale or
2 years after the sale of the property/asset.
Or the new residential house property must be constructed within 3 years of the sale of the property
Generally speaking, whenever investment is made in a residential house property so as to save Capital Gains tax, the investment in the house property should be in the name of the person who is deriving Capital Gain.
Joint ownership can be acceptable but exemption can be limited to the share of ownership.
So your mother has to at least put 7 lakh rupees in buying new house.
Great!
Suppose the purchase of old property was before April 1, 2001 i.e, say, in Dec 2000- FYE Mar 31, 2001.
Can you enlighten with a working on that premse !
courtesy
If the property is bought near the Indexation start date then one need not get Fair Market Value
as cost price prevalent at that time would not be much different from the price on 1 Apr 2001.
Thanks.
Re.”……If the property is bought near the Indexation start date then one need not get Fair Market Value…”
For MORE clues READ the Articles published in Taxmann and in Taxguru .
Now, shall await your view in the light of those Articles; for me to keep PURSUING with the CBDT with greater force.
“On this aspect, the relevance or otherwise of the implications of the amendment(s) of the applicable sections of the Act, as discussed and critically analysed in the article published in – (2018] 91 taxmann.com 39 – deserve to be made a conscious note of. “
https://taxguru.in/company-law/reduction-equity-share-capital-aetax-implication-a-supplement.html
courtesy
I purchaged the land at 1996 and sale 2018 ,can i use ltcg on repayment of loan which i purchased 2may 2016
Home loan and Capital Gains Exemption are two separate things.
You can claim the Capital gain exemption only if you use the money from the sale of the property to buy another house.
If you are using your entire sale proceeds to buy a house property you may end up paying no tax on your gains when – You satisfy all these conditions
(a)Purchase one house within 1 year before the date of transfer or 2 years after that
(b) Construct one house within 3 years after the date of transfer
(c)You do not sell this house within 3 years of purchase or construction
(d)This new house purchased or constructed must be situated in India
(e) You should not own more than 1 residential house (other than the new one) on the date of transfer
(f)You do not purchase within a period of 2 years after such date or construct within a period of 3 years after such date any residential house (other than the new one).
When you satisfy these conditions and invest entire sale proceeds towards the new house – you won’t pay any tax on your gains. However, if you invest a portion of the sale proceeds, the exemption will be the proportion of the invested amount to the sale price or exemption i.e cost of new house x capital gains/net consideration.
Can the capital gains(about 15 lacs) from the sale of current property be used to pay instalments(about 10 lacs in total paid to the builder in the past one year) of an under construction flat that was however booked(through Builder Buyer Agreement on a Construction Linked Plan) about 3 years before the sale of current property?
Please suggest me, 1 residential house property in india & 1 in australia rented, than i sold australia house property & new purchased in india, so can i claim in section 54, also clear me that section said that assessee held only 1 house property at that time?
Hello Sir
This one year difference is calculated as per the Financial year or normal on year difference.
E.g. I have one Residential Plot which I purchased in Feb,2013.I bought another flat in Aug,2018 availing Home Loan.
Now I want to sell my Residential plot to close my home loan which I took for flat.
Will my deadline be March 31,2019 or some where in August 2019 ?
Time is calculated from the day of purchase/sale
For example, One year from Aug 2018 is 1 year from the day of purchase/sale i.e till Aug 2019.
You bought the plot in Feb 2013 so it has been 5 years 335 days.
The LTCG resulting from sale of residential plot (assuming that it is not agricultural land and has been held for more than 36 months from date of acquisition) can be claimed as exempt from capital gains tax by reinvesting the net sale proceeds in one residential flat in India as per section 54F, subject to specified conditions. The said investment must be made in only one new residential property located in India within the specified time frames (i.e. within one year prior to sale date or two years from the sale date or within three years for an under-construction property).
The LTCG exemption can be claimed in the proportion of net sale proceeds resulting from the sale of old plot of land reinvested into a new house. Where the cost of new house exceeds the net sale proceeds resulting from the sale of the old plot, the entire LTCG should be exempt from tax. However, where the cost of the new house is lower than the net sale proceeds, LTCG is exempt from tax in the proportion of the cost of the new house to the net sale proceeds. Hence, the balance LTCG shall be taxed at 20%.
One of the specified conditions categorically requires that at the time of claiming LTCG exemption, you should not own more than one house (other than the new house), on the date of sale of the asset
Bought a flat in 2005-06 at 600, 000/- against home loan. Wish to sell off in 2018-19 at expected sale value 40-45 lakhs. I am planning to pay my home loan on this flat with the sales proceeds I get. Do, I get any tax benefits for paying the home loan in lump sum manner? Any benefit in order to save my capital gains?
As explained in the article
Home loan and Capital Gains Exemption are two separate things.
You can claim the Capital gain exemption only if you use the money from the sale of the property to buy another house. The purchase of new house has to be done one year before the sale of the house or 2 years after the sale of the house. The property should be bought in the name of the seller.
Income tax department is not concerned if you used the sale money for repaying the home loan or not.
Whether you get any benefit in prepaying the home loan is something you have to calculate based on how many years left, interest rate.
You have long term capital gain of around 6 lakhs
Hi Sir, we have recently sold our father’s house @ 12 lakhs and got a share of 3 lakhs. Whether i can repay the housing loan or i need to invest in CAPITAL GAINS Scheme to avoid tax. Kindly help me out.
Any sale of house does involve calculation of tax. The process is explained below
Step 1: Calculating the cost of acquisition
Step 2: Calculating the indexed cost of acquisition, which is the cost of acquisition * cost inflation index (CII) in the year of sale / CII in the year of acquisition
Step 3: Calculating the LTCG
Step 4: Calculating the tax on LTCG with cess
Step 5: Applying applicable surcharge depending on your total income for FY2018-19.
Dear Sir,
Currently I have one flat that I am residing in (more than 3 years old) and I have one more flat bought year back (Jul 2017). I am now thinking to book 2 apartments (under construction) side by side under sub-invention scheme so that our joint family can live together. Since under construction flat is booked under sub-invention I have to proceed with registration of property now itself and the loan amount will be used to fulfill builder demands. Possession date for the flat is expected to be by Jul 2021. I am planning to sell my 2 existing flat somewhere near end of 2020 to pay off the loan.
My question is when I sell my flats in 2020, Will I be eligible to get exemption on LTCG tax as I will be using it to pay off loan for property whose expected completion date is in 2021?
I am selling my residential flat which was purchased 14years ago. As i am liable for LTCG, I wanted to know whether I can invest that amount in an agricultural land or any plot in my native place?
Any sale of assets like flat is liable for Capital Gains. Based on the purchase and sale price one can find out if there is capital gain or loss.
Our article How to Calculate Capital gain Tax on Sale of House or property explains the process in detail.
Overview of Capital Gain Tax on Sale of House or Property
The time period: Check the time period between when you bought the house/property and when you sold it. if you have inherited the property the period of holding will be considered from the date of purchase by your ancestors.
If a property is sold after two years (from FY 2017-18 earlier was three) years from the date of purchase, the profit is treated as a long-term capital gain(LTCG) and is taxed at 20% after indexation.
he long-term capital gain(LTCG) shall be computed as the difference between net sale proceeds and indexed cost of purchase. For indexation, the cost of acquisition should be adjusted by applying the cost inflation index (CII).
Find the capital gain. Check out our Capital Gain Calculator from FY 2017-18 with CII from 2001-2002
For short-term capital gain = final sale price – (the cost of acquisition + house improvement cost + transfer cost).
In case of long-term capital gain, capital gain = final sale price – (transfer cost + indexed acquisition cost + indexed house improvement cost).
Saving Long Term Capital Gain: If there are any long-term capital gains, one may have to either
pay tax on it at the rate of 20% or
Buy a new property
either 1 year before the sale OR
2 years after the sale of the property/asset OR
The new residential house property must be constructed within 3 years of the sale of the property.
Save capital gains tax by buying specified bonds u/s 54EC
I have bought an residential appartment on loan. I have another property which I am planning to sell in couple of months. If I use the emtire proceeds from the sale of this property to pre pay my new flat’s home loan (which is on me and my wife’s name), will I have to pay tax on capital gain from the sale of my old flat.
Home loan and Capital Gains Exemption are two separate things. You can claim the Capital gain exemption only if you use the money from the sale of the property to buy another house. The purchase of new house has to be done one year before the sale of the house or 2 years after the sale of the house. The property should be bought in the name of the seller. Income tax department is not concerned if you used the sale money for repaying the home loan or not.
We purchased a Flat in Bangalore by availing 2 loans from 2 different Banks for 50 lacs and 20 lacs and the balance of 12.87 lacs was paid from our own sources.
In all so far we have paid the Builder an amount of 82.87 lacs.
We have entered into a sale agreement with the builder and could not register since the project was not completed and only 10% remains to be paid and registered.We intend to do that once he gets the OC.
The loans were availed in Oct 2016 for 20 lacs & Nov 2016 of 50 lacs and paid to the Builder.
Meanwhile I had a Plot of land which I disposed in Nov 2017 and cleared 1 Bank loan of 50 lacs. The loan therefore was cleared within 1 year of acquiring the new Flat.The land was purchased in 2004 for 8.70 lacs and sold in Nov 2017 for 36 lacs.
The proceeds of the land sale plus our raised sources of funds were used to pay off the Bank loan of 50 lacs which was borrowed to buy the Flat from the Bank as Loan.
Kindly advise if we can claim Capital Gains exemption and if so to what extent and under which Section.
We are sharing our concern on this with your kind selves, please advise the best possible solution as the loan was availed and cleared for buying the flat and clearing of the debts raised against the purchase of the flat through Bank.The flat is in joint name ie., in my name and my spouse name.
Kindly also advise if you require any other information.
Home loan and Capital Gains Exemption are two separate things. You can claim the Capital gain exemption only if you use the money from the sale of the property to buy another house. The purchase of new house has to be done one year before the sale of the house or 2 years after the sale of the house. The property should be bought in the name of the seller. Income tax department is not concerned if you used the sale money for repaying the home loan or not.
Our article Can Capital Gains on Sale of House be used to pay Home Loan discusses it in detail.
I am planning to sell my share of ancestral property to pay off my bank debts.. Will I be eligible for capital gain tax exemption on the amount I receive on selling my property.. Bank debts are 5years old.. I am in heavy debts and interests on my debts are increasing heavily so how should I sell my property to pay off my debts?
You first need to calculate if you have capital gain/loss.
If it is ancestral property bought before 2001 you need to get Fair Market Value done.
Our article Fair Market Value: Calculating Capital Gain for property purchased before 2001 explains the process in detail
I am buying a “ready to move in” apartment for Rs 80 lacs from builder in Hyderabad. (The house was constructed 7 years back but is still with the builder). I will pay Rs 30 lacs from my savings and will take a home loan of Rs 50 lacs.
I also have an apartment in Ghaziabad that I intend to sell within next one year with current approx. value of Rs 50 lacs. I bought this house in 2009.
I have the following questions
1. I understand that I can avail tax benefit on capital gain. I am planning to open a savings account to be used as capital gain account. In order to make the down payment to the builder, I will transfer Rs 30 lacs to the capital gain account from my salary account and then pay to the builder. Once I sell my house at Ghaziabad, I will deposit the sale amount to the capital gain account. I will also make payment for my home loan from this account once I sell my old house. Is it good enough to avail the tax benefit on capital gain? (Or all this is not required and I can still get tax benefit?)
2. The house that I have at Ghaziabad is in my name. But the house that I am buying at Hyderabad will be in joint names of myself and my wife (my name will be first). Can I still get tax benefit?
Sir First of all you calculate your long-term capital gain that you might get on selling your Ghaziabad house.
Please put only the sale money in capital gain account.
The Income tax act allows an exemption on capital gains to the extent these have been invested in purchasing a new house property.
You have to invest the amount of capital gains and not the entire sale proceeds.
The sale proceeds should be invested only in a residential property, not a commercial property or a vacant plot of land.
You should not own more than one house and in India (from AY 2015-16)
You can claim tax exemption under Section 54F on the long-term capital gain on the sale of a house by using the entire profit to either buy another house within two years or construct one in three years.
2. You are entitled to full exemption under section 54 when the full amount even though the property will be purchased in the joint names for the sake of convenience
To settle a family inheritance dispute, I want to sell one of my assets (Purchased in Yr 2000) so I may inherit 100% of inheritance of my parents assets. What would be the tax implications?
Also what would be the best option to minimize / avoid tax.
What kind of asset are you planning to sell?
Capital gain depends on the type of asset sold ex-shares, gold, real estate etc.
Now the Cost Inflation Index Applicable from FY/ PY 2017-18 (AY 2018-19) onwards, starts from FY 2001-02.
So if you purchased it in FY 2000 (1 Apr 2000 to 31 Mar 2001) you may need to get the Fair value.
I’m selling my property this financial year i.e. before March 18′. Assuming will get Rs 75 lacs on this property. I bought this property 8 yrs ago. Now out of Rs 75 lacs I would be foreclosing my home loan+top up loan principal about Rs 50 lacs. Now how much should be the tax liability in this case? All these years I’ve availved tax benefits on principal and interest paid on home loan.
My objective is to save maximum tax so as can have money in my hand. Pls guide.
To calculate the long term capital gain on selling the house we need information
When did you buy the property and for what amount?
Closing the home loan has no relation to capital gain tax.
my friend had purchased one plot for Rs.59000/- . Circle Rate Rs.1.29 lakhs in December 2000 which was sold by him on 29/06/2016 for Rs.29.00 lakh.
Out of above sales proceeds of Rs.29.00 lakh , he purchased a New Residential plot for Rs45.00 lakhs on 10/10/2016 which was financed by way of Investment of sales proceeds of above sold plot to the extent ofRs.20 lakhs, and by raising a Housing loan of RS.25.00 Lakhs from the bank. Apart from above my friend also incurred an amt of Rs.2.00 lakhs on payment of stamp duty for purchase of new Plot .for which the above subject is required to complete construction and submit completion certificate within three years from t he date of purchase of this plot i.e upto 09/10/2019.
My friend further invested an amount of Rs.7.05 lakhs out of sale proceeds of above old residential plot for prepayment of Housing loan raised by him for purchase of above Housing loan raised by him for purchase of above New Plot in July 2017 .
Please guide me whether the investment made by my friend towards repayment of Housing loan taken by him to finance the new residential plot out of sale proceeds of his old plot will qualify for exemption from income tax on capital gains from Sale of old Residential plot.
Hi Bemoneyaware,
Thanks for sharing all the useful info!
I am selling a 3 year old flat and would like to close home loan on the same flat with a part of sale proceeds (around 35%). Expecting capital gain to come around 20% of the total sale proceeds. Also planning to use the remaining 55% proceeds to prepay the home loan (after possession) for my new under construction flat I recently booked which will be completed around 2 years from now. Am I liable to pay capital gain tax here? And what do I do with the remaining 55% proceeds till next 2 years? Appreciate your response.
Hi. I purchased a flat in may 2014 by availing a loan. Thereafter I sold another property in 2016 and used the capital gains and another loan to purchase another flat in a different city in May 2016.
My question is –
What is the best way ahead? Can I sell both properties now after May 2018, pay off both loans and then with balance purchase another flat to avail LTCG exemption or invest in bonds or both ? I will take another loan for the new flat. Pls advise.
Thanks for the valuable insights. I request for your advise on the below query:
Background:
1. I have a residential house which I am currently residing at (self occupied).
2. I have a second residential house for which I got possession and conveyance deed was registered in October 2007. This house I plan to sell in April 2018 and there would be long term capital gains from this sale
3. I had also booked an under construction apartment in July 2012 for which I have taken a home loan. I got the possession of this apartment in September 2017 and conveyance deed is still not registered.
Query:
Can the long term capital gain from selling the second house be used to repay the home loan on the 3rd residential house for which I got the possession only in September 2017 (although booked in July 2012) and I can claim exemption under the “1 year before” exemption rule” of Section 54F?
Your inputs would be highly appreciated
Capital Gains Exemption cannot be claimed for payment of Home Loans.
Moreover, there is no importance of data of possession as well.
Capital Gains Exemption can only be claimed for purchase/construction of Residential Property
Purchase: 1 year before or 2 years after
Construction: Within 3 years
In case of under-construction property – the date of acquisition is always a matter of dispute as there is no clarity from the govt in this regard.
However, several courts have said that in case of purchase of under-construction properties – the date of acquisition should be the date of agreement (i.e. 2012 in your case)
Case Laws which you can refer to determine the date of acquisition in case of under construction property:
Delhi High Court – Gulshan Malik v. CIT [2014]
Gujarat High Court – CIT vs Anilaben Upendra Shah [2001]
My mother is a senior citizen aged 78 years and has sold her house in Mumbai and is planning to buy another house in Goa what will be her tax liabilities
When you sell your house, you are liable to pay tax. Gains or Loss which arise from the sale of capital assets,such as Gold, Debt Mutual Fund and Property etc are subject to tax under the Income-tax Act, under the head Capital gains. The tax paid on this amount of capital gains is called Capital Gains Tax. Conversely, if you make a loss on sale of assets, you incur a Capital Loss.
Steps On Selling a house as explained in our article How to Calculate Capital gain Tax on Sale of House or property?
The time period: Check the time period between when you bought the house/property and when you sold it. if you have inherited the property the period of holding will be considered from the date of purchase by your ancestors.
If a property is sold within two years(from FY 2017-18 earlier was three) of buying it, it is treated as a short-term capital gain. This is added to the total income and taxed according to the slab rate.
If a property is sold after two years (from FY 2017-18 earlier was three) years from the date of purchase, the profit is treated as a long-term capital gain(LTCG) and is taxed at 20% after indexation.
The Purchase cost and Fair Market Value: If the property is purchased before 1 Apr 2001 then the fair market value of the property as on 1 April 2001 can be considered as the cost of acquisition. For ascertaining the Fair market value, it is best to engage the services of a registered valuer. Our article Fair Market Value: Calculating Capital Gain for property purchased before 2001 covers it in detail
House improvement cost and transfer cost: While computing the cost of acquisition one can also add the costs incurred with respect to procedures associated with house improvement or transfer cost such as the will and inheritance, obtaining succession certificate, costs of the executor, property valuer etc.
Find the indexation purchase cost: The long-term capital gain(LTCG) shall be computed as the difference between net sale proceeds and indexed cost of purchase. For indexation, the cost of acquisition should be adjusted by applying the cost inflation index (CII).
Find the capital gain
For short-term capital gain = final sale price – (the cost of acquisition + house improvement cost + transfer cost).
In case of long-term capital gain, capital gain = final sale price – (transfer cost + indexed acquisition cost + indexed house improvement cost).
Saving Long Term Capital Gain: If there are any long-term capital gains, one may have to either
pay tax on it at the rate of 20% or
save capital gains tax by buying specified bonds u/s 54EC or
either 1 year before the sale or
2 years after the sale of the property/asset.
Or the new residential house property must be constructed within 3 years of the sale of the property.
Capital Loss: Set off of Capital Losses: The Income Tax does not allow Loss under the head Capital Gains to be set off against any income from other heads – this can be only set off within the ‘Capital Gains’ head.
Long-Term Capital Loss can be set off only against Long Term Capital Gains.
Short-Term Capital Losses are allowed to be set off against both Long-Term Gains and Short Term Gains.
Carry Forward of Losses if return is filed before due date: If you are not able to set off your entire capital loss in the same year, both Short Term and Long Term loss can be carried forward for 8 Assessment Years immediately following the Assessment Year in which the loss was first computed. To keep a track of your losses, the Income Tax Department has laid out that Losses for a year cannot be carried forward unless that year’s return has been filed before the due date. Even if it’s a loss return, you do not have any income to show – do file your return before the due date.
I had a question regarding long term capital gain. I sold one property in June’17. I had booked a new flat in 2015 – As per the scheme the builder was paying the initial interest. My EMI’s only started in April’17. I will be getting the possession of my new flat in Dec’17 (Which was booked in 2015). Can i use the long term capital gain to pay off my Home Loan as the possession will happen next month (Dec’17)?
A very interesting puzzle – I sold a house in February 2016 for 50L and ended up with a long term capital gain 20L after indexation. I deposited the entire sale proceeds in capital gain account. I then bought a ready-made house in December 2016 for 90L for which I fully used up my capital gain account deposits (50L) and took an additional loan of 40L from bank. As such, I didn’t have to pay any capital gain tax. Now the twist – In October 2017, I sold a different property for 40L and ended up with another long term capital gain of 10L. My question is, can I use the sale proceeds from this sale to pay my bank loan and avoid paying capital gain tax?? Please note that technically, the house (for which I am proposing to pay back the loan) was bought within one year before the latest sale transaction, so it should be eligible. The only issue is that I’m trying to use capital gains from two different transaction (in 2 different financial years) against a single residential house purchase. Any thoughts?
Capital gains can be invested more than once for new house. Recently The Income-Tax Appellate Tribunal (ITAT) has held that a taxpayer can invest capital gains for the second or third time towards the same ‘new’ house property. Tax benefits cannot be denied on this ground, provided the cost of the new house is within capital gains that have arisen to the taxpayer.
More details at Capital gains can be invested more than once for new house
very helpful. thank you ‘bemoneyaware’.
Thank you, Amit. Appreciate your comment
Hello Sir
I am now selling a residential plot which i bought in 2008. With this money want to pay off housing loan which was started in 2006. Can i claim section 54 exemption for this. Please let me know. Thank you.
I have a query. I bought my first Home in 1999 and took Home Loan fm HDFC which finished in 2012. I availed IT rebate on it showing it as Self Occupied property. I purchased second home in 2013 and availing IT rebate by Showing it as Let-Out Property.
As I mentioned, my first Home Loan got over in 2012 and now I want to sell my first Home and buy another Home by taking loan. Now can I show my third home as First Home as I have would have sold my first home and use the money + new loan to buy ‘Third Home’
My father in law has recently sold his house for which a long term capital gain of 25 lac has been assessed. Now he wants to buy a flat of price 29 lakh to appropriate this capital gain. Is it possible that my wife takes those extra 4 lakh as home loan and add up with the earlier 25 lakh capital gain? What provision IT law has in this regard?
I have bought preconstruction home in 2015 but got possession in 2017.One sold one 7years old home in 2017 and want to invest money in paying the home loan of new house.Shall i need to pay capital gains tax?
Hi Sir,
I have sold residential plot in May 17 and have kept capital gain in SBI capital gain account.I am planning to buy a flat which is under construction.
I am planning to pay booking amount and part of agreement value from Capital gain account but bank is asking me to provide Demand letter from builder for the same.Without demand letter/agreement they cannot transfer money from my capital gain to builders account which looks very confusing to me.
1) Can’t we use capital gain amount to pay 20% of agreement value during agreement?
Please help.
Hi Sir,
I have sold residential plot in May 17 and have kept capital gain in SBI capital gain account.
Now I am going to book a flat which is under construction.So can I use capital gain amount to pay government taxes like GST,stamp duty and other taxes?
Also can I use capital gain amount for down payment, booking amount?
Thanks in advance !!!
Hi Sir,
I have sold residential plot in May 17 and have kept capital gain in SBI capital gain account.
Now I am going to book a flat which is under construction.So can I use capital gain amount to pay government taxes like GST, stamp duty and other government taxes?
Also can I use capital gain amount for down payment, booking amount?
Thanks in advance !!!
Yes you can use Capital Gain Amount for any cost related to buying a house.
Thank you.
I have a huge debt from banks and even from private persons and I decided to sell my property to clear the same and the entire proceed was utilised for clearing the debt and will I still have to pay any income tax for the same
Congratulations you are now debt free and you have paid your debts, Just like Amitabh Bachchan.
Life is full of ups and downs and today is the first day of rest of your life.
Sadly yes if you sell an asset such as property etc you would have to pay Capital Gains.
If a property is sold within 2 years(after 1 Apr 2017)/three years of buying it, it is treated as a short-term capital gain. This is added to the total income and taxed according to the slab rate.
If a property is sold after 2 years(after 1 Apr 2017)/three years from the date of purchase, the profit is treated as a long-term capital gain and is taxed at 20% after indexation. The indexation of purchase price helps to reduce the net capital gain, thereby slashing the tax burden for the seller.
Please first find that you have long/short term capital Gains.
I buy a house in August 2015 and taken loan and credit from family friends. Loan was taken considering sale of old house. which is getting difficulty to sale. Now in 2017 we construct old house and sold out. Now I want to pay loan and returns money taken from family friends. It was plan based one old house sale. Can I now make this payment and it will not be considered as capital gain. What is the best legal option for this sale purchase of property.
Hello.
I currently have a flat purchased on Loan . My dad plans to sell his property and pay part of my loan. He plans to have a capital gain account to deposit the sale amount. Can the part payment from my loan be transferred from my dads capital gain account .
Please advice
A Ashokan
I have a query…I have inherited a property which was purchased in 1991. First what will be the indexation base year for this?
Secondly if I invest the capital gains accrued due to sale in may 2017 to partly liquidate a loan taken on a under construction property bought a little less than 2 years back -in July 2015 will this attract capital gains tax still? Will this be allowed?
Dear Sir,
A very informative and well written article. I have searched for information regarding home loan repayment from land sale proceed, only your article could show some light on it. I still have one doubt about the time period while considering Long Term Capital Gain.
I booked a flat(under construction) in March, 2013. I took home loan. Then due to problem with builder, had to get the flat registration done(incomplete structure) in Feb,2015. It was completed in Aug 2016 and I got possession at that time. In Aug 2016, I sold one residential plot/land(I had held this plot for more than 4 years). Now my question is, can I use the entire land sale proceeds in repaying the home loan and get the exemption in Long Term Capital Gain tax.
Your help and efforts are appreciated. Thanks in advance.
The above information are really helpful.
However, I have one question to ask. I have owned a 2 BHK flat in Pune with joint registration of myself and my wife. I also have another residential plot land in my home town in name of my wife. Now, I want to sell the flat and plot both and want to use the amount to repay the home loan of my 2 bhk flat in Pune and want to buy another 3 BHK flat. So, in that case do I need to pay the capital gain tax if my sell value is less than purchase value of the new property?
Thanks!
You would have to calculate the capital gains for your flat and land using their date of purchase, indexed purchase price.
If the holding period of asset i.e time between sale and purchase of the asset is more than 2 years for the property then one uses Cost of Inflation Index for calculating Long Term Capital Gains (LTCG) to reduce the tax. (Earlier it was 3 years)
Else one would have to pay short term capital gains.
Murali from Chennai (Age 28),
My Mother (Age 58) sold her family property house in Aug 2015 (which is more than 25 yrs old), In which her share was 15 lacs.
And in Sep2015 myself and my mother both new apartments using the entire sale proceeds and i took loan for Rs.45 lacs.
Meanwhile i repaid Rs.20 lacs in Apr16.
Now i plan to sell this apartments and repay the loan amt. Also with the balance amount i plan to construct a house.
will there be any short term capital gain tax. Can i avail Sec54/54F
CAN THE MONEY DEPOSITED IN CAPITAL ACCOUNT BE USED TO PURCHASE THE OTHER PERSONS SHARE IN AN ANCESTERAL PROPERTY.
EG : PROPERTY OF FATHER, EQUAL SHARE FOR BOTH BROTHER AND SISTER,
CAN THE MONEY DEPOSITED IN CAPITAL ACCOUNT BE USED TO PURCHASE SISTERS SHARE IN THE SAID PROPERTY.
I sold a plot of land for Rs 50 Lakhs. The entire consideration was invested in purchase of residential unit within three months. The residential unit purchased somehow did not suit me. The same was sold within two months for Rs 55 lakhs. Soon thereafter another semi finished residential unit was purchased within one month for Rs. 60 lakhs which was got furnished with in three months and an amount of Rs 10 lakhs was spent. Do i have to pay any short term or long term capital gains tax. Pls advise.Thanks
Dear Sir,
I have two house in same city. First flat brought in the year 2008 and second flat in year 2013(possession planned in June2016) . Both flats are in Bank loan and as of now loan outstanding is there for both flats.Now I am planning sell first flat which was brought in year 2008. Can I use capital gain from this sale proceeds to repay the outstanding loan of first flat which was purchased in 2008 in Bank loan and invest remaining amount in paying second home(whose possession will be in June 2016) repayment?
Dear Sir,
I have two house in different city..One flat brought in the year 2010 and second flat in year 2005. Both flats are in Bank loan and as of now loan outstanding is there for both flats.Now I am planning sell one flat which was brought in year 2010. Can I use capital gain from this sale proceeds to repay the outstanding loan of flat which was purchased in 2005 in Bank loan.
Thanking you
Kind regards
Seetharam kanchan
hi,
very effective article, everyone should follow before applying for personal loan check home loan of different banks roi and different category at single portal log in to http://www.letzbank.com
My father died in Oct 2015. His flat was constructed in 1980. We are two brothers. On 7.3.2016, I have entered into an agreement for purchase of house property (which is 95% complete) which will be handed over in Aug 2016 against which I have taken a loan. We intent to sell my dad’s flat sometime in 1st quarter of calendar year 2017. Please advise whether I can set off my portion of LTCG against loan taken and taxability of my portion of LTCG.
my 1st flat was registered on 19/1/2011 which is having loan.The 2nd was registered [in a different city] on 17/10/2014 again on loan.This is a second sale I want to sell the 1st one and use all the proceeds to settle some part of the 2nd loan. Whats the impact on my taxes.?Can I avoid pay any tax?
As my mother expired, 6 residential flats were constructed in the year 2001 and divided among all siblings. The plot was purchased way back in 1961. I sold my unit in the year 2013. How do I calculate the Capital gains tax ? Also what is the stipulated period to pay the capital gains tax ? Is there an interest penalty if CG Tax is not paid within the stipulated period ?
What can be covered under the heading of cost of improvement?
How this can be proved?
In case of transfer of house property possession date is key factor but in case of under construction flat where the registration is done but possession has been given after 3 years in this case what is the key date?
I sold a property and want to utilize the proceeds towards the repayment of housing loan of the property which was registered 4 years back but possession given 6 back. So can the capital gain be appropriated towards loan repayment of the current property and avail the benefit
I Have two flats ( FI & F2 )earlier, both purchased 3 years before, I have sold one flat (F1) which purchased at 20 lac and sold at 35 lac, I have purchased a new flat within 3 months of sale for 63 lac and taken home loan for 45 lac and 18 lac as direct payment. I would like to sale my another flat (F2), can I save capital gain tax if I sell my flat within one year from the date of purchase( my new flat) and pay the capital gain to my outstanding home loan?
I have booked a new apartment which is under construction by paying the booking amount of Rs.25 lacs 6 monts ago from my PPF account(after closing it).The apartment is likely to be completed by 2017 end.
I now want to sell my existing flat which is more than 30 years old to pay the balance amount. Kindly clarify if I will be eligible to claim/avail capital gains exemption for the Rs.25 lacs also from the sale proceeds of the existing house.
Awaiting your clarification.
One of my friends, who owns two residential house properties, which are purchased by him 5 years back, sold 1 of them in Sept 2015 with a capital gain (considering indexation) of Rs. 33 L. He purchased another house property in Sept 2015 for Rs. 75 L, out of which, he paid Rs. 25 L as his contribution and took loan of Rs. 50 L from Bank. He wants to utilise Rs. 8 L to clear the balance housing loan of the flat, which he sold. What is the implication of this?
Thanks for the detailed information! The government has provided many tax benefits for people trying to fulfil the need for shelter. So, it is important to learn the tax-saving opportunities so that you can avail of while buying, selling or renting a house.
Dear Sir
I have purchased a flat in ready condition with possession in Dec 2015 through home loan. I am also selling my old flat in Jan 2015. Can I pay my capital gain from this sale to repay my home loan without opening any Capital gain Account and just repay my loan from the money receipt to my bank for this sale. Our should I open a capital gain account and trafer my gains and then repay my loan.
Pl guide
For your old property if taken on home loan check:
The property must not be sold in five years from the time you took possession. Doing so will add back the deduction to your income again in the year you sell. Also, if a house is sold within five years of the end of the financial year in which it was purchased, all the deductions claimed under Section 80C with respect to the property are added to the taxable income in the year of sale.
If you sell a house within three years of buying it, the tax benefits on the principal repayment and interest paid on the home loan are reversed. These then need to included in your income when you file your tax return.
Check the time period between buying and selling of your old property: Is it more than 3 years
If a property is sold within three years of buying it, it is treated as a short-term capital gain. This is added to the total income and taxed according to the slab rate.
If a property is sold after three years from the date of purchase, the profit is treated as a long-term capital gain and is taxed at 20% after indexation. The indexation of purchase price helps to reduce the net capital gain, thereby slashing the tax burden for the seller. Our article How to Calculate Capital gain on Sale of House? discusses it in detail.
Can long term capital gain from old property be used to prepay Home loan for new property
You have to invest the amount of capital gains and not the entire sale proceeds.
You should not own more than one house and property is bought in India
If you have long term capital gain from old property and you buy new property and claim exemption if the sale proceeds are utilized within one year before or 2 years after the date of transfer. So where a house is bought one year before the date of transfer by taking loan and you sell your house property and use that amount to pay back the loan, such repayment should be taken as fulfilling the condition of using the sale proceeds.
Under what provisions of the IT act can it be confirmed that long term capital gain from old property be used to prepay Home loan for new property. I have asked to several CA’s, but none have been able to confirm. It would be great if you can help me in this regards. I am facing a similar issue. Request help / support please.
Very useful information..thanks for clarifying on this front.
A very happy new year to you.