Question: I bought a 2 bedroom flat in Delhi through home loan in December 2018 State Bank Of India. Since then I am also availing income tax exemption on repayment of loan and interest. Now I want to sell this flat by investing some more money to buy a three bedroom flat in some other area. In this case, do I have to refund the tax benefits I have received since December 2018? What are the other implications of these transactions?
answer: Can claim deduction for repayment of home loan taken from specified entities for getting a residential house ₹1.50 lakh every year along with other eligible items under section 80C of the Income Tax Act, 1961. However, if you sell or transfer, where such house was purchased, within five years from the end of the year in which it was purchased, all profits in respect of repayment of such home loan availed under section 80C are reversed and become taxable in the year in which you sell the property. So in your case any amount of principal amount claimed under section 80C will become taxable in the year in which you sell the house. Please note that there is no equivalent provision for refund of tax benefits claimed in respect of interest on home loan. Hence any tax benefit claimed by you in respect of interest under section 24(b) will not be refunded.
Since you are selling the house after completing 24 months, the profit made on it will be treated as Long Term Capital Gain (LTCG). To calculate LTCG, you are entitled to increase the cost of your house every year with the help of cost inflation index declared by the government. Rebate on LTCG arising on sale/transfer of a residential house can be claimed if the capital gain is invested in buying another residential house within a specified time under section 54 of the Income Tax Act, 1961.
Since your investment in the new home is likely to exceed such indexed long-term capital gains, all your LTCG Will be tax free in your hands. Please note that investments can be made to acquire a new home within a period of three years from the date of sale of the house. However, if you are not able to utilize the full amount of capital gains before the due date of filing your income tax return, you will have to credit the amount of capital gains to Capital Gains Account, which is not so utilized . with a bank.
Balwant Jain is a tax and investment specialist and can be reached on Twitter at jainbalwant@gmail.com and @jainbalwant.
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