I own a 1BHK residential property in Andheri where I currently live. My other property, which is a 2BHK at Bandra, has been given on leave and licence. I also have a third property which is a commercial office. If I sell this commercial property can I buy a residential house and give it on leave and license? Shall I have to pay income tax? What are the tax implications?
—M A Shaikh In case you have held this third commercial property for 36 months or more, any capital gains arising on its sale shall be treated as longterm capital gain.
Since you are already holding two residential properties, you can not take the benefit of exemption under Section 54 F of the Income Tax Act. However, you can avail the benefit under Section 54 EC by investing capital gains in bonds of either Rural Electrification Corporation of National Highway Authority (NHAI) within six months from the date of sale of the commercial property. However, if you do not want to invest in bonds then you will have to pay tax @ 20% on the indexed capital gains.
Since there is no restriction to the number of houses that one can own, you can invest in the third house if you are left with enough money after paying of your taxes or investing in capital gain bonds under Section 54 EC. So you can give this third residential property on leave and license basis. Can a son purchase a flat from his father/mother/wife or vice versa for an amount five times higher than the market price?
—Rajat Khanna First, the buyer will need to enter into an agreement with the seller that entitles him to purchase the property. Second, the buyer will have to pay stamp-duty and registration charges on such document based on agreement value which will be five times higher than the market value.
If the buyer is looking for a home loan, then the buyer will need to get a home loan sanctioned from the bank based on his financial papers. The value of the sale transaction between the two parties shall be subject to special scrutiny. This is because the lender may not be comfortable giving the loan, as the transaction in question will be between close relatives. Such transactions are likely to be conceived as sham transactions to raise money. The borrower will have to take the banker into confidence about the transaction. To that extent the choices will be limited. Also since in this case the transaction is entered at five times the market value, you will not be able to get the loan on the basis of the agreement value. I have a personal loan with one of the banks. Can that be clubbed with a home loan as I can pay only one EMI at a time?.
—Ranjit T Sarin No, because the products in question are different. You can ask your home loan lender to give you a top-up loan on the security of the house and can prepay your personal loan with it.