Tax benefits claimed on home loans get reversed if house sold in five years

Query: I had bought a 2 bed room flat in Delhi in December 2018 by way of a house mortgage from SBI. Since then I’m additionally availing revenue tax rebate on reimbursement of loans and curiosity. Now I wish to promote out this flat to buy one other three-bedroom flat in another space by placing in some extra money. On this case, will I’ve to return the tax advantages availed from December 2018 so far? What are the opposite implications of those transactions?

Reply: One can declare a deduction for reimbursement of a house mortgage taken from specified entities for buying a residential home as much as 1.50 lakh yearly together with different eligible gadgets below Part 80 C of the Revenue Tax Act, 1961. Nonetheless, in case you promote or switch, such home bought, inside 5 years from the tip of the 12 months by which it was so bought, all the advantages in respect of reimbursement of such dwelling mortgage availed below Part 80 C will get reversed and turn into taxable within the 12 months by which you promote the property. So in your case any quantity of principal reimbursement claimed below Part 80 C shall turn into taxable within the 12 months by which you promote the home. Please observe that there is no such thing as a related provision for reversing the tax advantages claimed in respect of curiosity on the house loans. So any tax profit claimed by you below Part 24(b) in respect of curiosity shall not be reversed.

Since you might be promoting the home after finishing 24 months, income if any made on this shall be handled as long run capital features (LTCG). For computing the LTCG, you might be entitled to reinforce the price of your home with the assistance of the associated fee inflation index introduced by the federal government yearly. LTCG arising on sale/switch of a residential home will be claimed exempt if the capital features are invested in shopping for one other residential home inside a specified time below Part 54 of Revenue Tax Act, 1961.

Since your funding within the new home is more likely to be greater than such listed long run capital features, your whole LTCG can be tax-free in your palms. Please observe that the funding for buying a brand new home will be made inside a interval of three years from the date of sale of the home. Nonetheless, in case you aren’t capable of make the most of full quantity of capital features earlier than the due date of submitting of your revenue tax return, you’ll have to deposit the quantity of capital features, to the lengthen not so utilized, in a capital features account with a financial institution.

Balwant Jain is a tax and funding professional and will be reached at jainbalwant@gmail.com and @jainbalwant on Twitter.

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