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Discussion > Income Tax > Tax queries >

Cost of improvement - capital gains

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Wealth Manager


[ Scorecard : 5094]
Posted On 16 August 2011 at 15:07 Report Abuse

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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CA PARAS BAFNA
Practising CA


[ Scorecard : 29264]
Posted On 16 August 2011 at 16:22

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

 



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Mihir
Wealth Manager


[ Scorecard : 5094]
Posted On 16 August 2011 at 16:28

Great explanation. Thanks alot.




CA YOGESH GARG GMG PLYWOODS
BUSINESS OF PLYWOOD and PARTNER IN GUPTA & MALHOTRA CHARTERED ACCOUNTANTS


[ Scorecard : 247]
Posted On 18 August 2011 at 13:14

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




Arihanth Kumar Jain G
Chartered Accountant


[ Scorecard : 1116]
Posted On 18 August 2011 at 16:36

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.




Ankita Kala
nil


[ Scorecard : 39]
Posted On 15 September 2013 at 18:47

Hi,

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




meenakshi
Head - Finance


[ Scorecard : 51]
Posted On 08 January 2014 at 19:45

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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