Reply by Ms. Parizad Sirwalla, CA
While calculating long-term capital gains on selling a property, will the cost of renovation be considered?
— Mr.Sandeep, Mumbai
Expenses incurred for improving the life of an asset is considered as cost of improvement and allowed as deduction from sale proceeds while computing the capital gains from sale of an asset.
Accordingly, the renovation cost incurred can be claimed as deduction while computing long-term capital gains (LTCGs).
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| Parizad Sirwalla, CA |
Since, the property that you propose to sell is a long-term capital asset, you can also claim the benefit of indexation by inflating the cost of improvement.
The cost of improvement can be inflated by multiplying the actual cost incurred for renovation/repairs with the Cost Inflation Index (CII) of the year in which the property would be sold and divide the same by using CII of the year in which actual cost for renovation/repairs was incurred.
If you avail a loan for doing the renovation, then you can claim the interest paid on this loan as a tax deduction subject to a cap of Rs.30,000 per fiscal in case of a self-occupied property. If the property has been let out, full interest should be allowed as deduction.
The invoices or expense bills can be maintained as evidence of renovation and its cost. For payment of interest on a loan, the interest certificate should suffice.
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