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Tax On LTCG: Know how you can save tax on long term capital gain on house sale?

Income Tax: After the Corona epidemic, many people are buying new houses by selling their old small houses. Long term capital gain is made on the income from selling the old house, know from tax experts Balwant Jain how you can avoid paying LTCG tax. Also know how you can reduce the tax burden by taking a home loan. 

Question: I have earned Rs 40 lakh by way of long term capital gain by selling a residential property in the financial year 2021-22. To save tax, I am buying NHAI Capital Bonds of Rs 20 lakh. Apart from this, I am paying Rs 20 lakh as margin money for booking an under construction residential property worth Rs 50 lakh. The rest of the funding will be through home loan. Can I claim tax exemption on paying long term capital gains tax on Rs.20 lakh I paid as margin money? 

Ans- Tax exemption equal to the cost of the new residential property can be claimed under section 54 on the long term capital gain arising on the sale of the residential property. Therefore it is important that how much is invested in the house property. It does not matter how you pay the money to buy the house. Even the home loan taken by you will be considered as an investment for buying a house.  

Because you are going to buy a residential property worth more than the long term capital gain you are getting. So you don’t even need to invest in NHAI bonds. To claim tax exemption on purchase of an under-construction house, the amount of  long-term capital gain has to be invested till the date of filing ITR, July 31, 2022. If you are not able to fully utilize the money, then you have to deposit the amount in capital gains account which can be used to pay the builder. You must ensure that the construction of the house is completed within three years of the sale of the old house. 

Question: I am claiming tax benefit of Rs 1.50 lakh under section 80C of Income Tax.  Is there any other way by which I can save more tax, like by taking loan from banks and buying residential property or commercial property and giving it on rent.  Can interest paid to the bank reduce the tax burden on  EMI paid?

Ans: Apart from the tax benefit of Rs 1.50 lakh under section 80C, you can get tax benefit under section 80CCD(1B) by investing Rs 50,000 in Tier I account of NPS. 

As far as tax exemption on home loan is concerned, the income from house rent is taxed under income from house property after deducting the standard deduction of 30 per cent. You can get tax exemption on the interest paid on the home loan. But in the current year only Rs 2 lakh can get tax exemption on the interest amount. And if there is any remaining amount, it can be claimed under income from house property in the next 8 years. As far as the home loan principal is concerned, it can be claimed under 80C at Rs 1.50 per year.  Please note that this benefit is available under the old tax regime only. 

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

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