Karthick and his wife Shakthi booked a new flat in an under-construction apartment complex very close to their existing home in Thiruvanmiyur, Chennai, for a total consideration of Rs. 4 Crores in May 2024. The handover date is expected to be in June 2027. They have taken a home loan from HDFC Bank to purchase the new apartment. They plan to sell their existing apartment, also jointly owned (purchased in 2010 for Rs. 80 Lakhs) in the next few months and expect to receive Rs. 1.8 Crores as the final sale consideration. They plan to repay the home loan using the sale proceeds of the existing apartment. Can Karthick and Shakthi claim exemption under Sec 82 of the Income Tax Act 2025 (erstwhile section – Sec 54 of the Income Tax Act, 1961) for repayment of home loan?
CAPITAL GAIN EXEMPTION:
Section 82 of the Income Tax Act, 2025 provides for exemption to an individual or HUF for long term capital gains arising out of sale of a residential house property if the amount of long term capital gains are utilised to purchase another ready-to-move-in residential property within two years from the date of sale of the house property.
The exemption can still be claimed if the ready-to-move-in house was purchased within one year before the date of sale of the house property. If one opts for self-construction of a house or book an under-construction residential property, a longer period of three years is available, within which the construction of the new house must be completed from the date of sale of the existing house property.
EXEMPTION ON HOUSING LOAN RE-PAYMENT:
Although a housing loan is taken towards purchase of a house property, the Income Tax law does not provide exemption for the repayment of the housing loan. However, an assessee can claim a deduction of upto Rs. 1.5 Lakhs towards repayment of principal of housing loan under Section 123 (read with Schedule XV) of the Income Tax Act, 2025 (erstwhile Sec 80C of the Income Tax Act, 1961) under the old tax regime.
LTCG EXEMPTION FOR KARTHICK & SHAKTHI:
Since Karthick and Shakthi plan to sell their existing house and as the cost of the new under construction house is higher than the amount of long term capital gains on sale of their existing house, they can claim exemption under section 82 of the Income Tax Act, 2025 for the entire long term capital gains as the construction is expected to be completed within three years from the date of sale of their existing house.
CRUX FOR CLAIMING BENEFIT:
Exemption under Section 82 of the Income Tax Act, 2025, is not dependant on the actual use of the sale proceeds of the existing house, as long as the requisite money is invested for acquisition of the house. The source of funding for this purpose is not relevant as decided by various income tax tribunals.
Having said that, it is also important to note that, every case of “housing loan repayment” may not qualify for capital gain tax saving, as the facts and circumstances may differ. Hence it is always advisable to take professional help in claiming of exemptions on capital gain transactions as the amount involved are huge and any repercussions could be multi-fold.
Capital gain transactions and how we can help you:
Sale of a house property requires a lot of effort and one must ensure the transaction is viewed not only from the commercial and emotional aspect but also from the legal and tax aspects. It is important to understand the sequence of events and compliances required before triggering a Sale of Property.
We at Chockalingam Unnamalai & Associates focus on a wholistic approach to capital gain transactions for our clients. Our services for such transactions would include:
a. Computation of capital gains b. Obtaining lower deduction certificate c. Computing and assisting in deduction and payment of applicable TDS on the transaction d. Filing of TDS returns on the transaction e. Filing of the Income Tax Returns to claim refund (if any) of TDS
While the list of activities may seem simple for an onlooker, it requires a dedicated team to ensure that the compliances are completed within timelines to avoid unnecessary interest and penalty on late deduction / filing as the quantum involved in such transactions is quite huge.
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