Law on section 54 of it and home loan to buy property before 1 year of selling another
ChandanLawyersclub
(Querist) 11 December 2014
This query is : Resolved
Dear Experts,
I planning to take a ready to move flat in Bangalore city. For which builder is asking to pay in 2 months. To meet this time line I need to take home loan from bank. I have another flat in Chennai which I will sell within 12 months and pay all my all bank loan( My old property is 8 yrs old which I will sell) Can I adjust Long term gain of Chennai Property in Bangalore, since I am taking home loan for 3-12 months demanding upon how fast I can get money from Chennai , to cover time gap.
I have checked to couple of CAs , there are mix opinion on section 54 of IT on LTCG.
1. One lot of CAs says you cannot take loan to adjust LTCG(you are not using direct funds to buy property)
2. another lot of CAs says section 54 do not talks about home loan, basic purpose of section 54 is to keep money invested in housing sector
Request legal experts to through some light on this.
Thx
Regards
Chandra
Anirudh
(Expert) 11 December 2014
Dear Chandra,
Nowhere it has been mentioned in section 54 that same funds must be utilized for purchase of another residential house. The requirement of law is that, assessee should purchase residential house within specified period and source of funds is quite irrelevant.
There are plethora decisions to that effect.
In Ishar Singh Chawla v. Dy. CIT [2010] 130 TTJ (Mum.)(UO) 108 the assessee claimed to have invested capital in the purchase of a residential house and claimed exemption of the same under section 54.
The Assessing Officer observed that the assesse had acquired a new residential house with the help of borrowed funds from PNB. However, the funds received on transfer of property were not used to clear the loan liability availed of for acquiring the new residential house as the loan with PNB was still continuing in the subsequent years and the assessee was claiming interest on borrowed funds as a deduction from his income.
According to the Assessing Officer, section 54(1) was not applicable in the case of the assessee.
Held that the assessee had initially utilized the sale proceeds on sale of its residential flat in commercial properties and, later on, he purchased two residential flats within a period specified in sub-section (2) of section 54.
The Revenue’s main dispute was that the sale proceeds were utilized for purchase of a commercial property and residential house was purchased out of the funds obtained from different sources, as such, the identity of heads has been changed.
It was held that there was not much force in this argument as the requirement of section 54 is that the assessee should acquire a residential house within the period of one year before or two years after the date on which transfer took place. Nowhere, it has been mentioned in section 54 that the same funds must be utilized for the purchase of another residential house. The requirement of the law is that, the assessee should purchase a residential house within the specified period and source of funds is quite irrelevant. Since the assessee had purchased the residential house before the due date of filing of the return of income, its claim was not hit by sub-section (2) of section 54. Thus, the assessee is entitled to deduction under section 54(1).
In your case, you are purchasing a new house by using borrowed funds and are going to repay the loan amount out of the sale proceeds of the old house. YOU STAND ON A VERY SOUND FOOTING COMPARED TO THE ABOVE CASE.
Therefore, without any hesitation, go ahead purchase the house with borrowed funds, sell the old house and repay the loan amount. YOU WILL CERTAINLY BE ABLE TO SAVE THE CAPITAL GAINS TAX.
ALL THE BESTS.
ajay sethi
(Expert) 12 December 2014
well advised by MR Anirudh
ChandanLawyersclub
(Querist) 13 December 2014
Thx all
great forum to share the correct knowledge
Regards
chandra
