• Repayment of 2nd loan using a sale of my 1st property

Hi ,
I have recently booked a new flat recently for 1.8cr..I have to make the complete payment within 45 days.

I had earlier planned planned to sell me existing flay which I purchased in 2008 for 80lacs & re-invest in the new property. unfortunately the sale of my existing property might take some time and may take next 70 to 80days.

As a backup I have loan approved to buy my 2nd property .

So can I do the following.
1)Buy my new flat based on the approved loan
2)In the meanwhile sell my existing property within next 2 months.
3)Once the existing property is sold use the whole amount from Sale to repay my new loan against the 2nd property.

Please suggest
Asked 3 years ago in Taxation

11 answers received in 1 day.

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14 Answers

In case you use your capital gain for the purchase or construction in three years( 1 year prior and 2 year later)

There is no problem the way you want to use the LTCG.

Vimlesh Prasad Mishra
Advocate, Lucknow
6820 Answers
23 Consultations

4.9 on 5.0

You can buy new flat and later sell old flat use sale proceeds to repay loan taken by you

Ajay Sethi
Advocate, Mumbai
82096 Answers
5157 Consultations

5.0 on 5.0

You have not inherited any property as on date

2) sale of inherited property would attract long term capital gains and you can invest capital gains in purchase of new property or in repayment of loan taken by you

Ajay Sethi
Advocate, Mumbai
82096 Answers
5157 Consultations

5.0 on 5.0

This is my response to you:

1. Yes you can do that, not a big problem;

2. The loan will help you to bear the burden and you can easily repay the same in two months;

3. The tax implication will be in the nature of capital gains account, which you can approach your CA and get the statement made from him;

4. The capital gains will be the tax payable by you for the profit earned by for the resale of property.

Gowaal Padavi
Advocate, Mumbai
1920 Answers
5 Consultations

5.0 on 5.0

Sir,

You can buy a flat based on the approved loan. It will not attract any tax liability in the form of capital gain but the condition is that you have sell the property within a period of 1 year before or 2 year after the date of purchase.

In your’s case you will sell the property within a period of 2 months. Therefore no tax liability will be attracted both at the time of purchase and at the time of repayment of the loan.

Referred Section - 54 of Income Tax Act,1961

Anshul Mittal
Advocate, Gurgaon
6 Answers

Not rated

1. you can buy new flat by availing bank loan

2. the sale proceeds received from sale of old flat can be used to repay the loan

3. repayment of loan taken for new house should be considered as a purchase of new house an entitle you to claim capital gains tax exemption benefit

4. you just have to buy the new house within the specified time.

5. the source of the funds is irrelevant

6. a. Bombay High Court in CIT vs. Dr. P. S. Pasricha.

b. Kerala High Court in K. C. Gopalan 162 CTR 566.

7. above case laws are on the point

Yusuf Rampurawala
Advocate, Mumbai
6157 Answers
50 Consultations

5.0 on 5.0

you can sell the flat and invest capital gains in purchase of new flat

2) in alternative you can buy new flat by taking loan and sell flat in 2 months . you would still be eligible to claim benefit of LTCG

Ajay Sethi
Advocate, Mumbai
82096 Answers
5157 Consultations

5.0 on 5.0

1) Yes, you can proceed with selling your old property and purchase new property, take possession of new property as early as possible.

2) yes if you purchase new property by selling old property you won't have to pay capital gain tax as your are investing amount in new property.

Ganesh Kadam
Advocate, Pune
12005 Answers
128 Consultations

4.9 on 5.0

1)Is it better to sale a existing flat & use the amount to buy the new flat...(Here I can avoid the capital gain tax)

Answer: This would help you to understand the concept better: https://www.businesstoday.in/moneytoday/tax/property-selling-profit-lowering-tax-liability/story/189407.html

2)Or if I can take time to sell my existing flat & buy a new one on a loan.In 2monts once the old flat is sold use the amount to repay my new loan.(But here I may have to pay the capital gain tax)

Answer: See the link above

This is in further response to you:

1. The capital gain tax will be computed for you since the property is 10 years old;

2. The ancestral property does not belong to you, only a share belongs to you;

3. Ascertain your share in the ancestral property and then you can only sell that part of it;

4. Regarding your self acquired property, ascertain the market value of the property;

5. To understand the computation of capital gain tax see this link: https://www.bankbazaar.com/tax/how-to-calculate-capital-gains-tax-on-house-sale.html?ck=Y%2BziX71XnZjIM9ZwEflsyDYlRL7gaN4W0xhuJSr9Iq7aMYwRm2IPACTQB2XBBtGG&rc=1

6. Rest assured, engage services of a CA to guide you best in the computation;

7. By the bare perusal of your information there seems to be no legal hassles involved.

Gowaal Padavi
Advocate, Mumbai
1920 Answers
5 Consultations

5.0 on 5.0

Whether you immediately sell the flat and use the amount to buy a new flat or

whether you purchase the flat on loan and after 2 months you will sell the property and use the amount received to repay the loan.

In both the conditions you are exempted from capital Gain because as per income tax you have fulfilled the condition of: Sell the property within a period of 1 year before or 2 year after the date of sale of Old flat.

Whether it should be an ancestor’s property or any other property, the treatment remains same i.e. no tax liability attracted.

Anshul Mittal
Advocate, Gurgaon
6 Answers

Not rated

1)Buy my new flat based on the approved loan?

A. Yes. You can do that. But you'll have to bear some interest till the time your existing property is sold.

2)In the meanwhile sell my existing property within next 2 months?

A. Yes.

3)Once the existing property is sold use the whole amount from Sale to repay my new loan against the 2nd property

A. Yes. You won't even have to pay LTCG.

Siddharth Jain
Advocate, New Delhi
5668 Answers
74 Consultations

5.0 on 5.0

So can I do the following.

1)Buy my new flat based on the approved loan

2)In the meanwhile sell my existing property within next 2 months.

3)Once the existing property is sold use the whole amount from Sale to repay my new loan against the 2nd property.

If you dont have any option to pay for the purchase of the new property, then you may proceed with the above proposal. In fact by this idea you will be saving the long term capital gains tax also.

T Kalaiselvan
Advocate, Vellore
72170 Answers
1078 Consultations

5.0 on 5.0

Also what are the tax implication if a plan to sell my ancestor property which I am supposed to inherit from my grandfather & use it to repay the loan

The capital gains tax will be computed on the basis of index.

When a property is received on inheritance or as a gift, it is not taxable for the receiver. When the inheritor or the receiver of this gift of property, sells it, capital gains on the sale are taxable for the inheritor.

The property did not cost anything to the inheritor, but for calculation of capital gain the cost to the previous owner is considered as the cost of acquisition of the Property.

Additionally, the year of acquisition of the previous owner is considered for the purpose of indexation of the cost of acquisition.

Do note that the date or year of inheritance are of no importance in this calculation

T Kalaiselvan
Advocate, Vellore
72170 Answers
1078 Consultations

5.0 on 5.0

1)Is it better to sale a existing flat & use the amount to buy the new flat...(Here I can avoid the capital gain tax)

By this process you may avail exemption from long term capital gains tax.

2)Or if I can take time to sell my existing flat & buy a new one on a loan.In 2monts once the old flat is sold use the amount to repay my new loan.(But here I may have to pay the capital gain tax)

Is my understanding correct

A person wanted to shift his residence due to certain reason, hence, he sold his old house

and from the sale proceeds he purchased another house. In this case the objective of the

seller was not to earn income by sale of old house but to acquire another suitable house.

If in this case the seller was liable to pay income-tax on capital gains arising on sale of

old house, then it would be a hardship on him. Section 54 gives relief from such a

hardship. Section 54 gives relief to a taxpayer who sells his residential house and from

the sale proceeds he acquires another residential house.

T Kalaiselvan
Advocate, Vellore
72170 Answers
1078 Consultations

5.0 on 5.0

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