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Capital gain - house property sale

S Singh (ABC) (26 Points)

02 August 2012

Hi CA Friends

I have an house for 4 years which I want to sell now and have a few questions -

1. The cost of the house was 18 lacs (I have receipts from builder) but the house registration was done at 12 lacs as per builder's letter. What will be the cost of acquisition in this case? 18 or 12 lacs?

2. I did wood work and put electrical fittings of 2 lacs on getting possession of the flat. Is this included in the flat cost?

3. I paid 2.3 lacs as Interest on home loan till possession date. Is this included in the flat cost?

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6 Replies

Pankaj Gupta (CA final & M.Com Student) (3358 Points)
Replied 02 August 2012

Hello. * Your cost of acquisition will be Rs 18 lac. * Rs 2 lac will be cost of improvement. * For interest of Rs 2.3 lac i am not sure...... but i think that it will be added in cost of acquisition.( because as per definition , cost of acquisition is any amount paid by assesse upto the date of acquisition of property.)

S Singh (ABC) (26 Points)
Replied 03 August 2012

Thank you Pankaj. One last doubt -

The 18 lacs I paid to builder was over 3 years - 6 lacs in 2005, 6 lacs in 2006 & 6 lacs in 2007. I got the possession of the house in 2008.

Can I index the cost as 6 lacs from 2005 to 2012, 6 lacs from 2006 to 2012 & 6 lacs from 2007 to 2012? Or do I need to do 18 lacs from 2008 to 2012?

Member (Management) (325 Points)
Replied 03 August 2012

How are you going to convince the taxman that the sale consideration was Rs.18 lacs and not Rs.12 lacs? If you are able to explain the source for the difference of Rs. 6 lacs, then it is fine, else you will end up in a mess. Remember the time limit for reopening of assessments: 6 years. So, if you are able to explain your sources properly, then you can take the cost of acquisition as Rs.18 lacs, else you will have to take it as Rs.12 lacs. Both the cost of acquisition and the cost of improvement are eligible for indexation as more than three years have passed since the acquisition. Interest paid is not cost of acquistiion. Year of acqusition will be 2008.

S Singh (ABC) (26 Points)
Replied 03 August 2012

Thank you. I have receipts from the Builder for 18 lacs as payment for the flat and all payments were in cheques. Will that sufice if I want to take 18 lacs as cost base?

For Interest on Home Loan, I had read the below article as per which interest can be claimed uptill possession date. Please advise.

https://www.hindu.com/pp/2005/06/04/stories/2005060400470300.htm

Okay, so I cannot start indexation for the money paid from the year I paid and have to index from 2008 only?

Member (Management) (325 Points)
Replied 04 August 2012

You can claim deduction of interest paid only once. You would have already done that when you claimed the interest as deduction under house property in earlier years. In case you had not claimed it since it was pre construction interest, I am doubtful if it can be claimed as cost of acquisition. This is because, the courts have also held that self generated liability on a property cannot be claimed as deduction when computing capital gains on sale of that property, though it was with reference to inherited property.

You acquire the property only when it has been handed over, not before that. Therefore indexation will be based on the CII of 2008, not before.

propertymesh (individual) (22 Points)
Replied 13 August 2012

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