Categories: Direct Tax

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:

Brokerage/Commission
Structural Renovation (if part of a larger project)
Painting (if part of a renovation project)
Legal & Paperwork Charges (at sale)
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)

These can be added to the cost of acquisition/improvement and reduce taxable capital gains. Can be capitalized if not already claimed as a deduction under income from house property.

Ineligible Expenses (Not Allowable for Capital Gains Calculation)

These cannot be claimed for capital gains:

Routine repairs and maintenance
Property tax/society charges
Tenant eviction compensation
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)

No Indexation Benefit on property sale.
But NRIs can still claim valid capital improvements with documentation.

Furniture: What to Note

Furniture used for personal purposes is a “personal effect”.
Excluded from capital assets.
No capital gains tax on such furniture.
However, maintain original invoices as proof of ownership.

Interest Deduction Rules

Old Tax Regime:

Self-occupied: ₹2 lakh cap/year on interest.
Let-out: No cap on interest, but only ₹2 lakh/year can be set off against other income.
Excess loss: Can be carried forward for 8 years (house property income only).
If construction not completed within 5 years → limit drops to ₹30,000.

New Tax Regime:

Interest deduction allowed only for let-out properties.
Home loan interest can be capitalized to reduce capital gains if not already claimed as a deduction.

Tags: Capital Gain

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