Higher second home value can fetch LTCG exemption

I had purchased a second property in Mumbai in January 2017 with housing loan from my employer. I have now sold my first property at Virar in April 2017 at Rs 25.9 lakh, which was purchased in January 2000 (also the year of possession) with housing loan from my employer and it was fully repaid. As per our service rules, I had to utilise the entire sale proceeds from this first property towards repayment of loan taken for third property, which I have done accordingly. I would like to know whether I still need to pay the long-term capital gains (LTCG) tax on this sale transaction? Or, will I be exempted from paying LTCG tax since it is utilised for the repayment of my housing loan? If at all, I would need to pay the LTCG tax, how much will it be and when and how should I pay it?
-Girish Shembekar

For the sake of clarity, let me assume some facts :
Virar property – sales proceeds – as stated by you      
                                                                            Rs 25.90 lakh

Assumed indexed cost of acquisition (say)            Rs 5.90 lakh
 
Taxable capital gains                                                  Rs 20.00 lakh
 
Mumbai property purchase price       (say)            Rs 60.00 lakh
Less : loan taken                                                         Rs 45.00 lakh
Net amount invested by you in Mumbai property Rs 15.00 lakh
Further, you have paid back

Rs 25 lakh of the loan amount of Rs 45 lakh after selling the Virar property. Therefore, you now have only Rs 20 lakh loan outstanding. As long as the amount utilised by you in buying the new house (Rs 15 lakh downpayment plus Rs 25 lakh loan repayment – total Rs 40 lakh), is greater than the taxable capital gains of Rs 20 lakh, the exemption under Section 54 should definitely be available. In any case, even if you had not paid back the loan on the Mumbai property, in my opinion, the exemption under Section 54 would still have been available, though it is debatable due to some adverse judicial decisions. In my opinion, as long as the cost of the Mumbai property (whether funded by yourself or through a loan) is higher than the amount of taxable capital gains on the Virar property, the exemption should be available. However, there have been some adverse judicial decisions regarding non allowability of the capital gain exemption, if the new property bought after the sale of the taxable property is bought by taking a loan. Whatever be the merit of those decisions, in any case, those adverse decisions cannot possibly apply where the new property was bought before the sale of the taxable property and the capital gain portion of the sale proceeds is greater than the downpayment made on the new property plus the loan repayment of the new property made from the sale proceeds.

My husband has resigned from a company and joined another company. He has served in the earlier organisation for five years. We are planning to withdraw his employee provident fund (EPF) from his earlier organisation. I need some clarifications - Will tax be applicable for withdrawal of EPF? Will I be able to withdraw 100% of employer and employee contribution now only? Please provide your guidance.
 -N.Latchmi

It is not clear from your email whether your husband’s new employer offers the EPF facility or not. In case they do not offer this facility (because they have lower than the minimum required number of employees), your husband can withdraw the entire amount lying to his credit in his provident fund (PF) account (both employee and employer contribution), two months after leaving his former employer. There will be no tax on such withdrawal since your husband has been a member for more than five years.

The required forms are Form no 19 (for EPF) and Form no 10C (for employees pension scheme). However, if your husband’s new employer offers the provident fund facility, he will not be allowed to withdraw this amount especially if he opts for the PF facility at his new employer. He has an option to opt out of the PF scheme if his basic salary is greater than Rs 15,000 per month.

KNOW THE DETAILS

• Exemption under Section 54 should be available even if the loan taken for new property is not yet paid
   
• However, there have been some adverse judicial decisions for not allowing capital gain exemption
   
• If new employer offers PF facility, previous PF amount cannot be withdrawn if you have opted for the same