House valuation for income tax

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Narayana (Querist)
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10 May 2012 Hi

I am constructing the house now. After the house construction is done, do I need to declare to the Income Tax department on the valuation of the House and get a certificate? I know that I need to do this for filing the property tax from next year but do I need to that for Income tax department is the question?

Also for the valuation, how do I go about it, do certain authorized tax experts help or need to get authorized engineer's to approve the valuation, please let me know?

I am a salaried employee and any amount that comes to me is after deduction of tax only.

CA CKP

CA CKP (Expert)
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10 May 2012 Dear Narayana you can show the total cost of construction for the house as the value of house in your books for the income tax purposes. You need not to do any valuation of house from any expert.

Narayana

Narayana (Querist)
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21 May 2012 Dear CKP,

Thanks for your reply. I have one follow-up question. When do I need to show the cost of construction for Income tax purpose? The reason I am asking is, I don't need to declare the house to Income Tax department right? If the IT department wants to audit, then I need to show them the funds and the other stuff right? Please clarify this.

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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28 July 2024 In India, when it comes to the valuation of a property under construction for income tax purposes, there are several considerations to keep in mind. Here's a detailed guide on what you need to know:

### **1. Declaration and Valuation**

- **Income Tax Department**: You do not need to declare the valuation of the house to the Income Tax Department (ITD) during the construction phase. You also do not need to obtain a specific valuation certificate from the ITD for the house under construction.

- **Property Tax**: You will need to get the property assessed and valued for municipal property tax purposes once the construction is complete and the house is ready for occupancy.

### **2. Valuation for Income Tax Purposes**

- **No Direct Valuation Requirement**: The ITD does not require a valuation certificate for the property under construction. However, you should maintain all records related to the cost of construction, including invoices, receipts, and payments made to contractors and suppliers.

- **Cost of Construction**: For income tax purposes, you need to declare the cost of construction of the house only when:
- **Self-Occupied Property**: If the house is self-occupied or used for personal purposes, there is no direct impact on your taxable income. The house value is not directly reported to the ITD unless there is a specific query or audit.
- **Rental Income**: If you let out the property, you will need to report the rental income under the head "Income from House Property." The cost of construction is not required to be declared in this context, but you should maintain records for potential audits.
- **Capital Gains**: When you sell the property, the cost of construction will be relevant for calculating capital gains. You will need to provide proof of the cost of construction to determine the cost of acquisition for computing capital gains tax.

### **3. Record Keeping**

- **Maintain Records**: Keep detailed records of the cost of construction, including:
- Invoices and receipts for materials and labor.
- Payments made to contractors.
- Any other relevant documents.

- **Tax Audit**: If the ITD decides to audit your financials, you will need to provide evidence of the construction costs. Ensure that you have organized and accessible documentation to support your claims.

### **4. Reporting Cost of Construction**

- **Self-Occupied Property**: Not required to be reported regularly but maintain records.
- **Rental Property**: Include rental income in your tax return, but construction cost is not directly reported.
- **Sale of Property**: When selling the property, report the cost of construction to calculate capital gains.

### **5. Getting the Valuation Done**

- **Authorized Valuers**: While you do not need an official valuation certificate for the ITD, it might be helpful to have a professional valuer or engineer assess the cost of construction for personal records, especially if you are planning to sell the property or need a professional assessment for financial planning.

### **Summary**

1. **Declaration to ITD**: No need to declare the valuation of the house under construction to the Income Tax Department.
2. **Valuation Requirement**: Maintain detailed records of the cost of construction for future reference, especially for capital gains calculations when you sell the property.
3. **Professional Assistance**: Engage authorized valuers or engineers for accurate assessment if needed for personal financial management or future audits.

By following these guidelines, you will ensure that you are compliant with tax regulations and prepared for any potential audits or future financial activities related to the property.