I bought a property for ₹ 45 lakh and wish to sell it for ₹ 60 lakh. I want to sell the property after prepaying the loan taken against it. Is it possible to save the pre-payment charge? Also, I will be earning ₹ 15 lakh on the sale of the said property. Do I need to pay tax on it or is it tax exempt?
- Surjit Shah No pre-payment charges are payable if the loan taken for the said property is on a floating rate of interest. If the loan is from a housing finance company, no pre-payment charges are payable in your case even if it is on a fixed rate of interest as you will be repaying it from your own sources. The gain of ₹ 15 lakh will be taxable depending on the period for which you have held the property. In case you are selling the property within 36 months from its purchase date, the profit will be taxed at normal rates. However, if I am planning to take a housing loan. I was told to opt for lower EMIs and pre-pay at least once a year to reduce the loan amount (as the prepayment is towards principal). Is this correct?
- Manju Mehta Yes, the amount you pre-pay is adjusted against your principal outstanding. So each prepayment will reduce your loan tenure by default. However, if you want to retain your loan tenure and reduce the EMI, you need to discuss with your Please tell me how to determine notional value of a second house property for income tax purpose?
– Latika Sharma The notional rent is the value at which the property in question is reasonably expected to be let out. You should check out the rates at which similar properties in the area are being leased out and use that as the basis for determining the notional rent value. I have taken a home loan from a housing finance company. I want to transfer it to a nationalised bank. At the time of signing the agree- ment, there was a clause for prepayment charges in case the loan amount was pre-paid. Now as per the circular of RBI no pre-payment charges can be levied in case the loan is closed before the period for which it is taken. Will pre-payment charges be waived of in this case? What happens in case the financial institution does not follow the RBI guidelines?
– Sarnam Samanta The financial institution in your case is governed by National Housing Bank (that regulates housing finance companies and not by RBI). NHB has issued a circular banning levy of pre-payment charges on floating rate loans irrespective of the source of pre-payment. This includes even the balance transferred to another lender. This is applicable to all loans, new as well as existing loans from housing finance companies. So, even if the clause in your agreement mentions the foreclosure penalty, it will not apply to you. The financial institution can levy a prepayment charge on the outstanding loan amount that you want to transfer to any other lender and that too if it on a fixed rate of interest.