Commercial Property Sold to buy Residential Property

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  1. Shabarish P R

    Shabarish P R New Member

    I recently sold a property for 75 Lakhs, and purchased another home for 60 Lakhs, I am planning to avail an education loan for my brother by pledging the new property.
    Should I pay any Tax on the Capital gains,
    Also will I be eligible for any Tax Deductions ???
     
  2. mitraji

    mitraji New Member

    The question raises two (unrelated) points. (i) Sale of property and purchase of home. Presuming that (a) the sold property is a house property and it was acquired at least three years prior to the sale - the answer is yes. Exemption is available for Long Term Capital Gain. Sec54 allows this exemption; the section pertains to sale of residential house and purchase of a residential house. The capital gain should be computed as below: Sale price (-) Expenses incurred in selling the house and Cost of acquisition adjusted for inflation as well as cost of improvement similarly adjusted (for the adjustment 'cost inflation index' numbers must be used). The pledging of the new property for education loan has no bearing on the exemption of capital gains.
    (ii) Education loan for the education of brother: Sec 80E provides for deduction of interest on education loan. However, the loan must have been taken for education of self or a 'relative' (spouse or children); brother is not a 'relative'. Another important point -if Mr. Shabarish is the legal guardian of his brother the benefit is available. Deduction can be claimed for any interest paid.
     
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  3. Shabarish P R

    Shabarish P R New Member

    Thank you for the reply mitraji,
    But can you please advise me, what if the sale was a commercial property and the purchase is a residential property??
    Also the education loan is for my brother in law?
    Can you please advise me on the capital gains and the tax to be paid ??
     
  4. Karan Batra

    Karan Batra Well-Known Member

    Capital Gains Exemption under Section 54F can be claimed if the old asset sold is a Commercial Property and the new asset purchased is a Residential Asset. However, as full amount has not been reinvested, therefore full exemption would not be allowed.

    You may refer this link for more details - http://www.charteredclub.com/section-54/
     
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  5. Karan Batra

    Karan Batra Well-Known Member

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  6. V K Khanna

    V K Khanna Active Member

    @Shabarish P R

    A small bit of advice. Pl go through the link provided by @Karan Batra ji carefully.

    You can claim deduction in respect of education loan taken for your brother in law only if you are his legal guardian.
     
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  7. mitraji

    mitraji New Member

    In addition to what is suggested by Mr. Batra and Mr. Khanna: If a commercial property is sold and a residential house property is purchased/constructed (subject to certain time limits) exemption can be claimed under 54F and not under 54. One important point - the individual must not have more than one residential house to be eligible for this benefit.
    (ii) Also exemption can be availed by investing the ltcg in NHAI/REC bonds with a lock-in period of 3 years (interest at 6% per year) within six months of the date of sale of the property; the maximum is 50 lakhs.
    (iiii) The tax rate on ltcg is 20% (plus a little more for 'cess').
    (iv) Let me reiterate - Reg education loan - only interest paid is eligible.
     
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