Can one save capital acquire tax by repaying dwelling mortgage (outdated or new)? Is it allowed beneath the Sec.54F of the Earnings Tax Act? Allow us to focus on this query intimately.
Mr.A could have an current dwelling mortgage on a property in Bangalore. When he sells the Bangalore property, he could 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 prepared to purchase a brand new home however the current home will not be promoting. Therefore, he opted for a house mortgage to buy the brand new home. If the outdated home is offered sooner or later, then whether or not Mr.B can use capital acquire to repay new dwelling mortgage and save the tax?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 frequent in nature. Therefore, thought to write down an in depth publish on this.
Can I save Capital Acquire Tax by repaying dwelling mortgage?
Let me share with you the Sec.54F particulars to reach at what we are able to choose.
All about Part 54F
Exemption beneath Sec.54F is out there if the next situations are happy.
- Who can declare exemption – Below Sec.54F, solely a person or a HUF can declare exemption. In different phrases, no different particular person is eligible for claiming exemptions beneath Sec.54F.
- Which asset is certified for exemption – Below Sec.54F, the exemption is out there provided that the capital asset that’s transferred is a LONGTERM capital asset however OTHER THAN A RESIDENTIAL HOUSE or PROPERTY (it might be a plot of land, business home property, gold, share or any asset however not a residential home property).
- Which new asset needs to be bought or acquired – To say the exemption beneath Sec.54F, the taxpayer should buy one residential home property (outdated or new) (however should be inside India) or assemble a residential home property (new home). The brand new home needs to be bought or constructed inside the time restrict – a) For brand spanking new home – It needs to 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 needs to be accomplished inside 3 years from the date of switch of authentic asset.
Few factors to think about are –
- Time restrict within the case of obligatory acquisition – In case of obligatory acquisition, the time restrict of 1 yr, 2 years, or 3 years might be decided from the date of receipt of compensation (whether or not preliminary or extra).
- Development could begin earlier than the switch of capital asset – Development of the home needs to 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.
- Holding of authorized title will not be needed – If the taxpayer pays full consideration or a considerable portion of it inside the stipulated interval given above, the exemption beneath Sec.54F is out there even when the possession is handed over after the stipulated interval or the sale deed is registered afterward.
- The residential home needs to be bought/acquired (could or might not be used for residential functions) – The requirement of Sec.54F is that the property needs to be a residential home. Using the property will not be the related criterion to think about 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.
- Funding within the title of the transferor – It’s needed and compulsory to have an funding made in a residential home within the title of the transferor solely and never within the title of another particular person.
- Renovation or modification of an current home – Sec.54F doesn’t present for exemption in case of renovation or modification of an current home.
- The funding made inside the time restrict however building not accomplished – Exemption beneath Sec.54F can’t 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.
- The dwell hyperlink between web sale consideration and funding in new property will not be needed – 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 advantage of exemption beneath Sec.54F can’t be denied.
- Not multiple residential home property needs to be owned by the taxpayer – Below Sec.54F, the exemption is out there provided that on the date of switch of the unique property, the taxpayer doesn’t personal multiple 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.
- The brand new asset needs to be located in India – As talked about above, the brand new asset needs to be inside India.
- Joint possession in different properties – If the taxpayer owns multiple residential home even collectively, with one other particular person, the advantage of exemption beneath Sec.54F will not be obtainable.
How a lot most restrict can one avail beneath Sec.54F?
Earlier than the Price range 2023, there have been no such restrictions. Nevertheless, efficient from 1st April 2024, the utmost restrict obtainable to avail of the profit beneath Sec.54F is capped at Rs.10 Crore. Do word that the quantity of exemption can’t exceed the quantity of capital acquire.
What’s the Scheme of Deposit beneath Sec.54F?
Below 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 revenue on or earlier than the due date of submission of return of revenue (typically thirty first July or thirty first Oct of the evaluation 12 months). If the quantity will not be utilized inside the due date of submission of revenue, then it needs to be deposited within the capital positive aspects deposit account scheme. On the premise 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 will not be utilized totally for buy or building of recent home inside the stipulated interval, then the next quantity might be handled as LTCG of the earlier 12 months wherein the interval of three years from the date of switch of authentic asset expires.
Unutilized quantity within the deposit account (Claimed beneath Sec.54F)* (Quantity of authentic capital acquire/Internet 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.
For those who go by all the main points of Sec.54F and likewise by referring to those hyperlinks “Kanoon” and “ITAT Tribunal Order” the place the circumstances of Bombay Excessive Court docket in CIT vs. Dr. P. S. Pasricha, Kerala Excessive Court docket in Okay. C. Gopalan 162 CTR 566 and IT Officer Vs Manish Sinha the place talked about, it’s clear that you should utilize the gross sales proceeds to repay the house mortgage. However with sure situations as beneath.
# Mr.A can’t declare the capital acquire exemption by repaying the house mortgage on the property. It needs to be for a special new property not on the property that you’re promoting.
# Mr.B and C can avail the advantages of exemption. Nevertheless, if the situations of time interval as per Sec.54F (needs to 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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