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Ltcg on sale of flat

krishnamurthy (Retired) (32 Points)

02 October 2017

Took a loan of Rs. 30 lakhs in August 2008 from the bank and paid the full cost for flat to the builder.Got possession of flat in January 2013 and registered for Rs. 30 lakhs.Did not claim any tax benefit on principal or interest paid. Total amount paid as EMI to bank comes to Rs.38 lakhs.

If I sell the house now for Rs.45 lakhs what will be my LTCG.

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13 Replies

Aswin Siva (Articled Assistant) (30 Points)
Replied 02 October 2017

https://www.itrtoday.com/is-interest-on-home-loan-treated-as-a-cost-of-acquisition-for-calculating-capital-gains-tax-on-sale-of-a-house/
refer the case law

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Ashwin Kumar (1234 Points)
Replied 02 October 2017

what is the purchase cost

Ashwin Kumar (1234 Points)
Replied 02 October 2017

calculate as usual take the indexed cost of asset as on 2008 . deduct in indexed cost of improvement ...before that deduct any brokerage charges paid for such sale. the remaining is capital gain and you will have to pay tax at the rate of 20.6% ...you can even claim exemption under section 54 and 54EC provided you satisfy the require conditions

krishnamurthy (Retired) (32 Points)
Replied 02 October 2017

The cost of the flat is Rs. 30 lakhs( fully paid in Aug 2008 ) and also registered for 30 lakhs in Jan 2013...But EMI paid is 38 lakhs.Do I get any benefit on account of 8 lakhs ( 38-30). Additional registation cost Rs. 2 lakhs. I will be thankful for a reply. Regards.

Krishna Sarma (Article Assistant) (74 Points)
Replied 02 October 2017

Expenses incurŕed for acquiring property are includible in cost of acquisition. Interest on money borrowed to purchase asset is a part of actual cost of asset.

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Aswin Siva (Articled Assistant) (30 Points)
Replied 02 October 2017

As per judicial decision which was in link I earlier send stats that interest paid to borrowed fund for acquisition of house property can be claimed in two stages one at the year of payment of interest u/s 24(b) and another at the time of sale u/s 46 as cost of acquisition and also refer that case law too

1 Like

Ashwin Kumar (1234 Points)
Replied 02 October 2017

deduction of interest under sec 24(b) ..it's ok ....but how can u claim interest paid on such loan as cost of acquisition which was actually not incurred at the time of purchase....for calculating LTCG you have to take only INDEXED COST OF ACQUISITION which in this case will be 30 lacs applied with required indexation values.....you can't add the 8 lacs interest in the cost.....

Aswin Siva (Articled Assistant) (30 Points)
Replied 02 October 2017

Me too think in same sense but as per that case law we can claim that as COA but if we can't take that case law into consideration then we can't claim the same

Ashwin Kumar (1234 Points)
Replied 02 October 2017

but as per the defence of CIT commissioner in the case it will be double deduction....he is deducting interest paid under 24(b) and also claiming the same under the head capital gain on sales.....but the act does not give any particular definition for cost of acquisition ....it just says all expenses incurred to purchase the property but interest does not form part of that....i am now confused that wether we should follow the court or the act ………

Ashwin Kumar (1234 Points)
Replied 02 October 2017

dhirajlal sir if you are reading this please give me a solution

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Nitesh Bhagi (5 Points)
Replied 03 October 2017

could me please share the link of the case laws

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (193726 Points)
Replied 03 October 2017

@ Ashwin Kumar: My Dear....... usually I do not follow my own post, or any attended threads but LBC.......

In practical life, you will come across many such controversial issues, verdicts...... Which are said to be interpretations of mind which is not directly specified in the act or law............

Here........

A judgement delivered by a Chennai Tribunal (ACIT v C.Ramabrahmam) in 2012, states that a person can claim benefit under both Section 24 and Section 48.

After perusing the above said provisions, we are of the opinion that deduction under section 24(b) and computation of capital gains under section 48 of the “Act” are altogether covered by different heads of income i.e., income from ‘house property’ and ‘capital gains’. Further, a perusal of both the provisions makes it unambiguous that none of them excludes operative of the other. In other words, a deduction under section 24(b) is claimed when concerned assessee declares income from ‘house property’, whereas, the cost of the same asset is taken into consideration when it is sold and capital gains are computed under section 48. We do not have even a slightest doubt that the interest in question is indeed an expenditure in acquiring the asset. Since both provisions are altogether different, the assessee in the instant case is certainly entitled to include the interest amount at the time of computing capital gains under section 48 of the “Act”.

Similarly,

the Bangalore bench of the tribunal took a contrary view, holding that such interest on housing loan is not deductible in computing the capital gains, in a situation where the interest has been claimed as a deduction while computing income from house property.

The Bangalore tribunal relied upon a decision of the Karnataka High Court in the context of interest on a loan taken for the acquisition of shares, at a point of time when the dividends were taxable, and interest on loans taken for acquisition of shares was allowable as a deduction against such dividends. The Karnataka High Court had held that if the interest had been allowed as a deduction against the dividends, it would not form part of the cost of acquisition of the shares.

Today, the position is that claiming an expenditure both under the head ‘income from house property’ as well as in computing the capital gains for such interest on housing loan would certainly invite litigation, as the matter would be disputed by the tax authorities, possibly all the way up to the Supreme Court. One would, therefore, have to weigh the benefit in possible tax saving, against the costs of litigation.