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LTCG from house sale can’t be offset against commercial unit

LiveMint logoLiveMint 04-06-2014 Parizad Sirwalla

I availed an education loan. Is the whole loan amount (principal plus interest) considered for tax deduction or only the interest part? Also, will the amount paid only this year (2014-15) be considered or the amount of previous year (2013-14) will also be considered? I had some due amount in 2013-14 which I paid in 2014-15.

—Jeet S.

Only the interest paid on an education loan availed for pursuing higher education qualifies for tax benefit. That means, out of the total equated monthly instalment (EMI), you can avail deduction only towards the interest portion. Accordingly, the principal repayment will not qualify for tax benefit.

As the deduction of interest is allowed on payment basis, the actual interest paid during FY15 will qualify for tax deduction. Further, the deduction can be availed for eight fiscals starting from the fiscal in which you started paying interest.

The tax deduction is allowed only if the education loan has been availed from any banking company or notified financial institution or any approved charitable institution.

Further, higher education includes any course of study pursued after passing the senior secondary examination or its equivalent from any recognized school, board or university or any other authorized authority.

I plan to sell a residential property that I had acquired in 2003. The proceeds of this sale are intended to be reinvested, but in a commercial property. Would this transaction be exempt of capital gain (assuming that the reinvestment is more than the capital gain) tax?

—Mohit

As you have held the residential property for more than 36 months from the date of acquisition, the gains resulting from sale of the residential property shall be termed as long-term capital gain (LTCG). The LTCG can be claimed as exempt from capital gains tax by reinvesting the LTCG in a new residential property within the specified time frames (i.e. within one year prior to sale date or two years from the sale date or within three years from the sale date for an under-construction property). Alternatively, the LTCG can be invested in specified bonds subject to fulfilment of other conditions under the domestic tax law.

Since the LTCG has to be invested in a residential property or in specified bonds, if you propose to reinvest the LTCG in a commercial property (which has always meant to be a commercial premise and not a residential property used for commercial purposes), you cannot claim the aforesaid capital gain tax exemption. Accordingly, the entire LTCG shall be taxed at 20%.

Additionally, if total taxable income during FY15 exceeds `1 crore, surcharge at 10% on basic rate should be applied. Further, an education cess of 3% on basic as well as surcharge (if any) is applicable.

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