Eligible & Ineligible expenses while calculating Capital Gain
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Eligible & Ineligible expenses while calculating Capital Gain
Overview of eligible and ineligible expenses while calculating Capital Gains on property sales and highlights specific rules for NRIs and under different tax regimes.
Eligible Expenses (Allowed for Capital Gains Calculation)
These can be added to the cost of acquisition/improvement:
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Brokerage/Commission
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Structural Renovation (if part of a larger project)
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Painting (if part of a renovation project)
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Legal & Paperwork Charges (at sale)
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Home Loan Interest (if not already claimed as a deduction)
| Expense Category | Eligibility | Remarks |
|---|---|---|
| Brokerage/Commission | ✅ Allowed | Paid at the time of sale |
| Structural Renovation | ✅ Allowed | Permitted only if it is part of a larger renovation project |
| Painting | ✅ Allowed | Allowed only if part of major renovation |
| Legal & Paperwork Charges (at sale) | ✅ Allowed | Includes registration/legal fees at time of sale |
| Home Loan Interest | ✅ Allowed* | Only if not claimed earlier as a deduction (under Section 24) |
Ineligible Expenses (Not Allowable for Capital Gains Calculation)
These cannot be claimed for capital gains:
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Routine repairs and maintenance
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Property tax/society charges
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Tenant eviction compensation
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Mortgage repayment
These cannot be claimed to reduce capital gains
| Expense Category | Eligibility | Reason |
|---|---|---|
| Routine Repairs & Maintenance | ❌ Not Allowed | Considered revenue expense, not capital in nature |
| Property Tax/Society Charges | ❌ Not Allowed | Operational expense, not part of acquisition/improvement |
| Tenant Eviction Compensation | ❌ Not Allowed | Treated as personal or administrative |
| Mortgage Repayment (Principal) | ❌ Not Allowed | Only interest (if not deducted) may be allowed |
Important Note for NRIs (from 23 July 2024 onwards)
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No Indexation Benefit on property sale.
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But NRIs can still claim valid capital improvements with documentation.
Furniture: What to Note
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Furniture used for personal purposes is a “personal effect”.
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Excluded from capital assets.
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No capital gains tax on such furniture.
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However, maintain original invoices as proof of ownership.
Interest Deduction Rules
Old Tax Regime:
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Self-occupied: ₹2 lakh cap/year on interest.
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Let-out: No cap on interest, but only ₹2 lakh/year can be set off against other income.
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Excess loss: Can be carried forward for 8 years (house property income only).
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If construction not completed within 5 years → limit drops to ₹30,000.
New Tax Regime:
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Interest deduction allowed only for let-out properties.
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Home loan interest can be capitalized to reduce capital gains if not already claimed as a deduction.