1) you can purchase the house by taking home loan

2) ) you must purchase the house within 1 year before the date of land sale or within 2 years after the sale.

3) There is no provision for tax exemption for LTCG if you repay the home loan taken for a residential house. However, you will be able to claim deduction under Section 80C in respect of the home loan repaid during the year along with other eligible items upto Rs. 1.50 lakh.

4)  you can claim an exemption under Section 54EC by investing the indexed long-term capital gains in capital gains bonds of specified financial institutions within six months from the date of sale of the existing property  These bonds have a tenure of five years and interest received on these bonds is fully taxable. You can plan to repay the home loan after the completion of the five-year tenure of the bond

In my view s.54 of the income tax act providing for exemption from capital gains tax should be interpreted in a liberal manner

so the source of money for purchase of the new property is not relevant in my view

thus if the new property is purchased using funds made available through a home loan which would later on be foreclosed using the capital gains accrued on sale of the existing property, that would still qualify for exemption u/s 54 and you should get the benefit of that section

what is important is that the capital gains on sale of old property must be used for purchase of the new property

when you take a bank loan, you only have to put a down payment [usually 20%] from your pocket and the rest would be financed by the lender/bank

so when that loan is repaid using the capital gains, it is like putting money for purchase of the new property which is what s.54 requires for claiming benefit of exemption

so in my view you can go ahead with the course as stated in your query with the only caveat that you must foreclose the loan within the statutory period permitted to purchase the new property u/s 54 for claiming exemption from payment of capital gains tax

- Under the Income Tax Act, property is regarded as a capital asset and any gains arising from its sale is taxable as Capital Gains.

- Further, if the property is held for less than three years prior to its sale, it is termed as a short-term capital asset and any gain arising from the sale is treated as a short-term capital gain.

- Further, if the property is sold after a holding period of more than three years, it is to be treated as a long-term capital asset and a gain arising from its sale is assessed as long-term capital gains

- Further, as per Section 54 & 54 F  of the Income Tax Act, you can re-invest the long term capital gains amount in residential house property and claim an exemption therein.

- Further , no tax shall be paid , if you use the entire gain to buy another house within 2 years from the selling of your old property .

- Since, you want to purchase the said property within this period then you can save tax, and even can use the amount to adjust the loan amount 

If you have purchased a new house up to one year before the date of sale of the old house, you can still claim exemption in LTCG tax on it. A maximum limit of Rs 10 crore has also been fixed for this exemption on LTCG tax.

However, the purchase of a new residential property must be made within one year of the sale of the old property. The LTCG being used to repay the home loan is considered to be fulfilling the criteria set under Section 54 and Section 54F, and thus you are permitted to claim an exemption on the entire LTCG amount.

For sale of agricultural land:

• Tax Exemption under Section 54B

This exemption is only available on capital gains from a sale of land for an agricultural purpose outside of a rural area.

The following conditions should be met to avail exemption on capital gain tax on property in India –

1. The capital gain needs to be reinvested in a new agricultural land within 2 years from the date of sale.
2. The exemption will be revoked if the newly purchased land is sold within 3 years of purchase.
3. The investment needs to take place before tax filing in the same financial year to avail exemption.

In case there is a delay in investment, the individual can deposit the same amount in the bank for the exemptions as a long-term capital gain. The investment needs to take place within 2 years or else it will be accounted as short-term capital gain in the year of the expiry of the same.

An individual depending on his/her use of capital gain can determine their capital gain tax on property. It will help them quantify the entire taxable amount for that year.

Dear client, there is no capital gains exemption in respect of repayment of a home loan taken to buy a residential property except to the extent available under Section 80C. You will be able to claim deduction under Section 80C in respect of the home loan repaid during the year along with other eligible items upto Rs. 1.50 lakh.

You can only opt for capital gain bonds and other alternative to save the same