Income tax on earnings from property

Tax queries 619 views 4 replies

Vivek Kadam

25 Points Joined November 2012

Hi experts,

I have recently sold my house where I am currently staying and I am expecting payment towards the same within next couple of months. At the same time, I have identified another property for my future residence and I need to make payments for this new property in next fifteen days. However, since I have not received payment for my current house, I donot have enough money to fund my future house.

My question is, can I borrow money from family/friends/other finacial institutions to fund my new house and later repay the borrowed amount when I receive payment against my current property? I am aware that money received from sell of my current property will not attact tax if I purchase anoher house within one year. However, in my case I shall be using this money to repay loan taken to fund my new house. Will the tax exemption be sill valid if I follow this approach?

Any insights are greatly appreciated.

Replies (4)

CA Ruben Balooni

Professionalism ™

1324 Points Joined December 2008

Yes you can borrow money from anyone as there is no restriction regarding this in the Act. If you pay any interest on such Loan then it shall be added in the Cost Of Acquisition of the new property as held in Commissioner Of Income-Tax vs K. Raja Gopala Rao (Mad).

Refer -> https://www.indiankanoon.org/doc/1484127/

- Ruben Balooni

ANUBHAV VISHNOI

150 Points Joined February 2012

Hi Mr. vivek,

I am completely disagree with Balooni bcoz the case law which he/she mentioned is totally diferrent and not related to your case. This case law is related to mortgage of property.

Well Vivek in your case you can take loan from friends, relatives, bank or any finacial institutions. In case if you are taking loan from relatives or friends, make sure you take the account payee cheque or DD.

Second thing you told that you did not recieved sale consideration till now and bcoz of that you are taking a loan for purchasing a new house.

Definitely tax exemption u/s 54 will be allowed to you in this case also. Law does not require the identity of the amount received on sale and its utilization for the purpose of section 54. So you can enjoy the tax exemption.

I hope this will help you

Vivek Kadam

25 Points Joined November 2012

@ Anubhav - thank you very much, this certainly helps

Saket Sinha

Student

129 Points Joined October 2011

Exemption under sec54 shall be available to you, as this doesnt require matching that the money that u got from sale of house property would be same that you invested in buying a new house what law requires is that an amount equla to your capital gain shoula be invested to purchase the new house property within the time limits specified . Therefore you are free to tskr loaln from your relatives it is purely your internal matter but make sure that u make arrangemnts to borrow that amount money as is equiavalent to the capiatal gain to claim exemption.under sec 54 of thee Income Tax Act,1961