Can I avoid paying Long term capital gain tax ?

POSTED BY sandeep.wagh ON December 12, 2013 5:42 pm COMMENTS (12)

Dear Manish,

I am purchasing Flat at Rs 54 lakh this month or next month. for which i have two plans.

i am selling my plot which i had purchased in 2007. i am selling it on approx value of Rs 25 L against purchase price of Rs 11.00L. remaining amount for flat i will be taking home loan and some from my investment.

i also have one more flat which i had purchased 8 years back at Rs 6.00L.

now my plan is also to sell my second flat next year and repay some home loan.

I can sell my flat in 2014 or 2015 at Rs 20 or Rs 22L

can you tell me if i can still avoid paying long term capital gain tax on sell of my old flat if i want to use that amount to repay some part of home loan?

also can i save entire capital gain on my land which anyway i am selling within two months?

Thanks, Sandeep

12 replies on this article “Can I avoid paying Long term capital gain tax ?”

  1. ashalanshu says:

    Dear Sandeep, as the price of new flat is more than the combined Gain amount, the section 54 benefit ‘ll be there with you already. you need not to pay home loan to claim section 54 benefit.

    You are free to use the money from old flat sell whichever way you like be it to invest or to repay home loan. For better understanding, you may write a personal mail to me as it ‘ll involve some personal data crunching which you may not like to share on this open forum.

    Thanks

    Ashal

  2. ashalanshu says:

    Dear Sandeep, once the new flat is purchased and you sell the old flat within 1Y from the new flat purchase, you can claim section 54F benefit for old flat’s LTCG also. After 1Y, even if you want to pay home loan, sorry, the benefit of section 54F ‘ll not be there. The total cost of new flat should be more than the combined LTCG from 2 assets (plot and flat).

    My personal take, instead of worrying about market timing, please sell both properties now to avoid any complex taxation issues later on.

    Thanks

    Ashal

    1. sandeep.wagh says:

      Dear Ashal,

      Thanks for your answer.

      of course the total cost of new flat is more than both the property i.e old flat and plot.

      I have only doubt that if i can sell my old flat even within one year then can i use that amount to repay the home loan and get capital gain exemption.

      you have cleared that i can claim the exemption but can i use that money to repay home loan?

      Thanks.
      Sandeep

  3. sandeep.wagh says:

    Dear Ashal,

    The Flat is ready possession. I can move tomorrow also.
    The reason I am not selling two properties immediately is because at the moment real market is not favorable for selling of flats even for plot. but to get some money to pay to builder i have to sell my plot.
    hence i am thinking to sell flat within one year from agreement of new flat.
    Flat i purchased at Rs 6.00 L in 2005 and now i hope to sell at Rs 18L in 2014.
    regarding Plot anyway since i am using all money for purchase of new flat so i would get full exemption.

  4. ashalanshu says:

    dear Sandeep, the 54L Rs. flat is ready buildt or under construction? what ‘ll be the combined indexed LTCG for the 2 properties (plot and flat)? Why are you not selling the flat now to avoid any future problem on account of tax liability?

    Thanks

    Ashal

  5. Paresh Shetiya says:

    Hi Sandeep,

    The requirement for claiming exemption under section 54 (on sale of residential house property) is that the capital gain from the sale should be utilised for purchase of another house property either one year before the sale or within two years after the sale is made.

    Hence you will have to ensure that the old flat is sold within one year of the purchase of the new flat, otherwise the exemption will not be allowed. Please note that the condition is that a residential flat is purchased within the specified time limits, hence other conditions (ie proceeds being utilised for repayment of home loan) are irrelevant.

    Regards,
    Paresh Shetiya

    1. sandeep.wagh says:

      Dear Paresh,

      Thanks for your answer.
      The New Flat is ready possession.
      Old Flat i purchased at Rs 6.00 L in 2005 and now i hope to sell at Rs 18L in 2014.
      do you mean to say i should sell my old flat within one year after agreement of new flat? and if i do so then i can use that money to repay some part of home loan?

      can you also advice how much i will loose if i am unable to sell within one year?

      Thanks
      Sandeep

      9850045885

      1. Paresh Shetiya says:

        Dear Sandeep,

        Yes, you should sell the old flat within one year of purchase of the new flat. Let us suppose your agreement for new flat will be registered on 1st Jan 2014. In that case, you need to register the agreement for sale of the old flat on or before 31st Dec 2014 (ie within one year).

        If you are unable to sell within one year, you will lose the exemption on capital gain under section 54. The capital gain will depend upon the cost inflation index in the year of sale, as compared to the cost inflation index in the year of purchase. If it is around 2.25 times, then the indexed cost of purchase of Rs 6 lakhs will become 13.5 lakhs, so your capital gain will be 18 – 13.5 lakhs, which is 4.5 lakhs. You will have to pay tax at 20.6% thereon ie approx Rs 93,000.

        However, if you are able to sell the old flat within one year, you will need to invest the capital gain of Rs 4.5 lakhs. If the amount has already been paid for purchase of the new flat (after considering proceeds invested from earlier sale of plot), you will get the exemption and need not count on repaying the home loan for the exemption.

        As far as whether repaying home loan counts for exemption under section 54, the Income Tax Act itself is silent thereon, which means it will depend upon the outcome of any case laws which may have been decided thereon.

        Regards,
        Paresh Shetiya

        1. sandeep.wagh says:

          Dear Paresh,

          Many thanks for your detailed answer.
          It means if i can sell the flat within one year, it doesn’t matter where i should invest capital gain? either i can repay home loan or use that money in some other investment.

          and if i could not sell then necessarily i have to pay tax.
          please confirm for the LTCG tax purpose the valuation is done on government value or agreement value ? or whichever is higher?

          Thanks

          1. Paresh Shetiya says:

            No, what I meant in the last para of my previous answer is that the tax laws are not clear (or I myself am not aware) on whether sale proceeds can be used to repay home loan for getting exemption. You may need to check with an income tax practitioner who will be able to check out if there are any case laws on the subject.
            The valuation for LTCG will be done on agreement or govt value whichever is higher.

            Thanks

            1. sandeep.wagh says:

              Dear Paresh,

              Okay , got it.

              I will discuss with Income tax practitioner to get authentic information because the whole purpose to sell flat is to repay home loan and get benefit of capital gain exemption.

              Thanks,

  6. nlvraghavendra says:

    I believe if you put the entire amount reaped from LTCG in buy a new home (but not land) you’ll get tax exemption. I’m not sure though. Experts here might provide you more accurate info.

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