Suppose the proceeds from the sale are deposited into the home loan account of a new property that has already been purchased using the same loan. Will the deposited amount still be eligible for capital gain exemption? Experts reply
If the sale proceeds are deposited in a home loan account of new property already purchased out of the said loan, will the deposited amount be eligible for capital gain exemption?
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Reply by Prabhakar K.S., Founder and CEO of Shree Tax Chambers
It is appropriate to note here that in addition to buying a property or construction, he will not be barred from the repaying the existing home loan and claim tax exemption only if he complied with the prescribed timeframe. Means it is immaterial that whether he bought a property, invested or repayment of loan which is again nothing but an investment.
Let us come to the above query
Scenario One – It is assumed that the property was purchased within one year of the preceding the sale
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A taxpayer can explore tax exemptions as follows –
As per Section 54 – Capital Gain arising on the transfer of a residential house is exempt in the following circumstances –
- the asset transferred is a residential house,
- the asset transferred by an individual or a Hindu Undivided Family
- the asset transferred should be a long term capital asset
- the assessee has, purchased another residential house within one year before or two years after the date on which transfer took place or constructed the same within 3 years of after the date of transfer
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As per Section 54F – Capital Gain on transfer of asset other than a residential house is fully exempt if the net sales proceeds invested to acquire a residential house are subject to the following conditions –
- the asset transferred by an individual or a Hindu Undivided Family
- the asset transferred should be a long-term capital asset
- the asset transferred is any capital asset other than a residential house
- the assessee has purchased a residential house within one year before or two years after the date on which transfer took place or constructed a residential house within 3 years of after the date of transfer
- the assessee does not own more than one on the date of transfer of the original asset, exclusive one purchased for claiming exemption under this provision
Scenario Two – It is assumed that the property was not purchased within one year –
A taxpayer shall keep in mind that claiming the tax exemption under scenario two may be denied by the Assessing Officer and issue to be ended up as litigative before the tax authorities.
