Capital Gains Exemption for Repayment of Loan used for Construction of House

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  1. revathi_viji

    revathi_viji New Member

    I am planning to sell the house I constructed 5 years ago. Can I repay the housing loan I took for constructing this house through the sale proceeds. I also want to buy a new property with the sale proceeds. will I have to pay captital gains tax? This is the only house I own.
    Thanks and regards
    Vijay kumar
     
  2. ZED

    ZED Well-Known Member

    Answer to both the cases are affirmative , you can do that but there are certain conditions and limitation u/s 54 (claiming exemption from capital gain). I have cited the relevant provision for your reference.

    S.54(1) 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" (hereafter in this section referred to as the original asset), and the assessee has within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, one residential house in India, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,—

    (i) if the amount of the capital gain is greater than the cost of the residential house so purchased or constructed (hereafter in this section referred to as the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or

    (ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain.

    (2) The amount of the capital gain which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset :

    Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,—

    (i) the amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and

    (ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.
     
  3. Piyush Chawla

    Piyush Chawla Active Member

    Capital Gains Exemption for Construction of House is allowed only if the construction is done after sale of house.

    Therefore Capital Gains Exemption wont be allowed in this case
     
  4. ZED

    ZED Well-Known Member

    Hello @Piyush Chawla Sir,
    I think exemption should be available in this case because the assessee is going to purchase a house. He is selling the house which was constructed 5 years ago.
    If am wrong kindly correct me.
     
  5. Piyush Chawla

    Piyush Chawla Active Member

    Dear @ZED

    You are correct

    The assessee can claim exemption for the new house purchased but exemption wont be allowed for repayment of the previous home loan which he took for construction of the house.
     
    V K Khanna likes this.
  6. ZED

    ZED Well-Known Member

    I fully concur with you.
     
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