The transfer of a house from a father to a son can be considered a gift
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My father had purchased a flat in Navi Mumbai for Rs5 lakh in 2002. He is 67 now and retired, with an annual pension of Rs2.25 lakh. If my father transfers this same flat in my name, is there any stamp duty implication?
I am planning to buy another flat (under-construction property) in Mumbai, in which my father is a co-applicant. I have taken a loan of Rs80 lakh. Just before possession of the flat in December 2019, my father would sell the Navi Mumbai flat for around Rs45 lakh and transfer the amount to pre-close our loan of Rs80 lakh. Here, we are considering that my father doesn’t transfer the property to me.
Will my father get the benefit of saving tax on long term capital gains on sale of the house?
The transfer of immovable property from father to son can be considered a gift. As per the Transfer of Property Act, the transfer of house property as a gift needs to be effected by a registered document (gift deed) signed by the person gifting the property. The amount of stamp duty payable on gift deed is same as in a regular sale. However, there is an exemption in case of specified relatives, which includes gifts from father to son. In Maharashtra, the rate of stamp duty on such a transaction was limited to Rs200 till 16 May 2017. Now the stamp duty applicable will be 3% of the market value of the transaction.
Sale of property and reinvesting it in another property gives the benefit of exemption of long term capital gains under section 54. If your father sells the Navi Mumbai property to part pre-pay the loan, he will not need to pay long term capital gains tax.
An individual can be a co-applicant in a home loan without being a co-owner of the property. But to get the tax benefit (under section 54) on reinvestment of sale proceeds of another house property, the individual needs to necessarily be a co-owner of the new property. If the new property purchased is through a loan, the payment will go to the loan account and not to the builder directly; hence, the individual also needs to be a co-applicant in the loan. You may also want to check the following points before deciding to pre-pay:
•Check your liquidity position: is there any need that can come up in short time which will require that money? Try and keep the money from the sale proceeds for those needs.
•Use only the capital gains amount to pre-pay the loan. Use the rest for investments if you can get better returns than your home loan rate.
I have a home loan with State Bank of India (SBI) on a base rate of 9.15%, with an outstanding amount of about Rs11 lakh. The repayment term is 15 years and EMI is about Rs15,000.
Can I switch to MCLR (marginal cost of funds based lending rate) now, or should I wait for some time for MCLR interest rate reduction? If I switch now, how much will I benefit?
Base rate system was introduced from July 2010. The banks referenced their lending rates on a ‘base rate’ which was computed on the cost of funds to the bank. However, there was wide variation in the way different banks calculated this rate, hence the Reserve Bank of India (RBI) introduced MCLR, which proposed a uniform marginal cost funding methodology for all banks. MCLR was introduced in September 2015 and made applicable for all new loans from April 2016. It was expected that any change in interest rates in the system will reflect faster in the home loan rates for customers. In your case, I presume that the original loan tenure was 15 years and the original loan amount was Rs15 lakh. Accordingly, at 9.15% the EMI works out to Rs15,349.
Based on this, 77 months’ EMI has been paid and 103 remain. The total interest paid, if you continue on this rate, is about Rs4.88 lakh.
If you shift to MCLR and get a rate of 8.5% for 103 months, your EMIs will reduce to about Rs14,976 and the total interest in the remaining tenure will be about Rs4.50 lakh.
The reduction in interest and EMI is not large. There will be other charges that the bank will levy to make this change. The decision to shift to MCLR needs to be made on the saving that will accrue to you after considering the actual rate and the charges levied for the change. Also, once you shift to MCLR, you cannot go back to base rate. And, if rates rise in the future, you may end up paying more.
Kiran Telang is co-founder and director of Dhanayush Capital Advisors Pvt.Ltd.
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