Capital gain section 54 exemption for home loan prepayment

LTCG is exempted from tax if a new house is purchased before one year or after two years from the date of sale of a house property.In your case you have purcahsed a house within one year before the sale of the house it is exempt.

regards

Not eligible for exemption. You are not buying a new property, which is necessary criteria for availing exemption. All you did was repaying a loan for a house which you already bought. There is no new existence of an capital asset. 

Mihir, I purchased a new flat on home loan before selling my old flat (within one year window as stipulated for section 54). Now I am using all of long term gain to reduce/part-payment of the home loan on new flat. Will it not technically qualify as re-investment of LTCG ?

The only doubt I have is that its kind of in-direct investment (bought new flat using home loan first which is borrowed capital and then appropriated LTCG for part-payment towards principal).

Exemption is available for reinvestment or purchase of a property. In your case, you have already purchased a property on loan and so repayment of home loan does not mean purchase of a new property. In case you sell the flat on which you are paying home loan, you can repay balance loan from the sale proceeds. But you cannot sell one flat and repay home loan for another flat. There is no new purchase of property.

Hi Mihir,

I purchased a under construction flat in bangalore in dec 2010 and did the flat registration in dec 2013 because the construction of the flat is completed in 2013. If I sale the flat in 2014 and book another under construction flat in 2014 ( no registration done yet as the flat construction is not completed), should I be eleigible for LTCG and tax exemption under LTCG?

Hi Sidesh.... were you able to get to any concrete conclusion. I am facing exactly similar issue. Not able to get any firm answer from anywhere. please if you can guide / help. Also if you can share your email add also. 

The exemption under income tax is available for investment made in new house 1 year before the sale of old house. It is irrelevant what type of funds were used. The house was acquired 1 year before sale of  old house, and hence the capital gain arising out of sale of old house shall be exempt as per amount invested in new house. The consideration from sale of old house could be used to repay the housing loan, and it will not affect the exemption available to you. There are many judgement to this also. For any further query you may contact me at 7060503020