Selling home to repay loan? Know the tax hit

I had availed an education loan against my residential property. If I now happen to sell the property and use the proceeds to clear the loan, what will be the tax implications I should be mindful about before going ahead with the transaction? The outstanding loan amount is ₹1.5 crore and the likely sale price of the property is also around ₹1.5 crore. I had purchased said the property in 2003 for ₹20 lakh.

- Mahesh Nayak

-Name withheld on request

No deduction is available against the capital gains arising on the sale of a residential property on repayment of an education loan, even in situations like yours.

Long-term capital gains on the sale of any residential property are exempt only if the gains are reinvested in another residential property or on investment in certain bonds (capped at ₹50 lakh) as specifically permitted.

While no deduction or benefit will be available on the repayment of your education loan, you would be eligible for a deduction of interest paid during the year if such a loan was taken for the purpose of higher education and from an Indian bank or a specified financial institution, as required under law.

This deduction is available for the interest up to a period of eight assessment years from the date of the first payment of such interest.