Will I have to pay tax on the residual amount after selling an old flat and buying a new one?

financialexpress.com:

Debopriyo Bhattacharyya purchased a flat in 2017 after taking a loan of Rs 30 lakh. Bhattacharyya is planning to sell the flat in the near future and also purchase another flat by investing the amount remaining after repayment of the home loan. In an email sent to FE Money recently, Debopriyo asked whether he would be liable for taxes against the flat sale irrespective of the amount or the residual amount in his hand after buying the new flat.

Shruti K.P, Partner, IndusLaw has answered Debopriyo’s queries:

On sale of the residential house property (“RHP”), you will have to compute your long-term capital gains as per methodology prescribed under section 48 of the Income Tax Act [i.e., sale consideration (net of transfer expenses) minus indexed cost of acquisition/improvement] and accordingly pay tax on the capital gains so computed.

However, since you have planned to purchase another RHP, you can save/reduce your tax liability arising on the transfer of your residential property, by claiming the exemption under Section 54 of the Income Tax Act.

Also Read: I purchased a flat for Rs 9 crore before selling a property inherited through Gift Deed. How can I save tax?

Note that as per Section 54, an individual can save long-term capital gains arising on the sale of RHP by purchasing a new RHP in India within 1 year before the transfer, or within 2 years from the date of transfer or by constructing an RHP in India within 3 years from the transfer date.

Hence, if you purchase a new RHP within the prescribed time limit then you will be eligible to claim the exemption to the extent of the capital gains or investment made in the new flat, whichever is lower. Accordingly, the residual value post exemption if any, will be subject to