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I purchased a 2-bedroom flat in Mumbai in December, 2018 through home loan from HDFC. Since then I am availing tax rebate on repayment of loan and interest. Now I want to sell this flat to purchase another three bed room flat. Will I have to return the tax benefits availed from December, 2018 till date if I sell this flat? What are the other tax implications of the proposed transaction?

As per Section 80 C of the Income Tax Act, in case you sell a house, purchased with home loan, within five years from the end of the year in which it was so purchased, all the benefits in respect of repayment of such home loan availed under Section 80 C shall become taxable in the year in which you sell such flat. So in your case any amount of principal repayment claimed under Section 80 C shall become taxable during the year of sale. Please note that there is no similar provision for levying income tax in respect of tax benefits claimed for interest on home loan. So any tax benefit claimed by you under Section 24(b) in respect of interest shall not become taxable now.

Since you are selling the house after completing 24 months, profits if any made on this shall be treated as long term capital gains. As per Section 54 of Income Tax Act long term capital gains on sale of a residential house are exempt if the capital gains are invested in buying another residential house within specified time. In case your investment in new house is equal to or more than such indexed long term capital gains, all of your long term capital gains will be tax free. Please note that the investment for purchasing new house can be made within a period of three years from the date of sale of the flat. However, in case you are not able to utilize full amount of capital gains before the due date of filing of your income tax return, you have to deposit the capital gains to the extend not so utilized in an account under “Capital Gains Account Scheme" with a bank.

Balwant Jain is a tax and investment expert and can be reached on jainbalwant@gmail and @jainbalwant on Twitter.com.

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