Can You Sell Property with Running Loan?
Oct 04, 2018 Home Trading Steps
With the help of home loans, the young professionals are now able to buy properties quite early in their careers. Gone are those days when you have to wait until your retirement to get a lump sum amount for the home purchase. With time, your needs change, and you may need a bigger house. However, the home loan is still running. So, there are restrictions on selling the property as the third party is involved in the overall transactions. Therefore, we need a different approach if you need to sell the house.
Let us understand the process here.
Let us understand the process here.
Tax Implications
Short-term capital gains (STCG): If you sell your property within two years of purchase. In case you fall under highest tax bracket, then you are liable to pay 30.9 per cent tax on your income as STCG. If you decide to go for another property purchase, you won’t get any tax benefits or exemptions on it.
Long-term capital gains (LTCG): If the property is sold after two years of purchase. The tax liability will be 20 per cent. If you are planning to buy another property, tax deductions can be applied under Section 54 of the Income Tax Act. Remember that these tax exemptions are applicable to the profits made on the sale and not on the complete amount of purchase of the new property. Clause here is that you can buy either one year before the sale or two years after the sale.
The inference here is that you should consider selling the property only after two years of purchase so that you pay less amount as tax.
Long-term capital gains (LTCG): If the property is sold after two years of purchase. The tax liability will be 20 per cent. If you are planning to buy another property, tax deductions can be applied under Section 54 of the Income Tax Act. Remember that these tax exemptions are applicable to the profits made on the sale and not on the complete amount of purchase of the new property. Clause here is that you can buy either one year before the sale or two years after the sale.
The inference here is that you should consider selling the property only after two years of purchase so that you pay less amount as tax.
Prerequisite of Finding a Potential Buyer
Since you have availed home loan, all your documents are with the lender. Ensure that you have a copy of all documents such as sale deed, electricity bills, loan-related documents and property tax receipts. Meanwhile, inform your lender so that a letter from them can be issued stating the amount outstanding. These are the key factors that will prove your ownership over the house as the buyer would cross-check. The buyer should be aware of the loan.
After Finding a Buyer
Buyer availing home loan: Scenario 1 – if availing from the same lender then the process is much smoother. Scenario 2 – the buyer has to present the copies of all the required documents to the new lender plus a letter from the seller’s lender, stating the outstanding liability.
Buyer is not availing loan: You could ask the buyer to transfer an amount sufficient to repay the loan first. Then in a span of 10 days, the lender will release all documents. The buyer can transfer the rest of the amount post that.
Buyer is not availing loan: You could ask the buyer to transfer an amount sufficient to repay the loan first. Then in a span of 10 days, the lender will release all documents. The buyer can transfer the rest of the amount post that.
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