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

Ans: Hi,

I am presuming that you want to clarify if the capital gain tax be avoided if the reinvestment of old 1BHK flat sale could be mapped against purchase of 2 BHK flat.

The reinvestment conditions specify that you could off-set the capital gain arising out of sale of a residential property by purchasing or constructing a new house within the stipulated timeframes.

If you have bought a ready possession property (new flat) then the timelines are 1 year back or 2 years forward from the date of sale of the old flat.

If you have bought an under construction flat then the timelines are 3 years forward from the date of sale of the old property.

An example would be as follows:

Purchase of 2BHK flat is say June 1, 2022 and date of sale of 1BHK is say May 1, 2023 - You could map the capital gains from 1BHK against the purchase of 2BHK ready possession flat. Similarly, if the purchase of the 2BHK flat was at anytime after May 1, 2023 but within 2 years from this date, then again the exemption would be allowed.

In the case of under construction property, all payments made to the builder after May 1, 2023 would be allowed upto a period of 3 years

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.

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

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.
Most welcome for any further clarifications. Thanks.