Getting rebate on sale of a house

I purchased a plot in Mysore in 1990 for Rs 45,000; the market price now is around Rs 50 lakh. I want to sell it so that my son can buy a flat in Bangalore (to provide a portion as margin for housing loan). Can the flat be purchased in the joint names of my son and I by availing a housing loan? What is the long-term capital gain tax implication? .— Ekambar Rao

The gain on sale of the vacant land acquired by you in 1990 should be taxable as capital gains. As the land has been held for more than 36 months from the date of purchase, the gains would be treated as long-term capital gains (LTCG).

LTCG are the difference between the net sale proceeds and the ‘indexed cost of acquisition' of the land. The cost of acquisition needs to be appropriately indexed based on the prescribed cost inflation indices for the FY of purchase and sale, respectively. The LTCG is taxed at a flat rate of 20.6 per cent (including education cess) subject to exemptions under the Act.

Where an investment is made in a new residential house, an exemption is available under Section 54F of the Act, subject to conditions. Where the cost of new investment exceeds the net sale value of land, LTCG is exempt from tax. However, where the new investment is lower than net sale value, the exemption is prorated in proportion of new investment to the net sale value.

The new investment should be made within one year before or two years after the date of sale. In case of an under-construction property, the construction needs to be completed within three years from the date of sale.

In case you are unable to make the new investment either partly or entirely by the due date of filing your personal tax return, deposit the money in the “Capital Gain Account Scheme” prior to such due date with a prescribed nationalised bank to claim this relief. The amount deposited need to be invested as per the above time frames, else the exemption would be withdrawn.

But for the exemption, you should not own more than one house (other than the new house) on the date of sale; or purchase or construction of the residential house (other than the new house) is within one year or three years, respectively, from the date of sale; or the new house acquired should not be sold within three years from purchase or construction.

There is no restriction on you owning the new house with your son by availing a housing loan. In such a case, the exemption will be restricted to your investment or share in the new house.

I work in Bangalore and have a home loan for the house I bought in my native place (Coimbatore). I have considered it as a self-occupied property for claiming tax relief for the interest paid as my parents are staying in the house and I do not get any rental income. I plan to buy a house in Bangalore for which I will need to apply for a second home loan. Can I claim tax rebates for the interest paid for the second home loan? If yes, should I declare my new house as self-occupied property and declare my home in native as deemed let out, with monthly rent being received as Rs 0? Please advise. — Vinod

Under the Income tax Act, 1961, where an individual owns more than one residential house property for the purpose of own residence, any one of them may be considered as self-occupied property (SOP) and the other property considered as deemed to be let out property (DLOP). Accordingly, the residential property being used by you should be considered as SOP and the other as deemed to be let out. The annual value of the SOP should be considered as NIL. The annual value of the DLOP is to be considered as the deemed value for which such property might reasonably be expected to let out.

With regard to interest on housing loan taken, a deduction from annual value is available towards both the properties, even if it results in a loss. However, the quantum of deduction depends on if the property is SOP or DLOP.

In case of SOP, you can claim a deduction up to Rs 150,000 an annum (assuming property was acquired on or after April 1, 1999) on interest. In a DLOP, the annual interest amount can be claimed as deduction.

Interest for pre-acquisition or pre-construction period is deductible in five equal instalments starting from the year in which the property is acquired or constructed. In case of a DLOP where a deemed rental value is offered to tax, deduction with respect to municipal taxes paid and a standard deduction of 30 per cent of annual value is available from annual value.

Further, with respect to principal repayment on housing loan taken, deduction from gross total income is available towards both the properties under Section 80C of the Act, subject to the cap of Rs 100,000 a FY.

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