As per media reports by ET Realty, the Kolkata bench of the Income-tax Appellate Tribunal (ITAT); on Wednesday held that investment-linked capital gains tax exemption cannot be denied merely because the taxpayer has taken a housing loan.

Capital gains are taxable under the Income-tax (I-T); Act on the sale of a residential house which must be held for at least two years before being sold. If on such a sale, the seller makes a profit, it is treated as a long-term capital gain (LTCG); and is taxable at 20%.

Section 54 of the I-T Act provides for investment-linked capital gains tax exemption. The exemption is available only if the investment is made in buying a new house in India within stipulated timelines. When availing exemption, the 'cost of the new house' is deducted and only the balance component of the LTCGs is taxable. Such a deduction lowers the amount of tax payable.

The new house needs to be purchased either within one year prior to or two years from the date of sale of the old house. In case he plans to construct a new house, he must do so within three years of the sale of the old house to be eligible for exemption.

The ITAT on Wednesday said that, merely because the home-buyer had availed a housing loan from the bank for purchasing the new house, his claim for exemption under section 54 could not be denied. ITAT also added that taxpayers need to ensure they adhere to the timelines for purchase or construction of the new house.

Source