I have taken an education loan against my residential property. If I want to sell the house and use the proceeds to pay the loan. What will be the tax implications? The education loan is ₹1.50 crore as of today. The property sale price would be about ₹1.50 crore, bought for ₹20 lakh in 2003.
—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. Long-term capital gains on the sale of residential property are exempt only if the gains are reinvested in another residential property or on investment in certain bonds (capped at ₹50 lakh).
While no deduction or benefit is available on the repayment of an 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. This deduction is available for the interest up to a period of 8 assessment years from the date of the first payment of such interest. Further, this deduction of interest would be available only if you have opted to be taxed under the old regime and would not be covered under the new regime.
Choose the right LTCG tax route
While the sales consideration may be used to repay the education loan, you would also need to factor in the tax on the long-term capital gains arising on the sale of the property.
Assuming that you are a resident, you would have an option to offer the gains to tax at the rate of 12.5% (plus applicable surcharge and education cess) without factoring in the indexation or at the rate of 20% (plus applicable surcharge and education cess) after considering the indexed cost of acquisition. On the basis of the facts provided, it may be beneficial for you to offer the capital gains at the rate of 20% after taking into account the indexed cost of acquisition.
Assuming that the property was acquired in FY 2003-04, when the cost inflation index was 109 (as against 376 for FY 2025-26), the capital gains tax payable at the rate of 20% (excluding surcharge and education cess) with indexation benefit, works out to ₹16,20,183, whereas the tax payable at the rate of 12.5% (excluding surcharge and education cess) without indexation works out to ₹16,25,000.
Since you are considering using the sale proceeds from the property transfer to repay the loan, you may also need to consider that the buyer of the property may deduct TDS at the rate of 1% on the sales consideration. This TDS can be used to adjust any tax payable on the long-term capital gains arising on the sale.
Mahesh Nayak, chartered accountant, CNK & Associates.
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