If you are claiming an exemption on capital gains tax, it’s a no-brainer to reinvest the desired portion of the proceeds towards purchasing a second home.
I plan to sell my flat and would like to allocate a portion of the proceeds toward my child’s education. My question is: can I use approximately ₹40 lakh for my child’s education and apply the remaining funds toward a second home loan?
Raj Khosla, Founder and MD of MyMoneyMantra.com
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You are free to utilize the proceeds from the flat sale as you wish, as long as the applicable capital gains tax is paid. The remaining amount can be judiciously deployed to minimize the home loan amount for the second house.
Alternatively, you can set aside a portion to fulfill the minimum down payment for the second home loan, and the rest can be invested in a mutual fund scheme that has the potential to generate a pre-tax return of more than 12%. On the flip side, it is not wise to take on a hefty home loan with an equated monthly installment (EMI) at an interest rate of around 9% if the investment is only able to generate a pre-tax return of around 10% or less.
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It is up to you to decide whether you are in a position to accommodate a higher EMI for a second home loan with a portion invested in the market/mutual fund, or if you’d prefer to keep EMI payments as low as possible with no investments from the proceeds of the flat sale.
However, if you are claiming an exemption on capital gains tax, it’s a no-brainer to reinvest the desired portion of the proceeds towards purchasing a second home.
