If my retired parents sell a property at 2.25 cr and buy one at 1.8 cr, what will be in hand post stamp duty and registeration/ society trasfer charges / capital gains tax? Is there any provision for senior citizens
What should they do with the surplus?
Ans: Your parents are selling a property for Rs. 2.25 crore. They are buying a new one for Rs. 1.8 crore. Let's break down the costs and implications.
Stamp Duty and Registration Charges
New Property Purchase
For the new property, stamp duty and registration charges apply. These charges vary by state. On average, stamp duty is 5-7% of the property value. Registration charges are around 1-2%.
Estimated Charges
If we assume 7% stamp duty and 2% registration fee on Rs. 1.8 crore:
Stamp duty: Rs. 12.6 lakh
Registration fee: Rs. 3.6 lakh
Total: Rs. 16.2 lakh
Society Transfer Charges
Society transfer charges may also apply. These vary by society but are typically nominal.
Capital Gains Tax
Calculation of Capital Gains
When selling the property, capital gains tax is applicable. The gain is the sale price minus the purchase price and indexed cost. Assume the purchase price and other details are such that the gain is significant.
Exemption for Reinvestment
If your parents reinvest in another property, they may get capital gains tax exemption under Section 54. This exemption applies if the new property is bought within two years or constructed within three years.
Estimated Capital Gains Tax
Without exact figures, it's hard to calculate. But reinvesting in a new property can reduce or eliminate this tax.
Net Amount in Hand
Sale Proceeds
Sale proceeds: Rs. 2.25 crore
Purchase and Other Costs
New property: Rs. 1.8 crore
Stamp duty and registration: Rs. 16.2 lakh
Total: Rs. 1.962 crore
Surplus
Sale proceeds minus purchase and other costs: Rs. 2.25 crore - Rs. 1.962 crore = Rs. 28.8 lakh
Investment Options for Surplus
Mutual Funds
Mutual funds are a good choice. They offer better returns compared to traditional options. Actively managed funds can provide tailored solutions. They help in diversifying investments.
Bank Deposits
Fixed deposits offer safe and steady returns. Banks provide special rates for senior citizens. Recurring deposits are also a good option.
NBFC Deposits
Company fixed deposits offer higher returns than bank FDs. Ensure the NBFC is covered under DICGC. Check the credit rating before investing.
Post Office Schemes
Senior Citizens Savings Scheme (SCSS) is a great option. It offers higher interest rates and regular income. Post Office Monthly Income Scheme (POMIS) is also reliable.
Important Considerations
Diversification
Spread investments across various options. This reduces risk and enhances returns. A balanced portfolio ensures stability and growth.
Risk Assessment
Understand the risk tolerance of your parents. Choose investments that match their risk appetite. Safe options like FDs and SCSS provide stability. Mutual funds offer growth potential.
Liquidity
Ensure investments are liquid enough. Your parents may need funds for emergencies. Opt for investments that can be easily accessed.
Professional Guidance
Seek advice from a Certified Financial Planner. They can provide a customised investment plan. Their expertise ensures informed decisions.
Final Insights
Selling and buying properties involves many costs. Understanding these helps in better planning. The surplus from the sale can be invested wisely. A balanced approach ensures stability and growth. Diversify investments and consider risk and liquidity. Professional guidance can enhance the investment strategy.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
