Hi My father is a senior citizen with a house that he plans to sell. We plan to buy an apartment so we can reinvest the sale proceeds to avoid capital gains tax. The plan is to buy an apartment first and then sell the house. Since he is a senior citizen, no banks will approve a housing loan for him. Is it possible for me apply for a housing loan with both me and my father as owners? Once we sell our property, can we use the proceeds to pay the bank loan to avoid the tax? Any other ways? Thanks
- Yes you can purchase the property before you sell an existing property. It should be purchased within one year before the date of transfer of the property and not beyond that. As there is no nexus between proceeds from sale of the property and investment amount, you can use the proceeds for repayment of the loan.
Please take phone consultation for detailed discussion.
Dear Sir,
Hope you are doing well !!
-You can claim total tax exemption by using the money you gain from selling the house property to buy another house property, which needs to be bought one year before the sale or two years after the sale.
-Yes, it is possible.
The law does not clearly say that the new property must be bought only in the name of the seller and not on anybody else’s name. Hence, there are interpretations that Joint ownership can be acceptable but exemption can be limited to the share of ownership.
In my opinion, better to buy the flat in joint registration because tax benefits get divided among co-applicants in case of a joint loan and joint ownership.
-Home loan and Capital Gains Exemption are two separate things. You can claim the Capital gain exemption only if you use the money from the sale of the property to buy another house. The purchase of new house has to be done one year before the sale of the house or 2 years after the sale of the house.
Income tax department is not concerned if you used the sale money for repaying the home loan or not.
We may assist you in proper planning.
It is advisable to take a phone consultation for detailed discussion.
Hello Sir,
Hope you are doing well!
Yes, you can purchase the appartment before selling the House. As per the provisions of Income Tax Act, Investment in new house property must be done with in one year before or two year after the sale.
Yes, you can use the sale proceeds for repayment of loan as there is no such conditions imposed by the Income Tax Law to use only the sale proceeds to buy the new house property. You can definitely use the sale proceeds for loan repayment.
Also for the clarification in case you buy the house property in the joint name with your father in that case exemption from capital gain will be limited to his share of ownership.
Hope I am able to help you and provide you the satisfactory solution.
Thanks and Regards
Divya Chugh
The best way would be to first sell property and then purchase property.
But if that's not possible then this would work you just need to prove nexus between repaying of loan with sale proceeds especially when loan will be in your name.
Hope you find the information helpful if you do please rate it 5 and provide your valuable feedback for my improvement. You can even book phone consultation for further personal assistance.
Thank you.
Hi
Yes, this could be done and exemption could be claimed. However, you need to sell the house property within 1 year of purchase of the new property.
Hi
The capital gains from sale of a residential property can be set off against the purchase of new residential house. The property sold and purchase should be in India. The new residential house can be bought either one year before the sale of old house or within two years from the date of sale of the previous property
As per the current provisions, individuals and Hindu undivided families (HUFs) are allowed to avail home loan to purchase a new house and still claim an exemption on the entire LTCG resulting from the sale of the previously long-term held real estate capital asset. 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.
Yes you it is possible apply for a housing loan with both you and your father as owners.
For details discussion please have a phone consultation.
Hello,
Yes, you can purchase the property first and then sell the current house property. You can apply for a housing loan considering both you and your father as co-owners. The condition for exemption would be that the new property is purchased within the 1-year time limit before the sale of the property.
Yes, if you satisfy the other conditions of the exemption, you can use the sale proceeds to repay the bank loan of the new property.
I hope this answer satisfies your requirements. For a detailed resolution of your query, you can contact us directly or take a phone consultation.
Regards,
CA Hunny Badlani
Badlani & Associates
There are 2 different options for you:
Option 1
Your father can sell the house and invest only the Long Term Capital Gains property in the new house. Repeat its not necessary to invest entire sale proceeds. He can invest only the Long Term Capital Gains part.
He will be the co-owner in the new house and his share can be proportionate to his investment.
Its possible for you to apply for a housing loan with both yourself and your father as co-owners.
Option 2
As your father is a senior citizen, he may gift the present house to you and or others of his choice ( if its a self acquired property for him), as part of inheritance planning. If the entire property is gifted to you, you can then sell the property and invest in the new property, which will be held in your name. If there are others, who may inherit the property, you may buy their shares or they may even continue as co-owners.
When the property is to be transferred to you, there will be stamp duty on the registration of the gift deed. This is an additional cost. However, when you sell the house, the cost in the hands of your father will be cost in your hands. Hence, there will not be significant difference in tax liability. (Variance in tax liability may be due to difference in applicable tax rates and other sources of income).
An additional issue is that as you are a resident in USA, your residential status will also be counted. The buyer needs to deduct tax u/s 195 of the Income Tax Act while making payment to you, if you are a Non Resident in the year in which you sell the house. If your father is a resident, then TDS will be applicable and that too @ 1% only, if the sale consideration is Rs 50 Lakhs or more.
So you need to weigh both the options and then take an appropriate decision.
The arrangement seems fine ... just be mindful of the following ;
Your father tax exemption will be limited to his share of owenehsip.
he will be liable to entire capital gains on sale of previous house , if the investment is not done timely.
The income-tax laws allow set off on house bought only prior to a year before selling
