I bought a 2 bedroom apartment in Mumbai in December 2018 through a mortgage from HDFC. Since then, I have benefited from a tax reduction on loan repayment and interest. Now I want to sell this apartment to buy another three bedroom apartment. Do I have to return the tax benefits I have enjoyed from December 2018 to date if I sell this apartment? What are the other tax implications of the proposed transaction?
In accordance with section 80 C of the Income Tax Act, if you sell a house, purchased with a mortgage, within five years of the end of the year in which it was purchased, all the benefits relating to the repayment of this mortgage used under section 80 C will become taxable in the year in which you sell this apartment. Thus, in your case, any amount of repayment of capital claimed under section 80 C will become taxable during the year of sale. Please note that there is no similar provision for the collection of income tax in respect of tax concessions claimed in respect of interest on mortgage loans. Thus, any tax benefit claimed by you under section 24 (b) in respect of interest will not become taxable now.
Since you sell the house after completing 24 months, any profits, if any, will be treated as long-term capital gains. In accordance with section 54 of the Income Tax Act, long-term capital gains on the sale of a residential home are exempt if the capital gains are invested in the purchase of another home residential within a specified time. If your investment in a new home equals or exceeds these indexed long-term capital gains, all of your long-term capital gains will be tax exempt. Please note that the investment for the purchase of a new house can be made within three years from the date of sale of the apartment. However, in the event that you are not able to use the full amount of capital gains before the filing due date of your tax return, you must deposit the capital gains in the measure not used 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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