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Cost of improvement on capital gains

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Murali Rotti Sathyanarayana

Manager of Accounts

93 Points Posted on 21 July 2023

There is a construction of second floor in June 2020 on a already built ground floor plus first floor house (2005)... second floor Construction was done through loan taken from bank..now the house is sold in February 2023..Can the second floor cost be taken as cost of improvement and indexation benefit is available for the same ? please let me know

Replies (2)

Quick Summary

When selling a property that has undergone improvements, such as adding a second floor, the cost of that improvement can be added to the original acquisition cost for capital gains tax calculations. Indexation benefits may also be available, with the improvement cost indexed from the year it was incurred. It's essential to retain all documentation, including bills and municipal approvals, to support your claim.

Dhirajlal Rambhia

SEO Sai Gr. Hosp.

121546 Points Posted on 21 July 2023

Yes.

Aashok Kumar Sharma

Finance/Compliance Consultant

75875 Points Posted on 08 November 2026

Second floor built in 2020 is a cost of improvement:
• Construction of a second floor on an existing house (June 2020) is a capital improvement. Its cost is added to the cost of acquisition when computing capital gains on sale (Sec 48, 55(1)(b)).
• Holding period: the second floor is a separate improvement. If sold together, the entire house (original plus improvement) is generally treated as one asset with the original holding period. Tribunals treat improvements as part of the same asset.
• Indexation (if opting, sale after 23 July 2024 for a resident individual, property acquired before 23 July 2024): index the original cost from its year, and the improvement cost from 2020-21.
• Keep bills, payment proofs and municipal approvals for the construction.