Can I save Capital Achieve Tax by repaying dwelling mortgage?

Can one save capital achieve tax by repaying dwelling mortgage (previous or new)? Is it allowed below the Sec.54F of the Earnings Tax Act? Allow us to focus on this query intimately.

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

Mr.B could also be keen to purchase a brand new home however the present home shouldn’t be 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 achieve 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 achieve, then whether or not such capital achieve 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 write down an in depth publish 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 will choose.

All about Part 54F

Exemption below Sec.54F is offered if the next circumstances are glad.

• Who can declare exemption – Underneath Sec.54F, solely a person or a HUF can declare exemption. In different phrases, no different particular person is eligible for claiming exemptions below Sec.54F.
• Which asset is certified for exemption – Underneath Sec.54F, the exemption is offered 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, industrial home property, gold, share or any asset however not a residential home property).
• Which new asset ought to be bought or acquired – To assert the exemption below Sec.54F, the taxpayer must buy one residential home property (previous or new) (however should be inside India) or assemble a residential home property (new home). The brand new home ought to be bought or constructed throughout the time restrict – a) For brand spanking new home – It ought to be bought inside 1 yr 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 ought to 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 will probably be decided from the date of receipt of compensation (whether or not preliminary or extra).
2. Development could begin earlier than the switch of capital asset – Development of the home ought 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.
3. Holding of authorized title shouldn’t be vital – If the taxpayer pays full consideration or a considerable portion of it throughout the stipulated interval given above, the exemption below Sec.54F is offered even when the possession is handed over after the stipulated interval or the sale deed is registered in a while.
4. The residential home ought to be bought/acquired (could or might not be used for residential functions) – The requirement of Sec.54F is that the property ought to be a residential home. The usage of the property shouldn’t be the related criterion to contemplate the eligibility for a profit below Sec.54F. What’s required is an funding in a residential home. Mere non-residential use wouldn’t render a property ineligible for profit below Sec.54F.
5. Funding within the title of the transferor – It’s vital and compulsory to have an funding made in a residential home within the title of the transferor solely and never within the title of every other particular person.
6. Renovation or modification of an present home – Sec.54F doesn’t present for exemption in case of renovation or modification of an present home.
7. The funding made throughout the time restrict however building not accomplished – Exemption below Sec.54F can’t be denied the place funding in a residential home is made throughout the time restrict however building is accomplished after the expiry of the time restrict.
8. The dwell hyperlink between web sale consideration and funding in new property shouldn’t be vital – Merely as a result of capital positive factors earned have been utilized for different functions and borrowed are deposited in a capital positive factors funding account, the advantage of exemption below Sec.54F can’t be denied.
9. Not a couple of residential home property ought to be owned by the taxpayer – Underneath Sec.54F, the exemption is offered provided that on the date of switch of the unique belongings, the taxpayer doesn’t personal a couple of residential home property. He must also 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 ought to be located in India – As talked about above, the brand new asset ought to be inside India.
11. Joint possession in different properties – If the taxpayer owns a couple of residential home even collectively, with one other particular person, the advantage of exemption below Sec.54F shouldn’t be out there.

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

Earlier than the Finances 2023, there have been no such restrictions. Nonetheless, efficient from 1st April 2024, the utmost restrict out there to avail of the profit below Sec.54F is capped at Rs.10 Crore. Do observe that the quantity of exemption can’t exceed the quantity of capital achieve.

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

Underneath Sec.54F, the brand new home could be bought or constructed throughout 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 (typically thirty first July or thirty first Oct of the evaluation yr). If the quantity shouldn’t be utilized throughout the due date of submission of earnings, then it ought to be deposited within the capital positive factors 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 below Sec.54F.

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

If the quantity deposited shouldn’t be utilized totally for buy or building of recent home throughout the stipulated interval, then the next quantity could be handled as LTCG of the earlier yr wherein the interval of three years from the date of switch of unique asset expires.

Unutilized quantity within the deposit account (Claimed below Sec.54F)* (Quantity of unique capital achieve/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.

In case you go by all the main points of Sec.54F and likewise 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 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 circumstances as beneath.

# Mr.A can’t declare the capital achieve exemption by repaying the house mortgage on the property. It ought to be for a distinct 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 (ought to be bought inside 1 yr 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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