Long term capital gain from house property & investment of the same to avoide taxability

Prasad Kumbhojkar (Querist) 23 March 2014 This query is : Resolved
1. I purchased Flat No. 1 in 1998, possession of which I got on 1.1.2000.
2. I purchased Flat No. 2 in 2002 possession of which I got in March, 2003.
3. I sold Flat No. 1 in January, 2011 & had a Capital Gain of Rs. 13.5 Lakhs from the sale.
4. I invested the Capital Gain in SBI Tax-saving account.
5. In 2013 March, I purchased another Flat (Flat No. 3) for Rs. 80 Lacs and invested the entire sale proceeds (Including Capital Gain) for purchasing this flat and borrowed a sum of Rs. 65 Lakhs further.
6. The possession of Flat No. 3 is due in June, 2014.
If I sale Flat No. 2, within one year of occupying Flat No. 3 then can I off set Capital Gain from this deal also; if I apply the Capital Gain for repayment of loan, will I be eligible to claim it Tax Free?

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R.V.RAO (Expert) 24 March 2014
capital gain on sale of res.property is not exempt from tax if you repay home loan /any loan,or invest in sbi tax saving account.

you are eligible to claim tax exemption on capital gains of a res.house property if you buy another res. house property one year before sale or within 2 years after sale or construct res. house property within 3 years after sale .

purchase of GOI(REC/NHAI etc...) capital gain tax bonds is another tax exemption alternative,limited to Rs 50 lacs per year.

till such time you invest the capital gain amount ,as above to save capital gain tax,you need to keep the capital gain amount in a separate cap.gain account scheme (cgas).
You can deposit the capital gains amount in a CGAS before the due date of filing tax returns (July 31) to save LTCG tax.

But treat CGAS as a parking place, where you can deposit money until you find a house that suits you, but of course within above time limits of 2/3 years. The amount has to be parked in CGAS with the intention to use the funds to invest in a new house or buy cap. gain tax saving bonds.

If you fail to buy or construct a new house within the stipulated period, the entire amount is treated as LTCG and you will have to pay tax on it @20%plus 3%edu.cess on tax.
the entire capital gain on sale of your flat no 2 ( say before may 2015) will need to be invested in flat no 3 one year before .(june 2014) . keep documentary evidence like builder NOC/ completion cert.,payment proofs etc..

Rajendra K Goyal (Expert) 24 March 2014
Well advised by the expert RV RAO ji. agree to it.

To go with the exact workout on the basis of your documents consult your tax adviser.

T. Kalaiselvan, Advocate (Expert) 25 March 2014
Well advised by experts above. It is advisable to consult a local tax consultant and proceed further as per his advise.