I have two small residential flats. One was bought in 2001 and we lived in that until 2017, then moved to a smaller flat bought in 2016 by taking housing loan. Now we want to buy a bigger house for self-usage and thus planning to sell our old 2001 flat in March 2022. The tentative Long Term Capital Gains (LTCG) on our old flat is about 65 Lakh (after indexation) and new flat will cost us 160 Lakh. Please tell me whether I can take advantage of this capital gain to buy new house for personal usage? Please note I already own one flat on the date of sale of the old flat. I am a pensioner.
Since you have sold the old flat after holding for more than 24 months the profits arising on sale of this flat are taxable as long term capital gain. The tax laws have provisions for allowing exemption from tax on long term capital gains if investment is made certain specified assets. As per Section 54 of the Income Tax Act, an Individual and an HUF can claim exemption from long term capital gains arising on sale of a residential house by investing the indexed capital gains for buying another residential house within specified period. The exemption is available if the investment is made within two years for buying a house. In case of self-construction of a house or booking of an under construction house a longer period of three years is available. The long term capital gains which are not so invested by the due date of filing of the Income Tax Return (ITR), the unutilised amount is required to be deposited in an account under capital gains account scheme and which can be used for making payment for acquiring the residential house within the specified time period. In case the amount is not utilised within prescribed period, the same becomes taxable in the year in which the period so expired.
There are no restrictions on the number of residential houses you can own on the date of sale of the property to be eligible for claiming exemption under Section 54.
Since you are planning to invest more than the indexed long term capital gains, you will not have any tax liability. However in case full long term capital gains are not invested, the exemption will be available to the extent of investment and on the balance you will have to pay tax at flat rate of 20%.
So in case you sell your flat by 31st March 2022, you will have to buy the new flat by 31st July, 2022 which is your due date for filing of your ITR. In case you are not able to do so you will have to deposit the unutilised money in the capital gains account. If possible, I would advise you to execute the agreement in the next year so that you will have longer period till 31st July 2023 available to you for investing the LTCG.
Source: https://www.livemint.com/money/personal-finance/i-am-selling-one-flat-and-buying-another-income-tax-rules-explained-11647664584817.html
ITR: There are no restrictions on the number of residential houses you can own on the date of sale of the property to be eligible for claiming exemption under Section 54