I purchased a residential land in the year 2006 for ₹ 7 lakh. Now I want to sell it. Its approximate cost is ₹ 30 lakh. I would like to know if I can invest this amount in purchase of another residential land and subsequently construct a house on it within three years to save income tax on long-term capital gain. If not, how can I save tax on long-term capital gain?
—Rohit Katyal Yes, you can invest the proceeds of the sale of the residential plot for purchase of a residential plot and construct the house on the same within a period of three years. As per section 54F of the Income Tax Act, you can claim capital gains exemption on longterm capital gains arising on sale of a capital asset other than a residential property. For availing this exemption, you are required to invest the net sale consideration for construction of a house within a period of three years.
The amount of exemption will be equivalent to the proportion the newly construct- ed house bears to the net consideration received on sale of your residential plot. If the amount is not fully invested by the due date of filing of your income tax return, the unutilised amount has to be deposited in a capital gains account to be opened with the authorised banks. The money so deposited can be utilised for construction of the house within the three-year period.
The construction must be completed within three years to avoid any litigation. Though you will be investing whole of the sale consideration for purchase of another residential plot, you will be able to claim capital gains exemption under Section 54F as long as the construction of the house is completed within three years. To be eligible to claim relief under section 54F, you should also fulfill other conditions relating to ownership of the other house and retaining the house you construct. I am a housewife and I can pay ₹ 10,000 per month as an installment towards home loan. Can you tell how much loan can be sanctioned and what will be the interest rate?
— Nisha Arun Since you are a housewife it will be impossible for you to get a home loan on your own from any financial institution, as banks require proof of consistency of income to service the loan. However, if your husband applies for a home loan, the lender may grant him a loan on the basis of his income and you can join him as a co-borrower of the loan.
If your husband is below 40 years of age, as a thumb rule, he should be eligible for around four to 4.5 times his net annual income subject to a maximum of 80% (90% for loan amount below ₹ 20 lakh) of the agreement value of the property as a loan.
He will also have to pay for stamp duty and registration charges, as the banks no longer fund these charges. The overall eligibility will be based on your husband’s income, regular outgoings and his repayment track record. The current floating rate of interest for loan amount below ₹ 75 lakh is 10.15% to 10.25% per annum. I have applied for a home improvement loan from a bank, and it is almost approved. The bank wants me to furnish cost estimates, so that they can give me the amount that I have spent in doing up the house. But I do not have much cash to spend. Is it possible to get the whole amount beforehand?
—Naresh Gupta Some banks sanction up to 75% of the projected cost as loan for home improvement. But you will have to bring in your entire contribution first. Once you have spent your contribution, you can request the bank to disburse the loan amount to you or in favour of the contractor. Harsh Roongta is CEO, Apna Paisa. He can be reached at firstname.lastname@example.org