Tax implications on gains from selling a real estate property

POSTED BY Daredevil13 ON August 9, 2013 3:10 pm COMMENTS (5)

Hi,

I have a home loan ongoing for a flat and my father wants to reduce my loan outstanding principal by selling his land and diverting the money into home loan. I am the only owner (no co owner) for this flat. The land is owned only by my father and is well over 3 years old. Since my father is not co-owner of this flat under home loan, is there a way for my father to divert the money (including gains) without paying tax? Please advise.

Thanks

5 replies on this article “Tax implications on gains from selling a real estate property”

  1. Dear Daredevil, why do you want to close the loan? What are the actual numbers for loan & land sell out amount & for your under construction property?

    Thanks

    Ashal

  2. I discussed this thing with one of the financial planners from Pune – “Chenthil Iyer” and here are his comments

    “Your solution is ok but I guess there is a better possibility. You don’t need to change the loan in order to add his father as co owner. By virtue of the father paying off the loan directly, it becomes imperative that he adds his father’s name to the equity of the home to the same proportion as the loan bears to the total cost of property. In order to make things easier, the father can first open a joint account with the son and transfer the sale proceeds of land into this account and the son can payoff the loan from the same. He can later add his dad into the property papers and to be on a safer side enter into an mou with the dad to this effect.”

  3. BanyanFA says:

    Manish,
    I believe that your advice would be far from being easy and practically implementable as the loan is already on the property and the bank will not change the owners.

    I believe the only option is :
    1. Father sells the land and pays capital gain tax. He can then gift the proceeds to the son.

    Having said that, there is an interesting case law on Income Tax’s website which you could use in your favour by asking your father to pay his proceeds towards the remaining amount due on your flat directly to the builder. http://law.incometaxindia.gov.in/dittaxmann/incometaxacts/2005itact/casesec54.htm

    Purchase’ does not mean that the new house must be registered in assessee’s name –
    For the purpose of attracting the provisions of section 54, it is not necessary that the assessee should become the owner of the property purchased. The word ‘purchase’ occurring in section 54(1) has to be given its common meaning, viz., buy for a price or equivalent of price by payment in kind or adjustment towards a debt or for other monetary consideration. Therefore, for the purpose of applicability of section 54, registration of the document is not imperative – Balraj v. CIT [2002] 123 Taxman 290/254 ITR 22 (Delhi).

  4. Daredevil13 says:

    Hi Manish,

    My property is still under construction, i mentioned myself as owner only in sale agreement and loan application. Registration for my property is still not done. Can i do something at this stage without selling property?

    Thanks

  5. I think there can be workaround like this

    1. Your Father buys the property from you, so this way, he will be investing in real estate and he will not have to pay tax on that amount.

    2. Once things settle, he can then gift the house to you. As its a gift from father to son, there will be no tax on gift.

    Let me still check if this is something valid or not !

    Manish

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