Hi Sir we are planning to go ahead with a flat whose value is 3.35 crores in cheque. We plan to pay around 1.5 crores from savings and balance in loan. Recently my father who is 80 years old sold a property in Pune and has got 71 lacs for the same. We need to invest this money in the new flat for Capital Gain purpose and also as a part of the 1.5 crores down payment. Balance all payment will be made by three of us. Primarily me and my wife and also my son. Since I am 53 years old and my wife is 50, my bank asked me to add my sons name also. My question is : Do I have to buy the flat with my father as the first name or can he be a joint/ second name? My question comes from the fact that I will be paying back most of the loan from my salary.

Ans: Hi Thomas
As the base year for Cost Inflation Index (CII) has been reset to 2001, you may need to get a valuation done through an approved valuer to identify the value as on April 1, 2001. If this value is higher than Rs. 2.98 Lakhs then you could use that as the cost.

As regards the general renovation amount spent, it may not be allowed to be added as cost of the property as generally tax officers are not dispensed to allow it.

W.R.T. your decision to reinvest in a ready possession flat within 2 years, please note that if this investment is extending beyond 6 months OR due date for filing your tax returns (whichever is earlier), you would need to open a Capital Gain Account Scheme (CGAS) account with a nationalized bank and park the capital gain amount in it for reinvestment.

Now answering your queries

Query 1 - If the capital gain amount does not exceed Rs. 2 Crores then you could reinvest in 2 residential units. This however is a one time option and cannot be used again in any other year.

Query 2 - Yes you could add their names but they would be treated as name-sake owners and for all purposes of taxation, you would be taxed singly.

Query 3 - You can add their name as proportionate owners to the value of their contribution. The taxation of income in that case would be based on their contribution

Query 4 - The answer to this would depend on the valuation report. Nevertheless, you could derive the indexed cost yourself by multiplying a factor of 3.48 to the cost. An example would be as follows:

Suppose the cost is Rs. 2.98 Lakhs
Indexed cost would be Rs. 2.98 Lakhs x 348 / 100 OR 2.98 Lakhs x 3.48 = Rs. 10.37 Lakhs

Ans: Your plan to buy a new 2 BHK house with your father is a smart move. You are leveraging both your and your father’s resources effectively. Let’s dive into the details.

Current Financial Snapshot
Your Father's Finances
Sale Proceeds: Rs.1 crore from selling 1 BHK
New Purchase: Rs.1.60 crore for a 2 BHK
Capital Gains: Aim to save tax on these gains
Your Finances
Savings: Rs.20 lakhs
Loan Requirement: Rs.40 lakhs
Joint Ownership: First owner your father, second owner you
Evaluating Your Plan
Capital Gains Tax Benefits for Your Father
Buying a new residential property within the stipulated time frame helps save on capital gains tax. Your father sold his 1 BHK and plans to buy a 2 BHK. This is a good strategy to reinvest the gains and save on taxes.

Joint Ownership and Tax Benefits for You
By making your father the first joint owner and yourself the second, you can avail tax benefits on the housing loan interest and principal repayment under Sections 24(b) and 80C of the Income Tax Act.

Analyzing the Loan Requirement
You need a loan of Rs.40 lakhs. Ensure that you are eligible for this loan amount based on your income and credit score. This loan will help bridge the gap and make the purchase possible.

Detailed Financial Plan
Investment Strategy for Your Father’s Proceeds
Utilizing Rs.1 Crore: Invest the entire sale proceeds into the new 2 BHK to save on capital gains tax.
Loan of Rs.40 Lakhs: Secure a home loan to cover the shortfall.
Leveraging Your Savings
Use your savings of Rs.20 lakhs towards the purchase. This reduces the loan burden and associated interest costs.

Ensuring Loan Eligibility
Check your loan eligibility based on your income. Ensure your credit score is healthy to get the best interest rates.

Tax Benefits and Savings
Principal Repayment: Deduct up to Rs.1.5 lakhs under Section 80C.
Interest Repayment: Deduct up to Rs.2 lakhs under Section 24(b).
Execution Steps
Finalizing the Purchase
Property Registration: Register the new 2 BHK in both names as planned.
Loan Sanction: Apply and get approval for the Rs.40 lakhs loan.
Managing Finances Post-Purchase
Loan Repayment Plan: Set up a repayment schedule that suits your income flow.
Tax Declarations: Ensure you declare the loan details for availing tax benefits.
Risk Management
Insurance: Consider getting home loan insurance to cover the loan amount in case of any unforeseen events.
Emergency Fund: Maintain an emergency fund to manage any financial hiccups during the repayment period.
Long-Term Considerations
Property Appreciation
The new 2 BHK is likely to appreciate in value over time, adding to your wealth. Ensure you maintain the property well.

Retirement Planning for Your Father
Ensure your father’s financial security. The property should serve both as a tax-saving tool and a secure asset for his future.

Financial Security for Your Family
Joint ownership ensures both you and your father have a stake in the property. This provides security and peace of mind.

Power of Compounding
Invest any surplus funds into mutual funds for long-term growth. The power of compounding will help grow your wealth.

Mutual Fund Investments
Equity Funds: High growth potential but comes with market risk.
Debt Funds: Stability and regular income.
Hybrid Funds: Balanced approach with equity and debt.
Actively Managed Funds
Actively managed funds are handled by professional managers. They aim to outperform the market with strategic investments.

Final Insights
Your plan to buy a new 2 BHK is solid. By leveraging your father’s proceeds and taking a loan, you are making a smart financial decision. Ensure you:

Utilize Capital Gains: Invest proceeds in the new property to save tax.
Leverage Tax Benefits: Maximize deductions on loan repayment.
Plan Finances: Manage loan repayments and maintain an emergency fund.
Invest Wisely: Consider mutual funds for long-term growth.
Your proactive approach and thoughtful planning will lead to a successful financial outcome. Stay disciplined and monitor your progress regularly.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in