I purchased a flat for Rs 7.35 lakh, which was registered on 28 May 2007, on a home loan of Rs 6.47 lakh for 13 years. However, I foreclosed the loan on 18 June 2009. I took another loan of Rs 33.70 lakh for 18 years on 25 September 2010 to purchase another flat. As per the bank’s term for prepayment made within the first three years from the date of the first disbursement, no prepayment charges will be levied for prepayment of up to 25% of the opening balance in any fiscal year. The current price of my earlier flat is about Rs 18 lakh. How much tax I will have to pay if I sell it within a few months? When can I sell the flat so that long-term capital gains tax would be effective and how much tax I have to pay? If I prepay my new loan up to 25%, how much tax will be saved?
Section 2(42A) of the Income-tax Act defines “short-term capital asset” to mean a capital asset held by an assessee for up to 36 months (12 months in the case of specified capital assets) immediately preceding the date of its transfer. Any other capital asset is regarded as a long-term capital asset. In your case, assuming you got the possession of the first flat on 28 May 2007, it will qualify as a long-term capital asset if it is sold any time on or after 28 May 2010. Also, as per section 112, capital gains tax on sale of such long-term capital asset shall be levied at 20% on the total value of the gains.
If the first flat is self-occupied, interest deduction up to Rs 1.5 lakh can be availed. However, if it isn’t self-occupied, deduction of the entire amount of interest repaid during a particular year shall be available as deduction. Similarly, if any interest repayment is made on the second loan (including any interest component paid at the time of prepayment), it shall be available as deduction while computing income under the head income from house property, subject to limits specified above.
Lastly, as per section 54, long-term capital gains on sale of the first flat shall be exempt if the entire amount of gain is reinvested to purchase a new residential house or to construct another residential house within a specified period. The specified period to purchase a new house is one year before or two years after the date of transfer and the specified time period to construct a new house is three years after the date of transfer. Further, if the entire amount of gain is not utilized for specified purposes, the unutilized amount must be deposited in a Capital Gain Account Scheme before the due date of filing tax returns.
In your case, assuming the first flat is transferred/sold on or before 31 March 2011, the time period to purchase a new house is between 1 April 2010 and 31 March 2013 and the time period to construct a new house is between 1 April 2011 and 31 March 2014. If the entire gain amount is not utilized for any of the above purposes by 31 July 2011 (the due date of filing returns for FY11), the remaining unutilized amount must be deposited in Capital Gain Account Scheme before 31 July 2011.
Queries and views at email@example.com