I am buying a new house and moving there. I want to sell my existing house but am not able to get a buyer. I will take a home loan for the new residential house, and pay it off when I sell my present flat. Will I be able to get a capital gains exemption for payment of the home loan taken to buy the new house?

In order to save tax on long-term gains on the sale of a residential house property, you have to invest the amount of indexed capital gain either in another residential house or in capital gain bonds of specified financial institutions. The investment in a residential house has to be made within two years from the date of sale of the property. Even if you sell the residential house property within one year from the purchase of another residential house, you can still claim capital gains exemption to the extent of indexed capital gains or the value of the house property bought earlier which is lower. If you get a house constructed or go for an under-construction property, the construction has to be completed within three years.

The bonds have to be bought within six months of the sale of the house. Please note that there is no capital gains exemption in respect of repayment of a home loan taken to buy a residential property except to the extent available under Section 80C.

However, if you are able to sell your existing house property within one year from the date of purchase of a new house, you will be able to claim the exemption in respect of long-term capital gains arising on the sale of the present house. In case you are not able to sell the present house within one year of the purchase of this house, no capital gains exemption will be available with respect to the house property proposed to be bought.

However, you can claim an exemption under Section 54EC by investing the indexed long-term capital gains in capital gains bonds of specified financial institutions within six months from the date of sale of the existing flat. These bonds have a tenure of five years and interest received on these bonds is fully taxable. You can plan to repay the home loan after the completion of the five-year tenure of the bond.

Source By: livemint

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