Cost of acquisition calculation for property bought on loan
This query is : Open
18 August 2013
How will the Cost of Acquisition & Capital Gains be calculated for a Property if a person has bought it in 2011-12 taking a Bank Loan for 20 years & sells after the Loan Repayment period is Over i.e. in 2031-32. (For Simplification purposes , let's just consider that entire Property bought solely from Loan amount)
Details -
1)Loan Amount - Rs. 50,00,000
2)Tenure - 20 Years
3)Rate of Interest - 10 %
4)Monthly E.M.I. - Rs.48251.08
5)Property sold at Rs. 3,30,00,000 in 2031-32
Details -
1)Loan Amount - Rs. 50,00,000
2)Tenure - 20 Years
3)Rate of Interest - 10 %
4)Monthly E.M.I. - Rs.48251.08
5)Property sold at Rs. 3,30,00,000 in 2031-32
18 August 2013
THE LAW PREVAILING AT THE TIME WILL PREVAIL.
SUBJECT TO THAT - COST OF ACQUISITION WOULD BE CONSIDERED AS RS. 50.00 LACS ONLY.
.
THOUGH HONORABLE COURTS HAVE OPINED THAT THE AMOUNT OF INTEREST CAN BE INCLUDED IN THE COST OF ACQUISITION BUT AMENDMENTS IN THE LAW WILL LIKELY TAKE PLACE.
.
.
SUBJECT TO THAT - COST OF ACQUISITION WOULD BE CONSIDERED AS RS. 50.00 LACS ONLY.
.
THOUGH HONORABLE COURTS HAVE OPINED THAT THE AMOUNT OF INTEREST CAN BE INCLUDED IN THE COST OF ACQUISITION BUT AMENDMENTS IN THE LAW WILL LIKELY TAKE PLACE.
.
.
18 August 2013
Dear Sir , I would like to make my Question more clear . I understand that Interest portion would certainly not be allowed to be included in Cost of Acquistion but what I meant was the following :-
To acertain the Cost of Acquisition , will the Cost Inflation Index Formula be applied directly to the Loan amount of 50,00,000 (i.e. 5000000 * CII of 2031-32/CII of 2011-12) or will it be applied individually to the principal - repayment portion of each EMI (For e.g. Principal Payment in first EMI i.e. Rs. 6584.42 * CII of 2031-32/CII of 2011-12 Plus Second EMI i.e. Rs. 6639.29 * CII of 2031-32/CII of 2011-12 & so on ?
To acertain the Cost of Acquisition , will the Cost Inflation Index Formula be applied directly to the Loan amount of 50,00,000 (i.e. 5000000 * CII of 2031-32/CII of 2011-12) or will it be applied individually to the principal - repayment portion of each EMI (For e.g. Principal Payment in first EMI i.e. Rs. 6584.42 * CII of 2031-32/CII of 2011-12 Plus Second EMI i.e. Rs. 6639.29 * CII of 2031-32/CII of 2011-12 & so on ?
18 August 2013
I would like to keep this Query as "Open"
19 August 2013
Bank never gives 100% loan against purchase of property so you must have given some margin for purchase of the property so the Cost is more than the bank loan. In your case the sum total of cost of acquisition will be as follows:
1) Money paid by you as margin money
2) Bank Finance taken by you (here 50 lacs)
3) In case you have not taken any benefit of interest accrued or paid then you can add to the cost of acquisition which will increase the value of your property.
At the time of sale the cost indexation shall be calculated on the original investment plus bank loan plus capitalisation of interest year after year if you have capitalised otherwise if you have booked the interest as revenue expenditure then it will not be added to the cost of acquisition.
1) Money paid by you as margin money
2) Bank Finance taken by you (here 50 lacs)
3) In case you have not taken any benefit of interest accrued or paid then you can add to the cost of acquisition which will increase the value of your property.
At the time of sale the cost indexation shall be calculated on the original investment plus bank loan plus capitalisation of interest year after year if you have capitalised otherwise if you have booked the interest as revenue expenditure then it will not be added to the cost of acquisition.
19 August 2013
Please read carefully the reply given here in above by the expert.
.
For the removal of the doubt please note that-
As and when the property is acquired, the question of "cost of acquisition" does not remain a question.
.
The installments are merely the arrangement to make the payment to a creditor and as such once the property is purchased at Rs.50.00 lac, it becomes the cost of acquisition. Indexation will be allowed on 50.00 lac since the property had been acquired.
.
AGAINST interest capitalisation -you may claim YEARLY INDEXATION of the annual interest amount as cost of improvement.
.
For the removal of the doubt please note that-
As and when the property is acquired, the question of "cost of acquisition" does not remain a question.
.
The installments are merely the arrangement to make the payment to a creditor and as such once the property is purchased at Rs.50.00 lac, it becomes the cost of acquisition. Indexation will be allowed on 50.00 lac since the property had been acquired.
.
AGAINST interest capitalisation -you may claim YEARLY INDEXATION of the annual interest amount as cost of improvement.
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21 August 2013
(A) So what I understand is that Provided that no Income Tax Benefit , namely (a) Section 124 which allows maximum deduction upto 1.5 lacs p.a. for Interest paid on Home Loan & (b) Section 80C which allows maximum Deduction of 1 lacs p.a. for Principal Repayment on Home Loan , is taken during the 20 Years of Loan Repayment ,the Cost of Acquisition will be calculated in following manner :-
(i) Original Investment (Margin Money) * Cost Inflation Index of '31-'32 / Cost Inflation Index of '11-'12 plus
(ii) Loan Amount (50,00,000) * Cost Inflation Index of '31-'32 / Cost Inflation Index of '11-'12 plus
(iii) The sum Total of the Interest Portion of every EMI * Cost Inflation Index of '31-'32 / Cost Inflation Index of the year in which that EMI was paid .
For e.g if the EMIs were from April 2011 to March 2032 (TOTAL 240 EMIS in 20 yrs) , then for the interest portion of the first 12 EMIs (Let's take it as "X"), it will be calculated as :-
X * Cost Inflation Index of '31-'32 / Cost Inflation Index of '11-'12 .
For the next 12 EMIs , it will be calculated as :-
X * Cost Inflation Index of '31-'32 / Cost Inflation Index of '12-13 & so on .
Is my understanding correct ?
(B) Is it correct that in case the Interest portion of all EMIs is taken as allowable Expense u/s 124 & Principal Repayment portion taken as deduction from income u/s 80C in each year's Income , in that case , the Interest paid on the Loan will not be able to be added to the Cost of Acquistion when the Property is sold ?
(i) Original Investment (Margin Money) * Cost Inflation Index of '31-'32 / Cost Inflation Index of '11-'12 plus
(ii) Loan Amount (50,00,000) * Cost Inflation Index of '31-'32 / Cost Inflation Index of '11-'12 plus
(iii) The sum Total of the Interest Portion of every EMI * Cost Inflation Index of '31-'32 / Cost Inflation Index of the year in which that EMI was paid .
For e.g if the EMIs were from April 2011 to March 2032 (TOTAL 240 EMIS in 20 yrs) , then for the interest portion of the first 12 EMIs (Let's take it as "X"), it will be calculated as :-
X * Cost Inflation Index of '31-'32 / Cost Inflation Index of '11-'12 .
For the next 12 EMIs , it will be calculated as :-
X * Cost Inflation Index of '31-'32 / Cost Inflation Index of '12-13 & so on .
Is my understanding correct ?
(B) Is it correct that in case the Interest portion of all EMIs is taken as allowable Expense u/s 124 & Principal Repayment portion taken as deduction from income u/s 80C in each year's Income , in that case , the Interest paid on the Loan will not be able to be added to the Cost of Acquistion when the Property is sold ?
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