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Cost of improvement - capital gains

Wealth Manager


Cost of improvement, too, is taken in the consideration in order to arrive at the long term capital gain in case of immoveable property. How does one prove the expenses incurred in the immoveable property to avail the benefits? What if there are no bills related to these expenses incurred? What if there are many dates/years in which improvements/enhancements were made to the immoveable property? How does one calculate that?

Thanks, would appreciate the answer with an example.

 
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Cost of improvement, as the name suggest, does n't mean normal repairs.

Suppose one has purchased a house constructed upto Ground floor only on 1.12.2007 for Rs 500000.  Price paid- will be cost of acquisition.

Now,  the sidewalls which were of 5 feet hieght only, raised to 7 feet till 31.3.2008. Expenditure incurred 30000. It is the improvement cost.

Aftersometime, according to plan ans permission , he slowly starts to constructs  First Floor. Upto 31.3.2010 he inccurs expenditure of Rs 40500/-. From 1.4.2010 to 28.06.2010 the work has been completed and further Rs. 80500/ has been spent. These costs will be added to the cost of the property as cost of improvement.

As on  1.03.2011 , suppose this entire house is sold. Indexation will be made in respect of Cost of acquisition as Cost of Improvement in the following manner , so as to arrive Total Indexed Cost of the property-  

1. INDEXED COST OF ACQUISITION =(500000 x CIF 2010-11)/CIF 2007-08

2. INDEXED COST OF IMPROVEMENT =(30000 x CIF 2010-11)/CIF 2007-08+ (40500x CIF 2010-11)/CIF 2009-10+(80500 x CIF 2010-11)/CIF 2010-11.

3. TOTAL INDEXED COST =1+2

 


Total thanks : 1 times

 
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Wealth Manager


Great explanation. Thanks alot.

 
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BUSINESS OF PLYWOOD and PARTNER IN GUPTA & MALHOTRA CHARTERED ACCOUNTANTS

sir my Question is
Cost of improvement is taken in the consideration in order to arrive at the long term capital gain in case of immoveable property. How does one prove the expenses incurred in the immoveable property to avail the benefits? What if there are no bills related to these expenses incurred?? how can we prove our exp to deptt

 
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Chartered Accountant


Generally I believe a reasonable percentage of the sale value should be acceptable to the AO even without bills. If the expense incurred is material in nature then obviously bills/vouchers should be available like commissions paid to brokers etc., as the amount will be comparitatively material.

Other views are also welcomed.

 
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Hi,

My concern is about a residential property. Would repairs or say, refurbishment, i.e. tiling and flooring be included in cost of improvement?

 
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Head - Finance


Thanks!  But is it necessary that the improvement date should also cover a period of 36 months before the sale date to get the benefit of the capital gains?

 
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