I have two small residential flats. One was bought in 2001 and we lived in it till 2017 then moved to a smaller flat bought in 2016 by taking housing loan. Now we want to buy a bigger house for self use and thus planning to sell our old 2001 flat in March 2022. The Temporary Long Term Capital Gains (LTCG) on our old flat will be around 65 lakhs (after indexation) and the new flat. cost us 160 lakhs. Please let me know whether I can avail this capital gain for buying a new house for personal use? Please note that I already have a flat on the date of sale of the old flat. I am a pensioner.
Since you have sold the old flat after holding it for more than 24 months, the gain from the sale of this flat is taxed as long term capital gain. There are provisions in the tax laws to allow exemption from tax on long-term capital gains if the investment is made in some specified asset. As per section 54 of the Income Tax Act, a person and a HUF One can claim exemption from long-term capital gains arising on the sale of a residential house by investing the indexed capital gains to buy another residential house within the specified period. There is a discount if you invest within two years to buy a house. A longer period of three years is available in case of self-construction of the house or booking of an under-construction house. Long-term capital gains that have not been invested by the due date of filing income tax return (ITR), the unutilized amount is required to be credited to an account under the capital gains account scheme and which can be used to pay Acquisition of residential house within the specified time period. If the amount is not utilized within the stipulated period, it becomes taxable in the year in which the period ends.
There is no restriction on the number of residential houses you have on the date of sale of the property to be eligible to claim exemption under section 54.
Since you plan to invest more than the indexed long-term capital gains, there will be no tax liability on you. However, if the full long-term capital gains are not invested, then exemption will be available to the extent of investment and you will have to pay tax at the same rate of 20% on the balance amount.
So if you sell your flat by 31st March 2022, you will have to buy a new flat by 31st July, 2022 which is your due date for filing your ITR. If you are not able to do so then you will have to credit the unutilized money to the capital gains account. If possible, I would advise you to execute the agreement in the next year so that you have a longer period till 31st July 2023 available to invest LTCG.
Balwant Jain is a tax and investment specialist and can be contacted on Twitter at jainbalwant@gmail.com and @jainbalwant.
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