Ltcg

This query is : Resolved

Munish Kumar (Querist)
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09 May 2013 I have sold a house 1 and purchased a house2 before selling the house1. I have taken loan to the purchase the house2 and the amount received from sale of house1 is repaid for loan taken for house2.

So please clarify whether there will be exemption for capital gain?

Munish Kumar

Munish Kumar (Querist)
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16 May 2013 can anyone resolve my query?

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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03 August 2024 In the context of Long-Term Capital Gains (LTCG) and the exemption provisions under the Income Tax Act, here's how your situation can be addressed:

### **Understanding the Situation:**

1. **Sale of House 1:** You have sold a house (House 1), which triggers a potential capital gain.
2. **Purchase of House 2:** You purchased another house (House 2) before selling House 1.
3. **Loan and Repayment:** You took a loan to purchase House 2, and the sale proceeds from House 1 were used to repay this loan.

### **Relevant Sections for LTCG Exemption:**

1. **Section 54:** This section provides an exemption from LTCG if the capital gains from the sale of a residential property are reinvested in another residential property.

**Key Points:**
- The new house (House 2) must be purchased either 1 year before the sale or 2 years after the sale of House 1.
- If House 2 was purchased before the sale of House 1, it still qualifies for exemption under Section 54, as long as the purchase falls within the prescribed time limits.

2. **Section 54F:** This section provides an exemption if the capital gains from the sale of a capital asset (other than a residential property) are invested in a residential property.

**Key Points:**
- If House 1 was not a residential property and you sold it, you need to reinvest the sale proceeds in a residential property to claim exemption under Section 54F.

### **Specific Points in Your Case:**

1. **Timing of Purchase and Sale:**
- Since House 2 was purchased before the sale of House 1, it qualifies for exemption under Section 54, provided it was bought within 1 year before the sale or 2 years after the sale of House 1.

2. **Use of Sale Proceeds:**
- The use of sale proceeds from House 1 to repay the loan for House 2 does not affect the eligibility for exemption under Section 54. The key condition is that the capital gains must be used for purchasing the new residential property, not necessarily how the funds are used (i.e., directly or indirectly).

### **Conclusion:**

- **Exemption under Section 54** should be available as you purchased House 2 within the stipulated time frame before selling House 1. The fact that you took a loan and used the sale proceeds to repay the loan does not disqualify you from claiming the exemption.
- **Document Proof:** Ensure you maintain all relevant documentation, such as the purchase agreement for House 2, loan documents, and sale deeds for both properties.

**Action Steps:**
1. **Verify Timing:** Confirm that House 2 was purchased within 1 year before or 2 years after the sale of House 1.
2. **Maintain Records:** Keep all documents related to the purchase of House 2 and the sale of House 1.
3. **File Tax Returns:** Claim the exemption under Section 54 in your income tax return for the relevant financial year.

**Consult with a tax professional** to ensure all conditions are met and to help with the correct filing and documentation.

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