Can one save capital acquire tax by repaying residence mortgage (previous or new)? Is it allowed below the Sec.54F of the Revenue Tax Act? Allow us to focus on this query intimately.
Mr.A might have an present residence mortgage on a property in Bangalore. When he sells the Bangalore property, he might incur capital acquire. Can he save that tax by repaying the present residence mortgage of Bangalore property from the capital acquire?
Mr.B could also be prepared to purchase a brand new home however the present home just isn’t 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 acquire to repay new residence 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 widespread in nature. Therefore, thought to put in writing an in depth put up on this.
Can I save Capital Acquire Tax by repaying residence mortgage?
Let me share with you the Sec.54F particulars to reach at what we are able to decide.
All about Part 54F
Exemption below Sec.54F is accessible if the next situations are glad.
- Who can declare exemption – Below Sec.54F, solely a person or a HUF can declare exemption. In different phrases, no different individual is eligible for claiming exemptions below Sec.54F.
- Which asset is certified for exemption – Below Sec.54F, the exemption is accessible 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, 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 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 needs to be bought or constructed throughout the time restrict – a) For brand new home – It needs to be bought inside 1 yr or earlier than, or inside 2 years after, the date of switch of the unique asset. b) For establishing a brand new home – The development needs to be accomplished inside 3 years from the date of switch of authentic asset.
Few factors to contemplate 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 will probably be decided from the date of receipt of compensation (whether or not preliminary or further).
- Building might begin earlier than the switch of capital asset – Building 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 development is irrelevant. Building even earlier than the switch of the unique asset.
- Holding of authorized title just isn’t mandatory – If the taxpayer pays full consideration or a considerable portion of it throughout the stipulated interval given above, the exemption below Sec.54F is accessible 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 (might or might not be used for residential functions) – The requirement of Sec.54F is that the property needs to be a residential home. The usage of the property just isn’t 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.
- Funding within the identify of the transferor – It’s mandatory and compulsory to have an funding made in a residential home within the identify of the transferor solely and never within the identify of every other individual.
- Renovation or modification of an present home – Sec.54F doesn’t present for exemption in case of renovation or modification of an present home.
- The funding made throughout the time restrict however development not accomplished – Exemption below Sec.54F can’t be denied the place funding in a residential home is made throughout the time restrict however development is accomplished after the expiry of the time restrict.
- The reside hyperlink between internet sale consideration and funding in new property just isn’t mandatory – Merely as a result of capital beneficial properties earned have been utilized for different functions and borrowed are deposited in a capital beneficial properties funding account, the advantage of exemption below Sec.54F can’t be denied.
- Not a couple of residential home property needs to be owned by the taxpayer – Below Sec.54F, the exemption is accessible 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 development 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 a couple of residential home even collectively, with one other individual, the advantage of exemption below Sec.54F just isn’t obtainable.
How a lot most restrict can one avail below Sec.54F?
Earlier than the Price range 2023, there have been no such restrictions. Nonetheless, efficient from 1st April 2024, the utmost restrict obtainable to avail of the profit below Sec.54F is capped at Rs.10 Crore. Do notice that the quantity of exemption can’t exceed the quantity of capital acquire.
What’s the Scheme of Deposit below Sec.54F?
Below Sec.54F, the brand new home may 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 (usually thirty first July or thirty first Oct of the evaluation yr). If the quantity just isn’t utilized throughout the due date of submission of earnings, then it needs to be deposited within the capital beneficial properties 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 may be bought or constructed throughout the specified time restrict.
If the quantity deposited just isn’t utilized absolutely for buy or development of latest home throughout the stipulated interval, then the next quantity may be handled as LTCG of the earlier yr through which the interval of three years from the date of switch of authentic asset expires.
Unutilized quantity within the deposit account (Claimed below Sec.54F)* (Quantity of authentic capital acquire/Web 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.
If you happen to 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 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 unique new property not on the property that you’re promoting.
# Mr.B and C can avail the advantages of exemption. Nonetheless, if the situations of time interval as per Sec.54F (needs 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 will avail of the exemption.
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