LTCG on sale of land by repaying home loan

dharsan 1
Viewed 1900

Hello Sir,

I would like to know if there is a way to claim tax exemption with the following case.

I had bought a residential land little more than 5000 sqft for around 15 lacs & registered in my name during the year 2001 in Chennai. Later I also bought a villa in Bangalore and registered in my name during the year 2007 feb with an outstanding principle loan amount of 75 lacs (current as of today). Now, I want to come out the loan and be free for sometime...so I have been thinking of doing something with this ground and repay the home loan along with LTCG. Is there a way?

a) What if I sell this land completely...in the sense...I repay the outstanding home loan of 75 lacs with bank and invest in second house in my name? Will I get tax benefit completely?

b) What if I promote this land and convert into set of flats & retain one or two in my wife name....and sell the rest to third party & its proceed will used used to repay the home loan of 75 lacs? If there is any left over amount then I could invest in second housing in my name? Is it possible with full LTCG exemption with this approach?

c) Supposed to be the first question... can I use the LTCG on sale of land to repay existing home loan which itself is the residential property with outstanding loan of 75 lacs registered in 2007 feb?

Your help is much appreciated. Thanks in advance

sale-of-land residential-land section-54f long-term-gains home-loan income-tax
1 Answers

  1. If you sell land, you may earn long term gains on such sale. Income tax would be payable on such gains. However in order to avoid income tax, one may invest into another residential house property u/s 54F. To save tax fully, whole sale consideration amount needs to be invested into new property. If cost of new purchases property is less than sale consideration of land, income tax exemption would be available proportionally.

  2. There is no tax benefit on repaying home loan from capital gains.

  3. If you decide to construct flat on existing land and then sell flats, still you would earn long term gains and income tax would need to be paid on sale. Section 54 can be applied to save income tax by buying residential house property. If amount invested in new property is more than long term gains earned from flats, then whole income tax can be saved.

  4. As residential property was purchased long back in 2007 and not within one year before sale of residential land, income tax benefit on this won't be available.

Pankaj Batra5212
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