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Exemption on sale of house

T. Banusekar

I PROPOSE to sell my house, which was constructed by getting a loan from a financial institution. Out of the sale proceeds, I propose to pay back Rs 2 lakh. Can a tax exemption be claimed in respect of his repayment of housing loan? If I invest the entire amount in another house can I claim an exemption?

Ravindran

Reply

No tax benefit can be derived by way of exemption or deduction on repayment of the principal outstanding to financial institution in respect of a loan taken for the purpose of construction of a house property except to the extent of claiming the rebate under Section 88 in respect of the principal repayment of housing loan. This rebate will be available at 20 per cent of the principal repaid subject to a maximum rebate of Rs 4,000. The rebate, however, is not available in respect of persons whose gross total income is more than Rs 5 lakh and is subject to certain limits. On sale of a house property and investment in another, an exemption will be available under Section 54 subject to the following:

  • The assessee is an individual or HUF.

  • The asset transferred is a long-term capital asset.

  • The asset transferred is a residential house.

  • An investment is made in another house property by purchase or construction.

  • If the investment is to be made by way of purchase, it should be one year before or two years after the date of transfer of the original capital asset.

    If the investment is to be made by way of construction, the same should be completed within three years from the date of transfer of the original asset. If these conditions are satisfied, an exemption is available to the extent of:

  • If the amount invested is more than or equal to the capital gains, the whole of the capital gain.

  • If the amount invested is less, to the extent invested. The reader can, therefore, claim the exemption in respect of investment in another house property provided he satisfies the conditions stated above.

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