Tax implications for taking loans to purchase property

Tax queries 560 views 2 replies

vivek

Professional

57 Points Joined March 2011

There is a Housewife who holds a PAN but does not have any income and does not file ITR. Now, she wants to purchase an immovable property for investment by taking interest free loans from friends and her father-in-law through cheque. The loans shall be repaid once the property is sold out. Please advise tax implications on above arrangement, particularly the follwoing: 1) Can a loan be taken from Father-in-Law? 2) Is there any clubbing provisions applicable, if yes, how? 3) What is tax treatment for those giving loans? 4) Does she require to file ITR for FY in which property is purchased, though there is NIL income 5) Other implications, which may arise to her or those giving loans. Thanks Regards, CA Vivek Airen

Replies (2)

Mihir

Wealth Manager

5293 Points Joined December 2008

An immoveable property must be with the owner for a period of 3 years after purchase to avail exemption on long capital gain tax. Indexation is available only for long term capital gain. Property sold within 3 years will invite short term capital gain at the rate of 15%. Therefore, she will have to hold that property for a minimum of 3 years after purchase to avail indexation.

After selling the property, she will have to invest in either another property or bonds to save long term capital gain tax. Which means she will probably have to pay capital gain tax by returning the loan to the lenders instead of investing in another property or bonds. And it also depends on the real estate market as to how much appreciation can that property have for a period of 3-4 years.

She can take a loan but will have to prepare documents supporting the same.

vivek

Professional

57 Points Joined March 2011

Thanks Mihir, the purpose is not to save tax and STCG may be paid, my query is about whether there wil be any clubbing of income (STCG or LTCG) in case loan is availed from Father-in-Law.

Secondly, whethr it will mandatory to file ITR even if there is no income.

What are the documents needd refered by you for loan?

Thanks,