Income Tax impact on Home Loan & Capital Gain

POSTED BY Mitr Singh ON February 9, 2011 11:08 am COMMENTS (6)

I bought a House on Rs 2/- (1  + 1(Loan). After 3 Yr. I sell it in Rs 3/- and Already settled my loan. So Lets take after Indexation Long Term capital gain is Rs 1.

Now I bought new Property within 6 month. Cost Rs 2/- for Which i have taken a home loan Rs 1.5/- and rest Rs 0.5/- used from my LTCG.

Now question are :-

1. Can i take the tax benifit of new home loan.
2. What is the taxable amout.
3. What about the tax benefit i have taken from first loan (Someone told me that if i sell the first property within 5 yr. in that case the tax benifit which i have   taken will add in my current year income. I have doubt over it. ?)


6 replies on this article “Income Tax impact on Home Loan & Capital Gain”

  1. ashal jauhari says:

    Dear Manish, Thanks for pointing out my mistake.

    Dear Mitr, I stand corrected now. The interest part related tax saving ‘ll remain intact to you for prev. years but the tax saving claimed on the principal repmt. ‘ll be adjusted for the Tax calculation as I stated in my prev. reply.



  2. ashal jauhari says:

    Dear Mitr, First of all I’ll ask you to check the following link applicable to your case of section 54 (sell of a residential house & purchasing another residential house)

    In the link it’s clearly written –

    Quote –

    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, a residential house,

    Unquote – “the assessee has purchased or constructed” are the words used but it’s no where written from where the money is arranged. I.e. assessee is using the sell proceeds of prev. house or taking a home loan.

    Now in your case – LTCG = Rs. 1
    Cost of new house = Rs. 2

    As the cost of new house is more than the LTCG amount, no Tax liability for the LTCG part is there on you.

    Now For the independent benefit of home loan interest under section 24 (b), as you have taken a home loan, you are eligible for the benefit.

    Please don’t confuse yourself. Section 54 & Section 24 are independent to each other & in your case you can avail benefit from both.

    Hope my detailed reply ‘ll solve your problem. In case you are still in doubt, I’ll ask you to post your query to either TAX GURU on CNBC AWAAJ or to TAX DOCTOR on ZEE BUSINESS.



    1. Mitr Singh says:

      Thank You Very Much Ansul G, Your detail reply and link clear my doubt.

  3. ashal jauhari says:

    Dear Mitr, First of all, If you had availed Tax benefit on prev. home & as from your query it’s clear that you sold it after completing 3Y, my dear friend, you w’d have to pay the saved income tax of earlier years in the year of sell of your house. The section 24 (b) related to home loan interest benefit clearly states for minimum 5Y ownership for the same. No reason to doubt as you are asking in your 3rd question.

    Now I’m answering your queries.

    1. Yes you may take the Tax benefit on the 2nd house/ new home loan but the condition is, possession is there with you.

    2. Capital Gain Tax ‘ll be nil as the LTCG amount was Rs. 1 for the old house & price of the new house is Rs. 2.

    3. Already cleared at the start of my answer.



    1. Mitr Singh says:

      Dear Ashal Ji,

      Thanks for the information. Now point 1 & 3 is clear to me.

      I have a doubt only on my second query. Here LTCG Gain Rs 1/-.
      Cost of New Property Rs 2/- But here i have taken a loan of Rs 1.5/- for this property, Now remaning Rs 0.5/- used from LTCG. So shall i pay the 20% tax on remaning Rs 0.5/-..

      So, Can i take the full expemtion on LTCG Rs 1/- and also enjoy the tax benefit on full loan amount. (How it can be possible, it total (1.5+1=2.5) but the property cost is only Rs 2/-).

      Mitr Singh

    2. Ashal

      the 5 yrs restriction is for 80C benefits , the interest part is not reversed if you have sold the property before 5 yrs ,please re-check

      This is what I know .


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