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Selling an unregistered flat at double the price - what are my tax options?

Ramalingam

Ramalingam Kalirajan  |8916 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Apr 21, 2025

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
Apoorv Question by Apoorv on Apr 21, 2025Hindi
Money

Hi sir, I bought a flat at 57 lacs in 2021, and now I'm planning to sell the same at asking price of 1.10 cr. The property is yet to be registered as possession is pending from the builder. I have already paid 90% amount to the builder as per construction linked plan. I'm also having a home loan of 25 lacs for another property which I intend to pay prematurely after selling the said house. I intend to invest the balance money in MF, PPF and some saving schemes having tax benefits. Kindly advise how and where to invest to have maximum tax benefit. Will I also get benefit of pre paying my home loan. Please advise how to go ahead

Ans: Your initiative to prepay your home loan and invest for tax benefits is very thoughtful.

Let’s analyse your case step-by-step from a 360-degree perspective and give you a proper plan.

 

Tax Implications on Selling the Flat
You bought the flat in 2021 and now plan to sell in 2025.

 

 

Holding period is less than 24 months (because registration is not yet done).

 

 

So, this is Short-Term Capital Gain (STCG) as per income tax rules.

 

 

Short-Term Capital Gains on property are added to your total income.

 

 

Tax will be payable as per your income tax slab.

 

 

There are no exemptions like Section 54 for STCG — only for LTCG.

 

 

Since registration is pending, the sale may be seen as transfer of booking rights, not property.

 

 

This falls under Section 2(47) of the Income Tax Act.

 

 

It is better to consult a chartered accountant for exact treatment.

 

 

Important: Keep all payment records, allotment letters, and bank statements safely.

 

Home Loan Prepayment – Any Tax Benefit?
Prepaying home loan is a great step if funds are available.

 

 

However, no extra tax benefit is available just for prepaying the loan.

 

 

You can claim interest under Section 24 (up to Rs 2 lakh per year).

 

 

Once you prepay and close the loan, this interest deduction stops.

 

 

So, this is a personal choice. Financially, it reduces debt and brings peace of mind.

 

 

But if your home loan interest rate is low and under control, consider keeping it and investing surplus.

 

What to Do With the Surplus Money
Let us assume your net gain after repaying the home loan is around Rs 70-75 lakh.

Let’s see how to smartly deploy this amount.

 

A. Emergency Fund (Rs 3-5 lakh)
Keep aside this amount in a liquid fund or sweep-in FD.

 

 

This will help during health emergencies or job loss.

 

 

This gives mental peace and financial safety.

 

B. Home Loan Prepayment (Rs 25 lakh)
Go ahead with this if peace of mind is your top priority.

 

 

There is no penalty for prepayment in floating rate loans.

 

 

It also saves future interest outgo.

 

 

But you lose out on tax deduction under Section 24.

 

 

If the interest is below 8.5%, partial prepayment is better.

 

C. Invest in PPF (Rs 1.5 lakh per year)
Open PPF if you don’t already have.

 

 

Invest maximum Rs 1.5 lakh per year for 15 years.

 

 

You get tax deduction under Section 80C.

 

 

Returns are tax-free and backed by Government.

 

D. Invest in ELSS Mutual Funds (Rs 1.5 lakh)
ELSS offers the shortest lock-in (3 years) among tax-saving options.

 

 

Invest up to Rs 1.5 lakh per year under Section 80C.

 

 

Choose Regular Plans via a Certified Financial Planner (CFP), not direct plans.

 

 

Regular plan investments offer ongoing advice, portfolio review and guided support.

 

 

Don’t get tempted by direct plans just for lower expense ratio.

 

E. Invest in Tax-Saving FDs (Optional)
This is also eligible under Section 80C.

 

 

But it gives lower returns compared to ELSS or PPF.

 

 

Consider this only if you need guaranteed returns.

 

F. Invest in Balanced Advantage Funds (Rs 10-15 lakh)
These funds balance risk and return very well.

 

 

Ideal for medium-term goals (4-6 years).

 

 

These are actively managed funds that shift between equity and debt smartly.

 

 

Avoid index funds and ETFs — they lack fund manager expertise.

 

G. Invest in Flexi Cap Mutual Funds (Rs 15-20 lakh)
These funds invest across large, mid, and small cap stocks.

 

 

Over 7-10 years, they help create solid long-term wealth.

 

 

Choose regular plans with support from a CFP and MFD.

 

 

Avoid direct funds if you want personalised support and regular tracking.

 

 

Direct plans need self-monitoring. Wrong timing may lead to losses.

 

H. Invest in Multi Asset Funds (Rs 5-10 lakh)
These funds invest in equity, gold, and debt together.

 

 

They give better diversification and handle volatility well.

 

 

Good for medium-term goals and reduce emotional investing mistakes.

 

I. Retain Some Amount in Arbitrage Funds (Rs 5 lakh)
These are good for short-term parking with low risk.

 

 

Returns are better than savings account or FDs in many cases.

 

 

Ideal if you need money in 6–12 months.

 

Tax Saving Tips to Consider
Invest up to Rs 1.5 lakh under Section 80C – use mix of PPF + ELSS + life insurance premium.

 

 

Use Section 24 for home loan interest deduction till you prepay the loan.

 

 

Consider Section 80D for health insurance premium for self and parents.

 

 

Do not invest in annuity products — they are tax-inefficient and inflexible.

 

 

Do not fall for real estate again, as it lacks liquidity and has high transaction costs.

 

Important Mistakes to Avoid
Avoid investing everything in one type of product or asset class.

 

 

Avoid direct mutual funds unless you can manage everything yourself.

 

 

Don’t invest too much in sectoral or thematic funds — high risk, low consistency.

 

 

Don’t chase short-term returns or switch funds based on trends.

 

Systematic Investment Plan (SIP) Suggestion
Start SIPs with Rs 25,000–30,000 per month in Flexi Cap, Large & Midcap, and Balanced Advantage Funds.

 

 

Increase SIP every year with your income — this ensures wealth compounding.

 

 

Use the remaining lump sum in phased investment via STP into equity mutual funds.

 

 

This avoids market timing and gives smoother entry.

 

How to Monitor
Do quarterly portfolio reviews with your Certified Financial Planner.

 

 

Track your progress towards future goals like children’s education, retirement, etc.

 

 

Use goal-based investing to stay motivated and disciplined.

 

 

Always consult a CFP and MFD for personalised fund selection and review.

 

Finally
You are already in a strong position with good real estate profit.

 

 

Focus now on reducing debt, saving taxes, and long-term investing.

 

 

Use your surplus wisely with a balanced portfolio.

 

 

Avoid complexity — keep the portfolio simple, diverse, and goal-aligned.

 

 

With the right plan and regular reviews, your wealth will grow safely.

 

 

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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Mihir

Mihir Tanna  | Answer  |Ask -

Tax Expert - Answered on Sep 29, 2022

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Dear Mr Mihir, I would like to know the following points: I bought a flat in Thane - 400603 @ rs.one lakh in Dec.'1983 & would like to sell now this year 2022 @ rs.64 lakhs. Pl. let me know the amount of Property Gain Tax (Long Term) which I have to pay now considering 'Ready Reckoner Rate' at Thane - 400603 area or how to calculate the same to get taxable amount? Also can I (as Sr. Ctzn.) get a tax exemption as I already bought (in joint ownership where my wife is 1st owner) another flat @ rs.75 lakh in Thane in Nov '2020? May I invest taxable amount (if any) in Govt. Bonds like NHAI / REC / PFC to get tax exemption & what interest I will get for how many yrs. or else if it will be better to invest my selling amount in good Flexi Cap Mutual Funds for 5 years after paying entire taxable amount to recover the same? Will appreciate your prompt feedback in detail.
Ans: Capital gain on sale consideration will be reduced by Indexed cost of acquisition and allowable expenses incurred on transfer. You have to calculate indexed cost of acquisition by applying Cost Inflation Index as per prescribed formula on cost of acquisition.

For cost of acquisition, you may take actual cost or fair market value of the asset, as on 01.04.2001.

In case of land and building, fair market value on 01.04.2001 cannot exceed stamp duty value as on 01.04.2001.

Exemption is available if amount of capital gain is invested by purchasing a new residential house within one year before or within 2 years after the date of transfer of the residential house.

As you have already got possession of new property in November 2020, you will not be eligible for exemption.

Decision of investment in specified bonds or acquiring tax mutual funds can be taken after considering several factors like risk appetite, amount of tax liability on capital gain, availability of surplus fund etc.

..Read more

Ramalingam

Ramalingam Kalirajan  |8916 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jan 30, 2025

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I have a purchased a 2 BHK house in Ulwe Navi Mumbai which is under construction & may get possession by Dec2026. For this home loan is 74 lacs & emi is 66K per month. I also have another 1 bhk in same area which is loan free, so my question is what should be my approach for future? Should I sell my 1 BHK (the value could be 50 lacs), once I get the possession of new house to repay the loan on new house OR I should continue to pay EMI give this old 1BHK on rent (Rent could be 12K/month) by this way I can also save capital tax gain, please suggest. The property rates are going to be on higher side in future in this area since this is the area where Atal setu & Airport is being constructed, please advise. Thanks.
Ans: Understanding Your Current Situation
You own two properties in Ulwe, Navi Mumbai.

1 BHK: Loan-free, market value Rs. 50 lakhs, potential rent Rs. 12K/month.

2 BHK (Under Construction): Home loan of Rs. 74 lakhs, EMI Rs. 66K/month, possession by Dec 2026.

You believe property rates will rise due to infrastructure projects like Atal Setu & Airport.

Key Factors to Consider
1. Loan Burden & Interest Cost
Your EMI of Rs. 66K/month is a significant financial commitment.

Over 20-25 years, total interest paid can exceed Rs. 70-90 lakhs.

Selling your 1 BHK and prepaying part of the 2 BHK loan can reduce this burden.

2. Rental Income vs Loan Cost
Rental income: Rs. 12K/month (Rs. 1.44 lakhs per year).

EMI: Rs. 66K/month (Rs. 7.92 lakhs per year).

Your rental yield is just 2.8% annually, while the home loan interest is around 8-9%.

Keeping the 1 BHK does not provide strong financial benefits.

3. Capital Gains Tax on Selling 1 BHK
If sold after holding for more than 2 years, you qualify for long-term capital gains tax (LTCG).

LTCG tax is 20% with indexation benefit.

Reinvesting in your 2 BHK loan is NOT eligible for capital gains tax exemption.

To save LTCG tax, you can invest in capital gain bonds (under Section 54EC).

4. Future Property Value Appreciation
Future appreciation is uncertain. While infrastructure development helps, property cycles do not guarantee constant growth.

Navi Mumbai’s market is already seeing a high supply of properties. Short-term gains may not be significant.

Holding an extra property is only beneficial if the price rise is higher than loan interest + maintenance costs.

What Should Be Your Approach?
Option 1: Sell 1 BHK and Reduce Loan (Recommended)
Sell the 1 BHK after possession of the 2 BHK (to avoid uncertainty in under-construction delays).

Use Rs. 50 lakhs to partially prepay the 2 BHK loan.

Loan burden reduces significantly, EMI can reduce by nearly Rs. 35K-40K per month.

Invest the remaining capital gain in tax-saving bonds to avoid tax.

Option 2: Retain 1 BHK & Continue Paying EMI
Keep 1 BHK for rental income (Rs. 12K/month).

Continue paying full EMI of Rs. 66K/month.

Property value may or may not rise as expected.

Low rental yield & high EMI stress make this a weaker option.

Final Insights
Financially, selling the 1 BHK and reducing the loan is better.

Lower EMI = More financial flexibility for future investments.

Holding both properties only makes sense if appreciation is very strong.

If selling, plan capital gains tax exemption wisely.

Real estate is not the best long-term investment compared to equity & mutual funds.

Reducing home loan burden improves cash flow & future financial security.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

..Read more

Janak

Janak Patel  | Answer  |Ask -

MF, PF Expert - Answered on Feb 21, 2025

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Hello Sir, I am 48 years old working in a software company with the monthly income of 2.5lakhs. I have 2 independent houses in which I am planning to sell one for 1.6crores and take one flat with 1.4Cr to save capital gains. below are my queries 1. Can I use remaining 20lakhs for registration, car parking to save LTCG? 2. If not, I have other house with home loan of 80Lakhs. Can I prepay the 20Lakhs for other house to save LTCG? 3. the existing house sale might conclude by April 2025, and new flat registration I am expecting in 2026 April. so the full amount to the builder will happen only in April 2026, can I keep the amount in savings account or do a short term Fixed deposit? what are the tax implications on this amount as by the time we file the income tax this deal will not close.
Ans: Hi Karunakar,

You have an House property (independent house) valued at 1.6Cr which you intend to sell and use the amount to purchase another House property (flat) with value of 1.4Cr.
You have raise multiple queries and before responding to them, I will try to explain the capital gains on house property.
Capital Gains = Sale value - cost of acquisition - cost of improvement - expenses incurred for sale (e.g. brokerage).
So first calculate the Capital gains on selling the property, as you mentioned you are selling it for 1.6Cr, so reduce it by the acquisition cost, etc.
Once you have the Capital gains amount, that is the amount you need to re-invest in another property to save tax on it, in your case the Flat (value more than the CG) can be purchase within the next 2 years and no tax will be payable.
So lets assume out of 1.6 Cr, you have CG of 1Cr, then 1Cr reinvested in another property i.e. for your flat cost of 1.4Cr, you will have no tax payable.
So its not the full value of sale, its only on the Capital gains that you need to worry for paying taxes.
The remaining amount of 60lakhs in above example can be utilized as per your requirement.
Responses
1. & 2. You can use any amount above the capital gains for any purpose you see fit - like parking, registration, loan or any other form of investment.
3. If the sale will conclude in April 2025, and your payment of the capital gains towards new flat will be April 2026, then you need to invest the capital gains amount as per below -
- if you are sure of purchase of flat, then within 6 months of sale date invest the amount in "Capital Gains Account Scheme CGAS)" in authorized banks. Amount will be kept in a special FD for 2 years and you can withdraw anytime to pay for your new property.

Within 6 months from sale of property or before tax filing for FY of sale date, i.e. FY25-26 filing date 31 July 2026, whichever is earlier, you need to make a decision.
If you are not planning to purchase another house property, then reinvest in specific long term capital gain bonds from NHAI, REC, some others, these bonds have lock-in of 5 years
If you decide to purchase another property, deposit CG in CGAS as mentioned above.

Interest earned on these deposits in taxable (under head of Other income).

Thanks & Regards
Janak Patel
Certified Financial Planner.

..Read more

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DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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