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Can I use gains from selling old flat to pay off loan on new one, avoid tax?

Mihir Tanna |1018 Answers |Ask -Follow

Tax Expert - Answered on Jan 20, 2025

Mihir Ashok Tanna, who works with a well-known chartered accountancy firm in Mumbai, has more than 15 years of experience in direct taxation.
He handles various kinds of matters related to direct tax such as PAN/ TAN application; compliance including ITR, TDS return filing; issuance/ filing of statutory forms like Form 15CB, Form 61A, etc; application u/s 10(46); application for condonation of delay; application for lower/ nil TDS certificate; transfer pricing and study report; advisory/ opinion on direct tax matters; handling various income-tax notices; compounding application on show cause for TDS default; verification of books for TDS/ TCS/ equalisation levy compliance; application for pending income-tax demand and refund; charitable trust taxation and compliance; income-tax scrutiny and CIT(A) for all types of taxpayers including individuals, firms, LLPs, corporates, trusts, non-resident individuals and companies.
He regularly represents clients before the income tax authorities including the commissioner of income tax (appeal).... more

Question by Ajit on Jan 19, 2025Hindi

Money

I have purchased a flat in 2010 for Rs25,00,000 and have received possession in December 2024. I have purchased another flat in 2012 for 90,00,000 but didn't get the possession yet. Have availed bank loan and 90% of the payment was done by 2015. Now can I sell my earlier flat and use the capital gains to pay the home loan of the second flat. Will it be exempt from Long Term Capital gains tax?

Ans: No, capital gain will not be exempt as gain amount is not likely to be invested in another property post sell of earlier flat

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.

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I have purchased flat in 2018, took mortgage loan in 2019. If i sell my flat and repay my house mortgage loan on same property, do I have to pay long term capital gain tax.

Ans: Hello Laxman,

As a tax advisor, I can confirm that if you sell your flat and use the proceeds to repay your mortgage loan on the same property, you will still be liable to pay long term capital gains tax.

The calculation of long term capital gain tax will depend on various factors, such as the purchase price of the flat, the sale price, and any deductions you can claim, such as the cost of improvements or repairs you made to the property.

However, there are certain exemptions and deductions available under the Income Tax Act, which you can consider to reduce your tax liability. For instance, you can claim an exemption under Section 54 of the Income Tax Act if you invest the sale proceeds in another residential property or certain specified bonds within a specified period.

To conclude, it is advisable to consult a tax expert or a chartered accountant to understand your tax liability and explore all the available options to minimize your tax burden.

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Asked by Anonymous - Feb 09, 2024Hindi

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If i purchase a flat and take home loan for it. After 1 year i sell my old property and repay the whole home loan. In such a case will long term capital gains tax be applicable or not?

Ans: To save tax on long term capital gain; you can invest gain amount to acquire house property and get exemption u/s 54. As per section 54, if you want to buy a residential house property from long term capital gain from sale of house property then you must buy the residential house property 1 year before or 2 years from date of such transfer of shares or construct the house property within 3 years from date of transfer of such property.

If you purchased ready flat (not constructed house property / not booked under construction house property with builder) 1 year before the date of transfer, you will be eligible for tax exemption

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I have 2 under-construction flats of 35L each ( i.e. total 70L ) which I had got via government lottery in the name of my Mother and Father respectively. Based on the status I think it will take another 2 years to be completed ( i.e. by 2026 ) and then I intend to sell them immediately after getting possession. This sale should fetch me around 1.2 Cr. I am planning to buy a new flat which would cost around 1.9 Cr and I will take a home loan to the max possible extent based on eligibility ( my yearly gross income is 40L ). The flat is a new launch and is expected to be completed and handed over by 2028. Will I be eligible to claim capital gains tax ( STCG or LTCG? ) exemption on that sale mentioned before, if I buy this flat now?

Ans: 01. You have to purchase a new house property within 2 years after Sale of Flat, to enable you to be entitled for exemption u/s 54. Kindly watch timeline, between sale & purchase of Flats.
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