I bought an apartment in 2022 with a home loan. This year, I have sold equity mutual fund (MF) holdings with gains of about ₹60 lakh. Can I use the capital gains to pay off the home loan and get an exemption under Section 54F? I own just this one house, fulfilling the 54F condition.
—Name withheld on request.
You would not be eligible to claim the exemption under Section 54F of the Income Tax Act against the capital gains on sale of units of MFs, on repayment of housing loan, as the residential property has been acquired more than one year before the date of transfer of the MF units.
While repayment of a housing loan undertaken for the purchase of a residential house can be considered towards exemption under Section 54F, such exemption is available only if the residential property is acquired within one year before or two years after, or constructed within three years after the date of transfer of the asset whose gains are sought to be exempt. In your case, as the property was acquired in 2022, it would not satisfy this condition and, therefore, the exemption would not be available.
However, while the capital gains would not be exempt, you may still be eligible for a deduction under Section 80C in respect of the principal amount of repayment of the loan within the overall threshold of ₹1.5 lakh. This deduction is available only if you are opting to be taxed under the old regime. Further, under the old regime, you are also eligible to deduct interest under Section 24 in respect of a self-occupied property up to a limit of ₹2 lakh.
Mahesh Nayak is a chartered accountant at CNK & Associates.
If you have any personal finance query, write to us at mintmoney@livemint.com to get it answered by experts.
