Reversal of tax benefit under Section 80C for principal repayment, if house is sold within 5 years

I am aware that in case tax benefit under Section 80C for housing loan principal repayment has been claimed by assessee and subsequently he/she sells the house within 5 years of purchase, the benefit will get reversed and the tax-free amount claimed earlier towards principal repayment will be added to the taxable income of subsequent year. Regarding this, I have 2 questions :

  1. From what date is the holding period of 5 years counted - date of allotment of flat OR date of possession of flat OR date of registration of flat ? There could be a gap of 3-4 years between date of allotment and date of possession.
  2. Maximum exemption under Section 80C is Rs. 1,00,000 per year. This includes housing loan principal repayment, insurance premiums, PPF contributions, NSC etc. Consider a case when my total investment in a year for all instruments except principal repayment is Rs. 1,10,000 and that for principal repayment is Rs. 30,000 => i.e. total amount for 80C benefit is Rs. 1,40,000. In this case, I will get exemption only for Rs. 1,00,000 as this is the cap. However, if I sell the house next year (which is within the stipulated 5 years holding period), will the Rs. 30,000 be added to my taxable income OR will it merely be reduced from my contributions for investments under 80C of that year? It would be unfair to add it to my taxable income since I logocally did not get any tax benefit for that amount since it was already beyond the maximum exemption limit of the previous year.

Please guide.

asked Aug 16 '12 at 09:25 by Chairman 16223

  1. Holding period would only be counted from date of possession. Deduction for home loan principal and interest payment can only be claimed from the year in which possession is taken.

  2. You need to compute deduction reversal for each year in which deduction was taken against home loan principal. In case other tax saving investments in a year were already 1 lakh without considering principal, there is no need to reverse that deduction. Say in case principal is partially used to fill 1 lakh limit (e.g. rest of the investments sums up to 90K) then only that partial amount would be reversed.

  3. Another point to note here, You may also have to pay taxes on capital gain earned by selling house.

answered Aug 16 '12 at 09:57 by Pankaj Batra 5.2k320


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Asked: Aug 16 '12 at 09:25

Seen: 5,763 times

Last updated: Aug 16 '12 at 09:57