Tax liability on sale of property

I took a home loan of Rs 30 lakhs from a nationalised bank in November 2006 to purchase a house in Bangalore.

Written by Vishal Chopra | Published: March 28, 2009 10:04 pm

I took a home loan of Rs 30 lakhs from a nationalised bank in November 2006 to purchase a house in Bangalore. The gross cost of the house worked out to Rs 47 lakhs,including the registration charges. Since then,we have been paying the EMI for the home loan from a joint account in which we deposit our monthly salary. Two months back,my wife was relieved from her job and she got a severance pay of Rs 2 lakhs. Now that I am the only earning member of our house,we are finding it difficult to serve the home loan in the long run. As such,we have decided to sell off the house (current market value Rs 60 lakhs),repay the balance loan and shift to a smaller house,which we have already short-listed. I wish to know our tax liability on the sale of the house. Is there any way by which we can save this tax,given that we will be purchasing a new house from the money collected from the sale?

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Though there are various factors that need to be considered to arrive at your capital gains,it is pertinent to note here that your capital gains would be short-term and not long-term,as the period for which you have held the property is less than thirty-six months. Therefore,though you are investing in a new house,you will not be eligible for exemption from capital gains under section 54. As for the calculation of your income tax liability,I would suggest that you contact an income tax practitioner who would go through your case personally and advise you accordingly.

My wife and I are working for the same employer. We got married late last year. Prior to our marriage,we had purchased a house each in the same housing society floated by our office staff. Kindly advise us on the tax treatment of the properties in our hands. Is there any way we can share the tax burden or transfer it to any one person so that the overall tax liability is reduced to minimum?

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Though the tax liability calculation in this case could require some lengthy calculations,I think the facts of the case are not to difficult to interpret for the purpose of taxation.

Firstly,each one of you is the independent owner of one’s own house property and the fact does not change with your marriage. Therefore,each one of you can still claim one’s own house as self-occupied and claim the income from the concerned house as nil,provided you actually decide not to claim any monetary benefit out of any of the house. Status quo,in short.

However,since you have decided to let out one of the houses on rent in order to meet part of the loan cost (which does make sense),the property so let out will no longer be a self-occupied house. As a result,the rent derived on the house so let out would be treated as the rental income of the owner for the previous year under consideration. Nevertheless,the owner of the house will be able to claim the whole of the interest payment as deduction under section 24 for the year out of such rental income,without any monetary limit (as is in the case of the self-occupied property). Before that,the owner would also be entitled to a standard deduction on the gross rent received. I guess you are already aware of these provisions,so there is no point elaborating them.

Deciding on reducing your total tax liability would not be that easy and would require some calculations,for which you will have to avail the services of an income tax practitioner. To cut it short,all that you have to do is to see which one of you is in the highest tax bracket,and then bring down the taxable income of that person at par with that of the other. Given all things equal,the tax liability of the wife would be lower than that of the husband in case of same income levels. This is because the female assessee has the higher maximum exemption limit (the amount of income which is exempt from tax). Calculate your tax liabilities for different scenarios accordingly.

Do not restore to tactics like paying rent to the spouse for staying in his/her house,for in that case the house will no longer be treated as self-occupied and the rent so paid will be the income of the recipient. In all,the aggregate tax liabilities will only rise and not fall,though there would be no change in the combined income. l

The author is a chartered accountant.

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