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  • Category: Tax Planning

    Tax liability for property


    Are you owning mortgaged property with a liability & wish to sell it? Get financial advice here on what are the taxes you need to pay when repaying liability on mortgaged property and before buying new property.

    I have a situation here. I need to sell my property worth INR1.2 crores which is mortgaged and present liability is INR 39 lakhs. I wish to buy a property worth 35 lakhs, after repaying the liability to the lender, by selling a land. What will be my tax liability? Should I pay the tax for the left over money with me or should I pay the tax for the total value of my property sold?
  • Answers

    1 Answers found.
  • Before answering your question I need to clarify few things.

    - You have referred to a 'property', is this the land you wish to sell?
    - Is this land urban or agricultural land?
    - The property you wish to purchase is a land or a house (residential property)?
    - The worth of property you mentioned is the cost price or the current price offered in market for the property or in other words the sale price?

    Now, as I do not have the answer to above questions, I am going to answer assuming that the property you want to sell is the land as mentioned later in your question.

    I am also assuming that the property you wish to buy is either a residential property or a rural land.
    The sale value of property you referred is Rs.1.2 crores.

    Your liability of loan and repaying the same has nothing to do with the sale consideration you will receive. Meeting of liability is not going to reduce your tax liability in any way.

    It means that the tax will be computed on the whole amount received as consideration and you cannot claim any deduction in form of meeting any loan liability.

    Now coming to computation part.

    a) Sale consideration: Rs. 1,20,00,000
    b) Less: Indexed cost of acquisition: Rs. 80,00,000 (Assumed)
    c) Long term capital gain (LTCG): (a-b) = Rs. 40,00,000

    Now tax on above will be @20.6%, i.e. Rs. 8,24,000
    As you said that you will invest in a property which I assumed as residential property or rural land, hence you will get deduction under section 54.
    Now the tax saving to you will be as given below:
    Tax to be paid: Rs. 8,24,000
    Tax exemption: 35,00,000 / 1,20,00,000 x 8,24,000 = Rs. 2,40,033

    This computation is based upon this formula: Amount Invested / Total Sales consideration x LTCG

    This formula is prescribed by the rules and cannot be tampered with. For computing the saving in tax this formula will have to be applied.

    Now you will have to pay Rs. 8,24,000 – 2,40,033 = Rs. 5,83,967

    If you invest the whole sale consideration then your tax liability will be NIL. You can check the same by using the above given formula.

    As you have already mentioned that you will repay your old loan and then invest in a new property, hence it is for sure that you will not be able to save the whole amount of tax as computed above. You will have to pay a part of it which comes after putting in the exact figures.

    My calculations are based on assumptions hence they are not accurate and just a mean to help you calculate your tax liability on your own by putting the actual figures.

    Live before you leave.


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