01 February 2010
A person purchased a property in 1985 from a Registered Society and paid 30% cost as down payment and rest 70% cost has been paid in financed from bank payable in 15 years. Now, he sold the property in 2009-10. He has incurred huge amounts on the improvement of this property several times during these 24 years but has not kept these improvement bills with him. Now,
1.How will be the cost of acquisition indexed? Installments paid to bank should be indexed considering which yr as base year? 2. How he will be able to prove his improvement costs to Income tax deptt? 3. Need he submit some documents also while filing his ITR?
Pls keep the query open after ur replies to let other experts also opine over the query. THanks in advance.
01 February 2010
100% cost will be indexed as base year 1985 as the bankers had paid the cost to the society in 1985 (assumed). cost of improvements which are/can be capitalised can be indexed in the year which cost incurred. No need to file documents with ITR.But the AO can demand the documents later on.
But what documents AO can ask for? The assessee has not kept the improvement bills with him.Infact its not possible even to retain all these bills relating to around 20-25 years back. Can AO still demand these documents related to 1985-1990?
03 August 2024
When dealing with Long-Term Capital Gains (LTCG) on the sale of a property, especially when the property has been held for several decades and significant improvements have been made, there are specific considerations for calculating the cost of acquisition and dealing with improvement costs. Here’s how to address your queries:
### **1. Indexation of Cost of Acquisition and Installments**
**a. Indexation of Cost of Acquisition:** - **Base Year for Indexation:** For properties purchased before April 1, 2001, the base year for indexation is April 1, 2001. The cost of acquisition should be indexed from this date using the Cost Inflation Index (CII). - **Calculation:** If the property was purchased in 1985, the indexed cost of acquisition would be calculated using the CII for 2001-02 (the base year) and the year of sale.
\[ \text{Indexed Cost of Acquisition} = \text{Cost of Acquisition} \times \left(\frac{\text{CII of Year of Sale}}{\text{CII of Base Year}}\right) \]
**b. Installments Paid to Bank:** - **Indexation of Installments:** The principal repayments made towards the bank loan are not indexed for inflation. Only the cost of acquisition and improvement costs are indexed. - **Interest Payments:** Interest payments on the loan are considered as an expense in the year they are incurred and are not included in the cost of acquisition.
### **2. Proving Improvement Costs**
**a. Documenting Improvements:** - **Bills and Receipts:** Ideally, improvement costs should be supported by bills and receipts. However, if these are not available, you can consider alternative proof such as: - **Bank Statements:** Showing payments to contractors. - **Affidavits:** Sworn affidavits from contractors or service providers detailing the work done and cost. - **Invoices:** Any past invoices or documentation, if available. - **Estimates and Statements:** If records are not available, providing a detailed statement of the improvements, along with any available estimates or valuations, can be useful.
**b. Substantiating Improvements:** - **Historical Documentation:** In the absence of bills, historical documentation such as property records, correspondence with contractors, and any other records supporting the improvements can be helpful.
### **3. Documents Required for Filing ITR**
**a. Required Documentation:** - **Sale Deed:** Proof of the sale transaction including sale deed and payment details. - **Proof of Purchase:** Documents related to the original purchase, including payment proof and registration details. - **Indexation Calculation:** Detailed calculation showing the indexed cost of acquisition. - **Improvement Costs:** Any available documents or alternative proofs related to improvements.
**b. During Assessment:** - **Document Requests:** During an assessment, the Assessing Officer (AO) can ask for documents supporting your claims. If the original bills are not available, the AO might accept alternative proofs, but it's crucial to provide any evidence you have.
### **4. Dealing with Non-availability of Bills**
**a. Practical Approach:** - **Reasonable Estimation:** If documentation is genuinely unavailable, the AO might consider reasonable estimates based on available information. - **Affidavits:** Affidavits from relevant parties (contractors, suppliers) can be used to support your claims.
**b. AO’s Discretion:** - The AO has discretion to assess the evidence provided and might allow claims based on reasonable and credible alternative proofs.
### **Summary**
1. **Indexed Cost Calculation:** Use CII for the base year (2001-02) and the year of sale. 2. **Proving Improvement Costs:** Use alternative proofs like bank statements, affidavits, or historical documentation if bills are unavailable. 3. **ITR Filing:** Include all available proofs and calculations while filing your ITR. Prepare to provide additional information if requested by the AO.
If additional clarification is needed or further issues arise, consulting with a tax professional or accountant is advisable to ensure compliance and accurate reporting.
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