Tax Implication On Sales of One Property To Repay Home Loan of Second Property

singham 1
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Hi,

We bought/booked a flat in October 2006 from a builder and paid 95% at that time. The builder gave possession of the Flat in July 2011 (Paid the balance 5% in June 2011 before possession as per builder demand/sale agreement). Cleared all home loan on this property in September 2011.

We bought a second home in May 2012 and took home loan for the same. We wanted to sell the 1st flat earlier but could not do it due to some registration issues which are now sorted out. Now we want to sell the first flat and repay the home loan taken against the second house. We will use the 100% amount from the sale of the first house in the loan repayment of the second house.

  1. Please guide us on the tax implications (short term or long term which ever is applicable as per above scenario). We are not in a position to pay any tax and wants to use the sale amount from first house in the loan repayment.

  2. Please guide what will be the right time to sell the first property to repay the loan of second property without any tax implications.

Thanks in Advance Regards //B. Singham

loan-repayment property-sale section-54 capital-gains home-loan income-tax
1 Answers

As possession of old flat is received in July 2011 and its being sold before end of three years after possession, it would be counted as short term capital gains. Income tax would be payable on whole gains as per your slab rates and no tax benefit would be available against repaying home loan or investing into another residential house property.

If you sell old flat after July 2014, it would be long term gains and you can save income tax on such gains by investing into a residential house property u/s 54 or into capital gain bonds u/s 54EC.

If possession of new flat would be taken within July 2013 to July 2016, you can avail tax benefit u/s 54.

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

Pankaj Batra5212
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