Can I save Capital Achieve Tax by repaying dwelling mortgage?

Can one save capital acquire tax by repaying dwelling mortgage (previous or new)? Is it allowed beneath the Sec.54F of the Revenue Tax Act? Allow us to talk about this query intimately.

Mr.A might have an current dwelling mortgage on a property in Bangalore. When he sells the Bangalore property, he might incur capital acquire. Can he save that tax by repaying the present dwelling mortgage of Bangalore property from the capital acquire?

Mr.B could also be keen to purchase a brand new home however the current home just isn’t promoting. Therefore, he opted for a house mortgage to buy the brand new home. If the previous home is offered sooner or later, then whether or not Mr.B can use capital acquire to repay new dwelling mortgage and save the tax?

Mr.C owns two properties. On one property he has a mortgage. On one other property, he doesn’t have any mortgage. If he sells the property (on which no mortgage) and incurs capital acquire, then whether or not such capital acquire be exempted from tax if he makes use of it for repaying of mortgage of one other home property?

Such questions are widespread in nature. Therefore, thought to put in writing an in depth put up on this.

Can I save Capital Achieve Tax by repaying dwelling mortgage?

Let me share with you the Sec.54F particulars to reach at what we are able to decide.

All about Part 54F

Exemption beneath Sec.54F is obtainable if the next circumstances are glad.

• Who can declare exemption – Beneath Sec.54F, solely a person or a HUF can declare exemption. In different phrases, no different individual is eligible for claiming exemptions beneath Sec.54F.
• Which asset is certified for exemption – Beneath Sec.54F, the exemption is obtainable provided that the capital asset that’s transferred is a LONGTERM capital asset however OTHER THAN A RESIDENTIAL HOUSE or PROPERTY (it could be a plot of land, business home property, gold, share or any asset however not a residential home property).
• Which new asset must be bought or acquired – To say the exemption beneath Sec.54F, the taxpayer should buy one residential home property (previous or new) (however have to be inside India) or assemble a residential home property (new home). The brand new home must be bought or constructed inside the time restrict – a) For brand spanking new home – It must be bought inside 1 12 months or earlier than, or inside 2 years after, the date of switch of the unique asset. b) For developing a brand new home – The development must be accomplished inside 3 years from the date of switch of unique asset.

Few factors to contemplate are –

1. Time restrict within the case of obligatory acquisition – In case of obligatory acquisition, the time restrict of 1 yr, 2 years, or 3 years can be decided from the date of receipt of compensation (whether or not preliminary or extra).
2. Development might begin earlier than the switch of capital asset – Development of the home must be accomplished inside 3 years from the date of the switch of the unique asset. The date of graduation of building is irrelevant. Development even earlier than the switch of the unique asset.
3. Holding of authorized title just isn’t obligatory – If the taxpayer pays full consideration or a considerable portion of it inside the stipulated interval given above, the exemption beneath Sec.54F is obtainable even when the possession is handed over after the stipulated interval or the sale deed is registered in a while.
4. The residential home must be bought/acquired (might or might not be used for residential functions) – The requirement of Sec.54F is that the property must be a residential home. Using the property just isn’t the related criterion to contemplate the eligibility for a profit beneath Sec.54F. What’s required is an funding in a residential home. Mere non-residential use wouldn’t render a property ineligible for profit beneath Sec.54F.
5. Funding within the identify of the transferor – It’s obligatory and compulsory to have an funding made in a residential home within the identify of the transferor solely and never within the identify of some other individual.
6. Renovation or modification of an current home – Sec.54F doesn’t present for exemption in case of renovation or modification of an current home.
7. The funding made inside the time restrict however building not accomplished – Exemption beneath Sec.54F cannot be denied the place funding in a residential home is made inside the time restrict however building is accomplished after the expiry of the time restrict.
8. The reside hyperlink between internet sale consideration and funding in new property just isn’t obligatory – Merely as a result of capital positive aspects earned have been utilized for different functions and borrowed are deposited in a capital positive aspects funding account, the good thing about exemption beneath Sec.54F cannot be denied.
9. Not a couple of residential home property must be owned by the taxpayer – Beneath Sec.54F, the exemption is obtainable provided that on the date of switch of the unique property, the taxpayer doesn’t personal a couple of residential home property. He also needs to not buy inside a interval of two years after such date (or full building inside a interval of three years after such date) any residential home.
10. The brand new asset must be located in India – As talked about above, the brand new asset must be inside India.
11. Joint possession in different properties – If the taxpayer owns a couple of residential home even collectively, with one other individual, the good thing about exemption beneath Sec.54F just isn’t obtainable.

How a lot most restrict can one avail beneath Sec.54F?

Earlier than the Price range 2023, there have been no such restrictions. Nonetheless, efficient from 1st April 2024, the utmost restrict obtainable to avail of the profit beneath Sec.54F is capped at Rs.10 Crore. Do be aware that the quantity of exemption cannot exceed the quantity of capital acquire.

What’s the Scheme of Deposit beneath Sec.54F?

Beneath Sec.54F, the brand new home might be bought or constructed inside the time restrict given above. The taxpayer has to submit his return of earnings on or earlier than the due date of submission of return of earnings (usually thirty first July or thirty first Oct of the evaluation 12 months). If the quantity just isn’t utilized inside the due date of submission of earnings, then it must be deposited within the capital positive aspects deposit account scheme. On the idea of the quantity utilized in buying the brand new property and the quantity deposited within the deposit account, the assessing provide will give an exemption beneath Sec.54F.

By withdrawing the quantity from the deposit account, a brand new home might be bought or constructed inside the specified time restrict.

If the quantity deposited just isn’t utilized absolutely for buy or building of latest home inside the stipulated interval, then the next quantity might be handled as LTCG of the earlier 12 months during which the interval of three years from the date of switch of unique asset expires.

Unutilized quantity within the deposit account (Claimed beneath Sec.54F)* (Quantity of unique capital acquire/Web sale consideration).

In such case, the taxpayer can withdraw the unutilized quantity at any time after the expire of three years from the date of switch of the unique asset in accordance with the aforesaid scheme.

In the event you go by all the small print of Sec.54F and in addition by referring to those hyperlinks “Kanoon” and “ITAT Tribunal Order” the place the instances of Bombay Excessive Court docket in CIT vs. Dr. P. S. Pasricha, Kerala Excessive Court docket in Ok. C. Gopalan 162 CTR 566 and IT Officer Vs Manish Sinha the place talked about, it’s clear that you should use the gross sales proceeds to repay the house mortgage. However with sure circumstances as under.

# Mr.A can’t declare the capital acquire exemption by repaying the house mortgage on the property. It must be for a unique new property not on the property that you’re promoting.

# Mr.B and C can avail the advantages of exemption. Nonetheless, if the circumstances of time interval as per Sec.54F (must be bought inside 1 12 months or earlier than, or inside 2 years after, the date of switch of the unique asset) are assembly then solely they’ll avail of the exemption.

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