LTCG -- for paying back loan o fproperty purchased within last year

Zonu 1
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HI

Need your advice in below case: I am selling a residential plot with LTCG of around 25 L. Have purchased a flat 3 months back with value around 40 Lakh out of which 30 L is bank loan. for which payment is made and possession will be in next 6 months. Now, a) Do I need to use / invest the proceeding that I get from plot sale as I have already invested amount equal to LTCG in residential property. b) If I do need ot invest actual proceed can I use it to pay balance loan amount

Lastly, the sale of plot was below circle rate and as per circle rate the LTCG would be around 30 Lakh, do I still need to pay any tax as I have invested more than 30 Lakh in residential asset and within the stipulated time?

Regards, Sonu.

section-54f circle-rate housing-loan long-term-gains ltcg income-tax
1 Answers

As a plot is being sold, section 54F would be applicable here for tax benefit. Possession for new property should be taken within two years from sale.

In order to save tax fully, you would need to invest whole sale consideration amount into new property.

In case new property cost is less than sale consideration, income tax would be computed using below method:
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% Cost of new property = Z
Non-exempted capital gains = S * (1-(Z/Q)) = V
Income tax on non-exempted capital gains = V x 20%

It should not matter if loan is taken on new property. You may prepay loan from sale consideration. Its the new property cost that matters in tax benefit computations.

If property is sold at a price lower than circle/govt notified rates, then capital gains would only be computed on basis of market rate. Sale consideration would also rise to market prices.

Pankaj Batra5212

Thanks for your reply. I have one query on above reply, Since sale is below circle rate and even if we take circle rate as sale consideration from ltcg perspective but I do not have that much amount with me after sale. So while the new house is greater than sale consideration that comes with circle rate but as I do not have that amount (diff of circle rate and actual consideration) with me so I have financed the new house with a home loan so does this purchase with home loan covers up my tax liabilities and can I claim exception from ltcg Yes I invested in house 3 month before sale and will get possession within next one year.

Zonu•

If buying price of new flat is more than sale consideration as per circle rates, no income tax would be payable. Even if loan has been taken for new flat purchase, this tax benefit would remain valid.

Pankaj Batra•
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