Servicing a home loan but want to sell?

In January 2004 I bought a new apartment (on loan) whose construction will be completed by March 2006.

Can I sell my first apartment when the second is ready for occupation and utilise a portion of that amount for a part payment of the loan?

Will I get long-term capital gain exemption?

- Roshin Lal Ramesh

When you sell any asset you own (house, land, shares, mutual fund units, gold, debentures, bonds) and you make a profit on the sale, it is known as capital gain. The tax you pay on this profit is called the capital gains tax.

Depending on how long you held the asset, the capital gain is classified either as short-term or long-term.

Short-term capital gain: If you sell the asset within 36 months from the date of purchase (12 months for shares or mutual funds)

Long-term capital gain: If you sell the asset after 36 months from the date of purchase (12 months for shares or mutual funds)

Based on the facts stated by you, all I can say is that as long as the cost of the new apartment is more than the capital gains on the first apartment, you will be able to get capital gains exemption.

It is immaterial how you use the sales proceeds from the first flat. You can use it to pre-pay your loan or for whatever you want.

However if you sell the new flat within three years of the completion of construction, then it will have some tax implications.

• All you wanted to know about capital gain

I purchased an apartment for which I am repaying a loan. Can I sell it off now?

- Mrinmoy Aich

Yes you can.

In such a situation, it is wise to get a letter from the home loan company (or bank) asking for the total amount due.

This will enable the buyer of your apartment to make a cheque directly to your home loan company of that amount. If he is taking a loan, he can direct his home loan company to make the payment directly.

Also discuss the original documents lying with the home loan company. Your bank will need to certify the original documents that they are holding as security for the loan. They must also state that they will directly release these documents to the buyer or his home loan company within a fixed number of days after receiving full payment.

Of course, if the buyer is also taking a loan from your own bank, the process becomes much simpler.

• 10 home loan terms you must know

I took a house construction loan last year. The house is complete and I am repaying the Equated Monthly Installments since last May 2004.

1) I would like to replace my name on the property with my mothers but continue paying the EMI.

2) Alternatively, can the loan be taken over by my parents?

3) I have not claimed the income tax benefits on the loan for last year. Can I take the benefit this year?

- Syogale 

1) Only owners or co-owners can claim tax benefits in respect of repayment of the loan taken to acquire the house property.

If you remove your name from the ownership you will not be in a position to claim the tax benefits on the loan repayments made by you. Read Your queries on joint home loans answered to understand this more clearly.

2) The bank will allow your parents to take over the loan only if they determine that they are capable of repaying the loan out of their own income.

Also the period for repayment is likely to be reduced such that it coincides with the retirement of your parents. 

3) If the construction of the house was completed only in May 2004, then the first year for which the tax benefits could be claimed is the financial year ended March 31, 2005. 

You can claim this benefit in your return. If you have already filed the return, you can file a revised return.

Got a question for Harsh Roongta? Please write to us!

Note: Questions may be edited for brevity. Due to the tremendous response, all queries will not be answered.