Photo: iStockphoto
Photo: iStockphoto

No bar on claiming tax deduction for home loans of multiple houses

The difference between the net sale proceeds and the indexed cost of acquisition and improvement of the property is taxable as LTCG at the rate of 20.60%

I bought a commercial property in New Delhi in April 1988 for Rs3,03,408. I am selling it for Rs82,56,000. How do I calculate my long-term capital gains?

—R.K. Sharma

As you have held the property for more than 24 months, the gains arising from the sale would be taxable as long-term capital gains (LTCG). The difference between the net sale proceeds and the indexed cost of acquisition and improvement of the property is taxable as LTCG at the rate of 20.60% (plus applicable surcharge).

Since you acquired this property before 1 April 2001, you have the option of treating its fair market value (FMV) of as on 1 April 2001 as the cost of acquisition and improvement while computing taxes, instead of actual costs.

Here is an illustration of how LTCG is calculated, assuming the year of sale is FY19. The Cost Inflation Index (CII) for FY19 is yet to be notified, so the CII notified for FY18 has been used.

First, calculate the indexed cost of acquisition. Option 1: use actual costs. Multiply actual cost of acquisition or improvement by CII in the tax year of sale and divide this amount by CII notified for FY02. The CII notified by the tax authority as on 1 April 2001 (CII for FY02 is 100) and year of sale (CII for FY18 is 272). This is: Rs3,03,408x272/100 = Rs8,25,269. Option 2: use FMV as on 1 April 2001. Compute the indexed value of the FMV using CII notified as on 1 April 2001 and CII in year of sale. This is: FMV obtained x 272/100.

Second, calculate the LTCG. Gross sale proceeds less any selling cost (such as brokerage) minus the indexed cost of acquisition using Option 1 or 2.

LTCG can be claimed as tax-exempt by investing the gains in specified bonds notified by the central government within 6 months from the sale of property, subject to conditions, or by investing in a residential property in India, subject to conditions.

Can I get tax benefit on principal paid for two home loans (one self-occupied house and one let-out) under Section 80C?

—Yogesh

A tax deduction can be claimed in respect of principal repayment of home loans borrowed for the construction or purchase of a house (self-occupied/let-out), up to Rs1.5 lakh permitted in respect of all investments/expenses that qualify for deduction under Section 80C. There is no bar on making the claim in respect of multiple houses as long as the total deduction, including other investments, is up to Rs1.5 lakh. This deduction is subject to you holding the property for at least 5 years from the end of the year in which you got possession.

Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India. 

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