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Long term capital gain vs section 80c

VINAY MAITHANI (Reliability Engineer) (36 Points)

23 December 2011

Hello Tax Gurus and Financial Wizards...

I purchased an apartment for Rs. 1,75,000 /- in 1992.

I sold the apartment for Rs. 14,00,000 /- in 2011.

I have a residential house whose monthly loan EMI is paid by me worth 8000 per month.

Do i have to pay tax for Rs.14,00,000 ? Can i obtain tax exemption under Sec 80C for EMI's paid ?

Please help and comment and reply.

Regards

Vinay

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5 Replies

CA Ketan Waghela (Partner at Elite Educare) (356 Points)
Replied 24 December 2011

Vinay ji,

Your quest. is not clear to me.

1. Do you have 2 houses or only 1 house which you sold in 2011??

2. Purchase year is not mentioned properly. I mean it has been purchased in 1991-92 or 1992-93 as it will be needed for indexation, same goes for sale.

Since property has been transferred after holding for more than 36 months. (In your case 1992 to 2011), the transfer will attract Long Term Capital Gain. (LTCG)

You have to calculate Capital Gain as under.

Sale consideration xxxx

(-) Expenses on transfer (xx)

Net Consideration xxxxx

(-) Indexed cost of acquisition (xxx)

[1,75,000 * indexation for 2011-12/indexation for 1991-92]

(-) Indexed cost of Improvement (if any) (xxx)

Long term Capital Gain xxxxx

You can claim Indexation benefit for acquisition cost and cost of improvement since it is a long term property. However indexation benefit is not available for Short term property. (Holding period less than 36 months)

Based on above, you don’t have to pay CG tax on Rs.14,00,000/- but on the amount calculating in above manner. However you can make investment and claim exemption.

EMI includes Principal amt. + Interest.

Under sec. 80C you can claim only principal amount as deduction subject to maximum of Rs.1,00,000/-

You can deduct interest u/s 24 (b) upto Rs. 1,50,000/-.

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CA LOVELY ARORA (C.A. B.Com (H) Graduate) (2151 Points)
Replied 24 December 2011

Agree with Mr. Ketan...

VINAY MAITHANI (Reliability Engineer) (36 Points)
Replied 24 December 2011

Originally posted by : Ketan Waghela

My answers are in Blue.

SO if I make an investment within 2 years of selling the apartment into a residential property then CAN I avail Income tax exemption.

Also can i continue to claim income tax exemption for Principal amount of Home Loan under Sec 80C?

Regards

Vinay

Vinay ji,

Your quest. is not clear to me.

1. Do you have 2 houses or only 1 house which you sold in 2011?

I have one house. I bought it in 1991-92 and sold it in 2010-2011 (Apr 2011)

2. Purchase year is not mentioned properly. I mean it has been purchased in 1991-92 or 1992-93 as it will be needed for indexation, same goes for sale.

Since property has been transferred after holding for more than 36 months. (In your case 1992 to 2011), the transfer will attract Long Term Capital Gain. (LTCG)

You have to calculate Capital Gain as under.

Sale consideration                                                                                                  xxxx

(-) Expenses on transfer                                                                                         (xx)

Net Consideration                                                                                                  xxxxx

(-) Indexed cost of acquisition                                                                               (xxx)

[1,75,000 * indexation for 2011-12/indexation for 1991-92]

(-) Indexed cost of Improvement   (if any)                                                            (xxx)

Long term Capital Gain                                                                                         xxxxx

You can claim Indexation benefit for acquisition cost and cost of improvement since it is a long term property. However indexation benefit is not available for Short term property. (Holding period less than 36 months)

Based on above, you don’t have to pay CG tax on 14,00,000/- but on the amount calculating in above manner. However you can make investment and claim exemption.

EMI includes Principal amt. + Interest.

Under sec. 80C you can claim only principal amount as deduction subject to maximum of 1,00,000/-

You can deduct interest u/s 24 (b) upto1,50,000/-.

CA Ketan Waghela (Partner at Elite Educare) (356 Points)
Replied 24 December 2011

Vinay Ji,

If you have 1 house property (Long term) and if you transfer it then you are eligible to claim exemption u/s 54 of the IT Act.

Sec.54 states-

Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of a long-term capital asset being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head “Income from house property”, and the assessee has within a period of 1 year before or 2 years after the date on which the transfer took place purchased, or has within a period of 3 years after that date constructed, a residential house, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place.

Exemption shall be lower of-

a. Investment in new house property

b. Capital gain

If cost of the new house is more than CG then whole of the CG will be exempt. If CG is more than the cost of the new house then (CG - cost of new house) will be taxable.

Note: House property sold on April 2011 will be considered as 2011-12.

For deduction u/s 80C-

Sir,

According to me, when you have sold the property on which you have obtained loan, and you have received the consideration for the property then Bank will square off the loan first and balance consideration will be paid to you.

In this case, loan does not exist.

Please correct me if my answer is not as per line in which you have asked the question.

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VINAY MAITHANI (Reliability Engineer) (36 Points)
Replied 24 December 2011

Thank you Mr Ketan for your kind help.

Your explanation has surely helped me.

To make it more clear, I have a second house for which loan was seeked @ 8000 INR per month.

I was confused if the sale of one house conflicted my ability to claim exemption under Sec 80 C.

Now it seems from your answer that

Exemtion from Income tax is true since the money from sale of one house has been invested in the residential property.
Exemption of Max Rs. 1,00,000 can be obtained for any other house under Sec 80C as is the normal practice.

Thank you for your kind help and time

Regards

Vinay