Hello, I had brought a 2bhk for 1.15cr in 2015 with a bank loan of 65 lacs with present outstanding of 29 lacs. The present price of this property on sale is around 1.25cr. In 2023 I have bought another property for 2.00cr with a loan of 1.67cr. Does it make sense to sell the earlier property at a loss and prepay the new loan? What will be the tax implications? I am 51 years old now.

Ans: Transfer of self occupied house property being capital asset is taxable under the head Income from capital gain. As property was held for 20 years, it will be long term capital gain taxable @20% plus applicable surcharge cess. Capital gain will be difference of Sale consideration reduced by indexed cost of acquistion.

You can calculate indexed cost at following link -
https://incometaxindia.gov.in/Pages/tools/indexed-cost-of-acquisition-or-improvement.aspx

Further, if gain amount is invested in buying another property and other conditions are fulfilled, exemption can be taken u/s 54.

Ans: Your situation is quite common. Here's how you can manage selling your first property and using the proceeds to pay off your current loan.

Current Situation
First Property Purchase Price: Rs. 24 lakhs in 2014

Current Market Value: Rs. 55 lakhs

Loan on First Property: Cleared

New Property Loan: Rs. 49 lakhs

Selling the First Property
1. Market Value Assessment

Property Valuation: Ensure you have a fair market valuation for your first property. The current value is Rs. 55 lakhs.

Agent Assistance: Consider hiring a real estate agent to help with the sale. They can provide valuable market insights and handle negotiations.

Financial Considerations
2. Capital Gains Tax

As the indexation benefits are not there NOW, 12.5% CG tax, you need to pay.

3. Sale Proceeds Utilization

Loan Repayment: Use the sale proceeds to repay your new property loan. This will reduce your debt burden significantly.

Remaining Funds: If any funds remain after loan repayment, consider investing them wisely for future financial security.

Loan Adjustment Process
4. Loan Repayment Process

Prepayment Penalty: Check if there is any prepayment penalty on your current loan. Some banks charge a fee for early loan repayment.

Lender Coordination: Coordinate with your lender to process the loan prepayment. Ensure you understand all terms and conditions.

Investment Strategy
5. Investing Remaining Proceeds

Mutual Funds: Consider investing any remaining funds in diversified mutual funds. They offer potential for higher returns over the long term.

PPF and NPS: Allocate some amount to PPF and NPS for safe, tax-efficient, long-term growth.

Final Insights
Selling your first property and using the proceeds to clear your current loan is a wise move. It will reduce your debt and free up funds for investment. Regularly review your financial plan and adjust as needed. Seek guidance from a certified financial planner to tailor a plan specific to your needs.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Yes long term loss from one type of capital asset can be set off against long term gain from other type of capital asset.