Tax benefits claimed on home loans are waived if the house is sold in five years

Question: I had purchased a 2 bedroom apartment in Delhi in December 2018 through a mortgage from SBI. Since then, I have also benefited from an income tax rebate on loan repayments and interest. Now I want to sell this apartment to buy another three bedroom apartment in another neighborhood by putting some more money. In this case, do I have to return the tax benefits I have benefited from from December 2018 to date? What are the other implications of these transactions?

Reply: You can claim a deduction for the repayment of a mortgage taken out with specific entities for the acquisition of a residential house up to ??1.50 lakh each year along with other qualifying items under section 80 C of the Income Tax Act, 1961. However, in the event that you sell or transfer this purchased home, in the five years following the end of the year during which it was thus purchased, all the advantages relating to the repayment of such a mortgage under article 80 C are canceled and become taxable in the year during from which you are selling the property. Thus, in your case, any return of capital amount claimed under section 80C will become taxable in the year in which you sell the house. Please note that there is no similar provision for waiving tax benefits claimed for interest on mortgage loans. Thus, any tax benefit claimed by you under section 24 (b) with respect to interest will not be canceled.

Since you sell the house after completing 24 months, any profits, if any, will be treated as Long Term Capital Gains (LTCG). For the calculation of LTCG, you have the right to increase the cost of your house using the cost inflation index announced by the government each year. LTCG resulting from the sale / transfer of a residential house may be exempt if the capital gains are invested in the purchase of another residential house within a time limit determined under section 54 of the Income Tax Act 1961.

Since your investment in the new home is likely to be greater than these indexed long-term capital gains, all of your LTCG will be tax-free in your hands. Please note that the investment for the acquisition of a new house can be made within three years from the date of sale of the house. However, in the event that you are not able to use the full amount of capital gains before the due date for filing your tax return, you will need to deposit the amount of capital gains, in the unused measure, on a capital gains account. with a bank.

Balwant Jain is a tax and investment expert and can be reached at [email protected] and @jainbalwant on Twitter.

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