Can Income tax exemption be sought on prepayment of home loan with the profit gained from sale of another flat?

Hi Pankaj, I have purchased a flat in pune for 50 lac in oct 2011. Out of which 40 lac is my loan amount. Though this flat is ready for possession, I have not yet taken its possession from builder. I owe another flat(which I had bought and it's under my possession from May 2008). I am planning to sale it off within this financial year.(2011-12) If I gained a profit of Rs. 15 lac from sale of this older flat can I use that amount to pre-pay my newer flat's home loan amount and claim Tax exemption? Or I will have to pay Income Tax for this profit of 15 lac? Please advise.

asked Oct 15 '11 at 21:52 by Zahir 1111

As such there is no income tax benefit on prepaying home loan from long term gains. But you can claim tax benefit under section 54 as you purchased a new flat. If possession of new taken within allowed period of one year before and two years after sale of old flat.

Lets say, you sell old flat in Nov 2011 and gets possession of new flat before Nov 2013 and new flat cost is more than long term gains, then there won't be any income tax on gains.

You can close your existing home loan from sale consideration amount of old flat, there won't be any issue in it.

If possession of new flat is not taken before last date of income tax return filing (31st July, 2012 if flat is sold in 2011-12), then gains have to be invested into capital gain account scheme and payments for new flat should be done from there.

answered Oct 16 '11 at 12:02 by Pankaj Batra 5.2k320

Thanks Pankaj!
(Oct 16 '11 at 14:23) Zahir

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Asked: Oct 15 '11 at 21:52

Seen: 5,522 times

Last updated: Oct 16 '11 at 14:23