I have following pertinent questions on the capital gain & would request your valuable advice.
Q1) A residential property (Flat) was purchased in the year 2004 in Mumbai, The registered cost of this property was 30 Lacs. Entire amount for purchasing the property was financed by Housing Loan, from leading Indian Bank, which was taken for amount of 38 lacs (30 Lacs towards cost of property and 8 Lacs towards fixtures and furniture), as this property was bare shell and lot of work had to be done to make it livable.
This property was later sold in year 2021 . I wish to know whether the entire Housing Loan amount of 38 lacs can be considered as cost of property for the purpose of calculation of capital gains, 30 Lacs as cost of property and 8 Lacs towards furniture and fixtures. If yes, then indexation shall be applicable on 30 Lacs (registered cost of property in 2004) and 8 lacs (amount for fixtures and furniture as per Housing Loan).
Q2) I have also spend a lot on civil work, grill work and modular kitchen, as this property taken from builder was bare shell. Total amount spend on this renovation work in year 2004 was nearly 7 lacs. However proper bills are not available (most are kutcha bills) as at that time, as I was not aware of the Capital gain Taxation modalities & further I believe during that time, many small contractors might also not have executed work if bills were insisted upon. Can these kutcha bills be considered for calculation of cost of improvement.
Q3) Whether the total interest cost paid on housing loan can be also considered towards cost of property, as this is major financial outgo. This interest was never claimed under sec 24D in those years.
Q4) Lastly, whether indexation benefit will also apply for the above interest costs or Not.
14 December 2021
1. COST OF ACQUISITION SHOULD BE TAKEN AS PER DEED... I.E. 30 LAKHS. 2. COST OF IMPROVEMENT CAN BE TAKEN AS THE ACTUAL COST PAID THROUGH BANKING CHANNEL OR THROUGH TAXED INVOICE. 3. NOT ALLOWED 4. NOT APPLICABLE.
14 December 2021
Dear Sir, Thank you so much for your reply. Regarding point No 2), can the following costs be taken as cost of improvement, as I am not clear on these costs:-
a) Cost for modular kitchen and all fixtures associated with it b) Grill work for Terrace (The property is along with Terrace and full Terrace rights) c) Flower pots and plant purchase for terrace d) purchase of overhead Fans and exhaust system e) Building material costs (cement, granite, kota stone, paint, etc)
--> No d) Fans and exhaust system are attached to the building and not removed at time of sale. Will they still not be allowed. Just request a final clarification
--->Regarding my Q2) earlier, I have some bills (pucca) around 2 lac, for civil work, but there is no Tax (CST or VAT), as possibly the contractor was not registered. Will this be acceptable as these are pucca bills but without Tax.
--->Finally, I have also paid for repair of a common Lift (around 50K). Major expenses 90% was paid by me being the top floor and major user of Lift. Will this be allowed.
16 December 2021
Dear Sir, Regarding points --> No d) Fans and exhaust system are attached to the building and not removed at time of sale. Will they still not be allowed. Just request a final clarification --->Regarding my Q2) earlier, I have some bills (pucca) around 2 lac, for civil work, but there is no Tax (CST or VAT), as possibly the contractor was not registered. Will this be acceptable as these are pucca bills but without Tax. --->Finally, I have also paid for repair of a common Lift (around 50K). Major expenses 90% was paid by me being the top floor and major user of Lift. Will this be allowed.
---> Also we did about 1 lac work to make a prefab cabin on terrace. Will this be acceptable
16 December 2021
1. No if it is not part of agreement, you need to separately charge for the fixed furniture. 2. Yes, you may consider it under COI. 3. Yes. If bill & payment by bank approves it.
16 December 2021
Thank you so much , Sir, for your advice. You really have a fantastic knowledge on the entire vast subject of capital gains and I have not seen an expert who responds so quickly.
My final query Sir-
1) As the capital gain is coming to nearly 1 CR & we do-not have all proper supporting bills, we are contemplating to go for buying another new property (1 BHK) around 80 Lacs, so that a major part of capital gain can be saved.
My questions are:-
a) If myself and my wife are joint owners (50:50) in this new property & also the Loan is taken jointly, can we claim capital gain deduction for entire cost of new property (80 Lacs) or only for amount of 40 Lacs , as my share is 50%.
b) If myself and my wife are joint owners (50:50) in this new property and loan is taken 100% under my name, can I get capital gain deduction on entire cost of new property (80 Lacs)
c) If the major part of this new property is financed by Loan (70 Lacs), and 10 Lacs by self funds, will this entire amount (70+10=80 lacs) be exempt from capital gains, or capital gain will exempt only for 10 Lacs (self financed) and not the Loan part.
Your valuable advice will really help us to plan properly.
16 December 2021
A combined solution for the last query is , you can claim full deduction of capital gain of 80 lakhs in your case, even if you have invested in new house property through bank loan, but don't specify the shares as 50:50 in agreement. The name of your wife can be added for security purpose, while you be whole and sole owner of the house. Better to take home loan in your single name, while EMI can be paid by you, taking 100% benefit in your account.
16 December 2021
Dear Sir, This property will be in joint name along with my wife & not solely in my name. For a joint property, I think it is deemed to be 50:50 ownership. Regarding, Housing loan, I shall take only in my name and pay complete EMI as per advice. Under this scenario, can I take benefit of capital gain tax exemption on 80 Lacs (cost of new property) although it is joint ownership.
Thanks indeed Sir for your great assistance and very valuable advice. You are indeed doing a yoeman service as many of us are not experts in this domain
16 December 2021
Few case law support such arrangement Refer: https://taxguru.in/income-tax/section-54f-exemption-available-despite-investment-spouse-name.html
Even though here in you are going to be joint owner in the property. Legally, as per transfer of property act, she will be deemed co-owner (50% shares), but for income tax purpose, you will be 100% beneficial owner when the investment part will be from your PAN account. also read a query https://www.livemint.com/money/personal-finance/i-sold-a-house-which-was-jointly-owned-by-my-wife-how-income-tax-is-calculated-11623472853562.html
Finally, I will advise you to discuss the matter with your CA and take final call.
CAclubindia
