Capital gains from sale of property

Hi Yamini,

Sec 54 provides for exemption of Long Term Capital Gain arising from sale of Residential House. The exemption is available if assessee buys a residential house one year before or within two years from the date of transfer of Residential House on which Long Term Capital Gain has arisen. 

Thus, if you sale off your first house within 1 year of  purchase of new house you can claim exemption u/s 54 of Capital Gain to the extent of amount invested (if Capital Gain > Amount Utilised).

If you are satisfied with the answer visit the link below to get answer to such queries:

https://www.facebook.com/pages/Tax-Sawaal-QueriesHelp/171513896253607

Thanks Ankur for your response. Can I ask you one more question on the same vein ?

Can I use the capital gains from the sale of the first house towards prepayment of my bank loan on the second house ? Would that be same as 'amount invested' in the new house ? The concern is that it would go towards payment of the principal and not interest ? Does that matter ?

Thanks,

 Yamini

Find out the prepayment charges of the bank.

Hi Mihir,

We already took a loan which has no prepayment charges anticipating this scenario.

Thanks,

 Yamini

Read section 54F.

The loan can be repaid out of the capital gain arises from the sale of the first house. The exemptions u/s 54 will still be available.

Originally posted by : Yamini Kaur
	Thanks Ankur for your response. Can I ask you one more question on the same vein ?   Can I use the capital gains from the sale of the first house towards prepayment of my bank loan on the second house ? Would that be same as 'amount invested' in the new house ? The concern is that it would go towards payment of the principal and not interest ? Does that matter ?   Thanks,  Yamini

Yes,Surely You can claim exemption,

Condition is not of Prompt payment,You can claim the deduction of purchase amount shown in the  "Deed",

It does not matter that whether you are paying it from money recieved from sale of "Property",

In the eyes of law proof is your "Deed" not the payment of loan.

In short your re-payment of loan constructs 'amount invested' in new property and stands eligible for Exemption,

Exemption under section 54 can be claimed only when invested amount is own fund . if invested amt is borrowed fund than exemption can not be claimed . and repayment of loan out of sale proceed of house property will be treated as amount invested for section 54.

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Hi Mayank,

 I found this reference that say otherwise:

https://itatonline.org/archives/index.php/cit-vs-dr-p-s-pasricha-bombay-high-court

because :

s. 54 merely required the purchase of the new house to be within the specified period. The source of funds for the purchase was irrelevant.

The Safest Way:

The word "appropriate" in section 54  suggests that if you utilise the sale proceeds for repayment of loan , you will not be in trouble at all. 

As you can clarify that  as you have received the capital gains you have appropriated the same  towards the purchase of a new house.