Sale of property

Please can you advise tax planning if I sell my property in mumbai for 3.75 crore. I have 50 lakhs reverse mortgage with bank. Is this tax deductible? My mother is 72 years old and we would like to put 50 lakhs in bonds for her(I understand this is tax deductible) I also understand if we buy property that amount is tax deductible but I am not sure if we can buy 1 or 2 property and if both are tax deductible. Please advise.
Asked 1 year ago in Capital Gains Tax from Greater Mumbai, Maharashtra
Capital gain tax exemption is eligible for not more than 2 residential house property i.e. if currently you are owing a residential house property than you can invest the money for purchase of only 1 additional residential house property, repayment of mortgage loan is not eligible for exemption.
Swapnil Patil
CA, Navi Mumbai
29 Answers
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LTCG is exempt for an individual or HUF on sale of a residential house property, if such gains (not the whole consideration) is utilised to purchase or construct another residential house. It should be noted that the new house should be purchased within one year before or two years after the date of transfer. In case of construction, the new house should be constructed within three years from the date of transfer. Exemption will be limited to the capital gains or the cost of the new house, whichever is lower.
As per Finance Act,2014 the exemption is restricted to purchase of one residential house.

Although LTCG is required to be invested as per the timelines mentioned in Income Tax law (i.e. two/ three years from the date of transfer), it is possible that such investment may not be made before the due date of filing of return.
Accordingly, the unutilised amount of capital gain or net consideration can be deposited in a separate account maintained with a nationalised bank under the Capital Gain Account Scheme (CGAS). Such investment needs to be made before the due date of filing of return of income in order to claim exemption and should be utilised only for specified purposes within the stipulated time period. In case the amount deposited in CGAS is not utilised within the specified period, it shall be charged as LTCG of the year in which the time limit for making the requisite investment expires.
LTCG can be claimed as exempt in case the gains are invested in bonds of National Highways Authority of India and Rural Electrification Corporation within six months from the date of transfer. However, the exemption is limited to Rs 50 lakh in such a case. It has been recently clarified in the Finance Act 2014 that the limit of Rs 50 lakh is in aggregate and applies to total investment. The exemption up to Rs 50 lakh can be claimed only in one financial year, even if the specified period of six months covers two financial years

In your case, you cannot put amount in Bonds on your mothers name. Also you need to purchase a property with in due dates specified. Till then you need to stay invested in Capital Gains Account Scheme.
Shyam Sunder Modani
CA, Hyderabad
955 Answers
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As you say you have reverse mortgage with a bank, I presume that you are the owner of the property. You have to invest in capital gains bonds in the name of the seller u/s 54EC upto a sum of Rs 50 lakhs. 

It seems  your mother is not the seller. In such case, you can perhaps add her a second joint holder. The interest on such bonds will be taxed in your hands only. 

The interest paid on reverse mortgage is not tax deductible, as it is not part of cost of acquisition / improvements for the purpose of computation of capital gains u/s 45 read with Section 48.

If the property is land and buidings, you can claim deduction u/s 54 to the extent you invest in the construction of a new residential house, subject to the fulfillment of conditions specified therein. If you have retained more than one house for the purpose of your own or the parents' own residence and used them for such residence and not for any other purpose, you will still qualify for exemption u/s 54.

If the property being sold is not a residential house, you can claim exemption u/s 54F if you invest the net sale consideration in the acquisition of a new residential house subject to the fulfillment of conditions specified therein. However, you cannot have any other residence for claiming the exemption.

 
B Vijaya Kumar
CA, Hyderabad
290 Answers
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I will reiterate repayment of mortgage loan from the proceeds of sale of the property under mortgage doesn't qualify for exemption from capital gain tax. 
Swapnil Patil
CA, Navi Mumbai
29 Answers
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In your previous question you have specified that I sell my property , Thus was not knowing whether it is in your mothers name.

Next periodic amount received under reverse mortgage is considered as loan and not income, thus it will not attract any tax liability.

But on sale of the property on demise of borrower capital gain attracts, since the loan is self created by the demised owner. The principle and interest will not be deductible from sale value for computing capital gains.
Shyam Sunder Modani
CA, Hyderabad
955 Answers
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I am sorry I am not getting your facts properly from what you are describing. Do you still have money after repaying the reverse mortgage, which is fully used up? Further, you are saying that your mother wants give share of money to her children , then whose share of money? Again does she not want to purchase new property? Is it some one else who wants to purchase new property?

While broadly saying that you can get exemption u/s 54 & 54F of the Income Tax, subject to the conditions specified therein, a meaningful tax planning advice can be given only after review of the documents like your reverse mortgage, sale deeds and flow of funds. Otherwise, the advice in this forum may not be relevant for your needs.  Hence,I suggest that you should meet your CA and take his advice before executing the transactions as planned by you. 
B Vijaya Kumar
CA, Hyderabad
290 Answers
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In our opinion you are not eligible for getting deduction on account of the loan that you have availed under reverse mortgage of the property . Further in case of sale of the house property and purhcasing the new property , now the provision is amended that deduction is eligible for one house property only .
Prakash Sinha
CA, Delhi
112 Answers
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As per your query you have to calculate the capital gain from the sale transaction
And whatever amounts come buy property of that amount in your mothers name to claim the benefit.
But from that amount you have to buy 1 property only for the benefit.
Kavit Dilip Gadhia
CA, Mumbai
35 Answers
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The payment of money for settlement of reverse mortgage is not tax deductible.  you can invest Rs 50 lakhs in bonds issued by REC or NHAI for 3 years, but in the name of seller to claim the deduction otherwise you can invest in joint names of yours and your mother.  If property sold has more than 1 door no then you can invest in equal no of residential units and property sold shall be residential property. 
Vijay N. Kale
CA, Hyderabad
248 Answers
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Then the bonds shall be purchased in her name to claim exemption u/s 54EC.  If the sale consideration is given t o children as a share then each one can claim deduction u/s 54 Ec provided there is adequate documentation about share of each children before the property is sold.  Even if the reverse mortgage was used up completely
then repayment for reverse mortgage is not tax deductible. you will have to prepare for payment of 20% capital gains tax provided it is a gain situation.
Vijay N. Kale
CA, Hyderabad
248 Answers
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