Capital gain

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Hi Mr. Pankaj,
My husband bought a flat in 2002 in which we reside. In 2005, he bought a new flat worth 11 lacs which we let out on rent. In Feb 2010, we purchased our adjacent flat for Rs. 22 lacs. This was in my name. Then in July 2010 we sold off the rented flat for Rs. 22 lacs to prepay the loan to an extent.
Could you please guide us with the Capital gains tax that my husband needs to pay. Will he get the benefit of the purchase of the new flat which is in my name. Please let us know the best way to minimise tax.

1 Answers

Below is the computation for capital gains and taxes:

Purchase Year = 2005-06
Purchase Cost = 1100000
Cost Inflation Index (CII) for purchase year = 497

Sale Year = 2010-11
Selling price = 2200000
CII for sale year = 711

Indexed Purchase price = 1100000 x (711/497) = 1573642
Long term capital gain = 2200000 - 1573642 = 626358
Income tax on capital gain = 626358 x 20% = 125271.6

As flat bought in Feb 2010 was not in your husband's name, income tax benefit cannot be taken for that. Now he can buy a new residential property for around 6.27 lakhs to save tax fully (u/s 54) before July 2012. If its not bought before July 2011, this amount needs to be invested into capital gain account scheme or tax has to be paid.

Hello Mr. Pankaj,

If the flat bought in Feb 2010 was in her husband's name, could they have availed the income tax benefit by prepaying the loan ?

I have a similar scenario. We purchased a house in Noida in 2002 and sold it in July 2011. The purchase and sale price are 25L and 75L. We also purchased another house in June 2011. Since the home loan for the same has already been taken, can we use the capital gains from the sale of the first house, towards prepayment of the loan on the second house and claim tax benefit ?

Thanks, Yamini

There is no income tax benefit to prepay home loan from long term capital gains.

But yes, if a new flat is bought within one year before selling the flat or within next two years of sale, no income tax would be payable if his share in new flat bought is worth more than long term gains.

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