Know the tax on long term capital gain liability

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Hi Pankaj,

I purchased a flat in Nasik(MH) in year 2004 for Rs. 19 lac and got the possession of this property in year 2005. In the same year i.e. in November 2005, I purchased another flat in Pune(MH) for Rs. 11 lac. I was staying in this flat in Pune till November 2011. I do not have any outstanding loans on any of the above mentioned flats.

Now I purchased yet another ready possession flat in Pune in November 2011 for Rs. 52 lac and for which I obtained a loan of Rs 35 lac. I stay in the new flat bought in Pune. I wish to sale my first flat in Pune and pay off the loan.

Now my question is,

  1. Will I have to pay the capital gain tax if I sell the first Pune flat?

  2. After going through your answers to various other queries, my understanding is, if I sell my first flat in coming two years for say Rs. 35 lac and pay off the loan I do not have to pay the capital gain tax. Is this understanding correct?

  3. If I pay off the loan immediately for the second flat, after borrowing money from my father and brother, and then at a later date if I sell off the first flat in Pune, will I still have to pay the Capital gain tax?

Please help making me right decision.

Thanks and regards, Vinay

section-54 capital-gains ltcg home-loan income-tax
1 Answers

First if you sell Pune flat (bought in Nov'05), you need to compute long term capital gain (LTCG). If cost of new Pune flat (bought in Nov'11) is more than LTCG of old Pune flat, then there won't be any income tax payable u/s 54/. This statement would valid only if old flat is sold before Nov 2012. As income tax on capital gains can be saved if a new residential house property is purchased within time period of one year before sale or two years after sale.

There is no tax benefit on paying off the loan. Tax benefit on capital gains is only through purchase of new property (section 54) or investment into capital gain bonds (section 54EC).

If you sell Pune flat after Nov 2012 and don't purchase any new residential property or invest into capital gain bonds from gain amount, you would need to pay 20% income tax on same.

Pankaj Batra5212
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