Tax advantages claimed on dwelling loans get reversed if home offered in 5 years
Question: I had bought a 2 bed room flat in Delhi in December 2018 by means of a house mortgage from SBI. Since then I’m additionally availing revenue tax rebate on compensation of loans and curiosity. Now I need to promote out this flat to buy one other three-bedroom flat in another space by placing in some more cash. In this case, will I’ve to return the tax advantages availed from December 2018 so far? What are the opposite implications of those transactions?
Answer: One can declare a deduction for compensation of a house mortgage taken from specified entities for buying a residential home as much as ₹1.50 lakh yearly together with different eligible gadgets underneath Section 80 C of the Income Tax Act, 1961. However, in case you promote or switch, such home bought, inside 5 years from the tip of the yr through which it was so bought, all the advantages in respect of compensation of such dwelling mortgage availed underneath Section 80 C will get reversed and develop into taxable within the yr through which you promote the property. So in your case any quantity of principal compensation claimed underneath Section 80 C shall develop into taxable within the yr through which you promote the home. Please word that there is no such thing as a comparable provision for reversing the tax advantages claimed in respect of curiosity on the house loans. So any tax profit claimed by you underneath Section 24(b) in respect of curiosity shall not be reversed.
Since you might be promoting the home after finishing 24 months, income if any made on this shall be handled as long run capital features (LTCG). For computing the LTCG, you might be entitled to boost the price of your own home with the assistance of the price inflation index introduced by the federal government yearly. LTCG arising on sale/switch of a residential home may be claimed exempt if the capital features are invested in shopping for one other residential home inside a specified time underneath Section 54 of Income Tax Act, 1961.
Since your funding within the new home is prone to be greater than such listed long run capital features, your whole LTCG shall be tax-free in your fingers. Please word that the funding for buying a brand new home may be made inside a interval of three years from the date of sale of the home. However, in case you aren’t in a position to make the most of full quantity of capital features earlier than the due date of submitting of your revenue tax return, you’ll have to deposit the quantity of capital features, to the lengthen not so utilized, in a capital features account with a financial institution.
Balwant Jain is a tax and funding knowledgeable and may be reached at jainbalwant@gmail.com and @jainbalwant on Twitter.
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