Capital gain tax : selling plot and repaying home loan

chintoo 1
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I purchased a residential plot 3 years ago. Last year, I took a home loan to buy an apartment. Now, I wish to sell the plot and repay my home loan. Do I have to pay capital gain tax on selling plot? Should it be exempt from tax because I am repaying home loan by money earned on selling plot?

To be specific the dates are: Date of purchase of plot : 10 sept 2008 Date of purchase of apartment on home loan: 5th July 2010

Thanks

residential-plot long-term-gains capital-gains home-loan income-tax
1 Answers

There will be capital gains on sale of residential plot, use below formulas to compute same:

Purchase Year = A
Purchase Cost = P
Cost Inflation Index (CII) for purchase year = X

Sale Year = B
Selling price = Q
CII for sale year = Y

Indexed Purchase price = P x (Y/X) = R
Long term capital gain = Q - R = S
Income tax on capital gain = S x 20%

Income tax on these long term gains can be saved by investing into residential house property u/s 54F. To save tax fully, new residential house property price should be more than selling price of plot. New property should have been purchase within time frame of one year before sale of plot or within two years after sale.

There are other conditions too for applicability of section 54F:

  1. You should not be owning more than one residential house(flat/house/apartment) at the time of buying new property.
  2. If total residential houses owned by you is two (including new property), you should not buy another one within next three years of purchase. Or in next three years, total owned residential houses should not be more than two.
  3. New property should not be sold before next three years.

There is no tax benefit on paying the home loan, but benefit would be available due to purchase of new property.

Pankaj Batra5212
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