Capital gain

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Querist : Anonymous

Querist : Anonymous (Querist)

03 November 2012 CAN REPAYMENT OF A LOAN ON PROPERTY BE CONSIDERED AS COST OF IMPROVEMENT WHILE CALCULATION OF CAPITAL GAIN. PLEASE GUIDE WITH SUITABLE SECTIONS AND CASE LAWS.
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CMA Ramesh Krishnan

CMA Ramesh Krishnan (Expert)
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03 November 2012 Repayment of loan nothing but the clearing your liability against your property if any. it will not considered as Cost of Improvement

Querist : Anonymous

Querist : Anonymous (Querist)

05 November 2012 CAN REPAYMENT OF LOAN BE TREATED AS EXPENDITURE INCURRED FOR MAKING PROPERTY SALEABLE HENCE CONSIDERING AS COST OF IMPROVEMENT

CMA Ramesh Krishnan

CMA Ramesh Krishnan (Expert)
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05 November 2012 Please confirm whether you are taken loan for repair & renovation and repayment for that?

Sanjiv Dandona

Sanjiv Dandona (Expert)
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05 November 2012
The provisions relating to Cost of Improvement are contained in Section 55(2) of the Income Tax Act. Under the said provions Cost of Improvement in relation to any Capital Asset other than Goodwill means all expenditure of Capital Nature incurred by the assessee for additions or alterations of the said assest after he acquires the same. In case the assessee acquires the asset by any mode provided in Sec 49 ( ie gift, will etc) such cost incurred by the previous owner will be included in the cost of improvement.

However cost of improvement does not include any expenditure which is deductible in computing income chargeble under the head Income From House Property, Profits and Gains from Business and Profession or Income From Other Sources.

In respect of property, Sec 24( b) allows dedcution from Income from House Property of interst on capital borrowed for acquisition, construction, repairing or reconstruction of the said property.

In view of the above interest on capital borrowed for acquiring, reparing or reconstructing a property will not be included in cost of improvement.

There could be an exception to this rule. As per provisos to Sec 24(b) in case of a self occupied property there is a limitation on deduction of interest as follows:

a) Interst on Capital Borrowed for acqusition or construction of property ( provided acquistion or construction is completed within three years from the financial year in which capital is borrowed), the deduction is limited to Rs 1,50,000
b) In case capital is borrowed for any other purpose ie repairs etc the deduction is limited to Rs 30,000.

In the above circumstances, if any portion of interest is not allowed as deduction there could be a strong case of claim such part as cost of improvement but this is open to discussion

Sanjiv Dandona

Sanjiv Dandona (Expert)
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05 November 2012 In continuation to my earlier reply you may refer to CIT vs Maitheryi Pai( 1985) 152,ITR 247( KAR). There is a strong case that interst to the extent not allowed be added to cost of improvement ( in case of capital borrowed for repairs) and cost of acquisition in case of capital borrowed for acquisition. However, if interst is deductible as per provisions of Income Tax Act, such benefit cannot be claimed.

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