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Ramalingam

Ramalingam Kalirajan  |7379 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Oct 26, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more
Asked by Anonymous - Oct 25, 2024Hindi
Money

my age is 68 years i have purchased a house jointly with family (4) members in june-2023 under construction which will be completed in dec-2026 for amounting to Rs.2.20 crore , Registration(Aggrement) is already made in August-23 against that 1.10 crore is already paid till september-24 by the way of loan. my old house is suppose to be sold in june/july-24 but somehow it is not sold. if it is sold by December-2024 or January 2025 should i have to pay tax further 2 to 3 installment are still to pay till possession please let me know

Ans: Current Situation and Potential Tax Implications
Joint House Purchase: You purchased a new property in June 2023 jointly with four family members. It will be completed by December 2026, with a total cost of Rs 2.2 crore.

Loan and Payments: A home loan has funded Rs 1.1 crore, and payments continue towards the installments.

Old House Sale Delayed: Your plan to sell an old house by June/July 2024 has been delayed, but you expect it could be sold by December 2024 or January 2025.

The sale timing is critical, as it affects tax calculations and investment strategy.

Understanding Capital Gains Tax on the Old Property Sale
If you sell the old house in the next few months, consider these points:

Long-Term Capital Gains (LTCG): If you held the old property for more than two years, the gain qualifies for long-term capital gains tax. The LTCG rate is 20% with indexation benefits, helping reduce the taxable amount.

Section 54 Exemption: If you invest the capital gains from selling the old house into a new property (your under-construction home), you may be eligible for a Section 54 exemption. This reduces or eliminates the tax burden.

Time Limits for Exemption: Under Section 54, the new property must be purchased one year before or two years after the old property’s sale date. For under-construction properties, the new home must be completed within three years of the sale. Since your home is scheduled for completion by December 2026, it may fall within this time frame for exemption.

Steps for Managing Installment Payments and Tax Considerations
To efficiently manage your installment payments and minimise tax liabilities, here are some key strategies:

Use Sale Proceeds for Installments: Once you sell the old house, allocate the proceeds to pay off the remaining installments of your new home. This method supports your Section 54 exemption, as the capital gains directly fund the new property.

Utilise Capital Gains Account Scheme: If the old house sale happens before the new home’s completion in December 2026, consider a Capital Gains Account Scheme. This scheme holds your gains until you’re ready to pay the final installments, allowing you to maintain the tax exemption.

Avoid Tax Penalties: By reinvesting the capital gains directly or through a Capital Gains Account, you stay aligned with the tax-exempt limits. This approach prevents tax penalties on unutilised gains.

Loan Repayment Strategies and Their Benefits
With an existing home loan, you have options for managing debt effectively:

Partial Loan Prepayment: If selling the old house frees up significant funds, consider partially repaying the home loan. Reducing the loan principal lowers interest obligations and eases financial pressure.

Maintain Liquidity: If your income sources post-retirement are limited, focus on balancing loan repayment with cash reserves. Avoid exhausting all funds on prepayments, as liquidity will support unforeseen expenses.

Interest Deduction Benefits: Home loan interest qualifies for tax deductions up to Rs 2 lakh per annum. So, if tax-saving on other income is beneficial, maintaining the loan could serve dual purposes.

Planning for Additional Financial Needs
You may have specific financial goals or family obligations. These plans ensure financial security alongside the property investment.

Consider Your Age and Income Needs: At 68, it’s essential to preserve funds for retirement. Make sure your reserves meet monthly expenses comfortably.

Health and Emergency Reserves: Reserve a portion of the proceeds or capital for health and emergency funds. These ensure stability, especially if unforeseen expenses arise.

Future Property Maintenance: Anticipate expenses related to the new property after completion, including maintenance and repairs.

Investment Strategy Post-Sale
If the old property sale yields surplus funds beyond the installment payments, strategically investing this surplus can optimise your finances:

Allocate to Mutual Funds for Growth: Investing some amount in mutual funds, with guidance from a Certified Financial Planner, can grow your wealth with tax-efficient returns. Actively managed funds offer the potential for better gains than traditional deposits.

Explore Debt Funds for Stability: Debt funds provide relatively stable returns, which are also tax-efficient. These funds suit conservative investors who prefer less market volatility.

Avoid High-Risk Products: Given your age, high-risk investments (like equities) may not align with your risk tolerance. Focusing on balanced or debt-oriented funds can offer stability with some growth potential.

Ensuring Compliance with Taxation Rules
To maximise tax savings while remaining compliant, consider these best practices:

Work with a Certified Financial Planner (CFP): A CFP can help navigate the specific tax exemptions, handle instalment planning, and advise on re-investing sale proceeds effectively.

Documentation and Filing: Maintain detailed records of the new property payments, loan interest, and any transactions related to the sale proceeds. Accurate records support tax filing and Section 54 claims.

Plan Ahead for Final Payments: Since you still have 2-3 instalments due, ensure funds from the old property sale remain accessible. This keeps the payment process smooth and helps you avoid penalty charges or tax complications.

Final Insights
Selling the old property offers a structured approach to fund your new home. It also offers potential tax benefits when done with thoughtful planning.

Utilise Capital Gains Exemptions: Applying Section 54 can save significant taxes, especially as the new property aligns with your long-term plans.

Balance Loan Repayment with Liquidity: Repay loan portions wisely without sacrificing cash reserves. This balance supports both current needs and future obligations.

Explore Moderate Investments for Surplus Funds: Any surplus should be invested in tax-efficient, moderate-risk avenues that align with retirement security.

Best Regards,
K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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Sir I am 39 years old. I want to retire at age 50.Now I have 60 lacs in fd in different banks and post office. I have 3.5 lacs in Mutual Fund. I have different properties including home valuing approximately 3.5 Cr.I have no loan.What is my financial position exactly now.How should I plan to get 1 lac monthly after retirement.
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