• Tax on commercial property

We have purchased commercial property on 2010 for 12 lakh and later sold it in 60 lakh. But we spent 10 lakh on construction from our salary on which we already pay regular tax yearly. So do we pay tax for 38 lakh or 48 lakh from profit of sale on commercial property? Is there any way we can save tax on 10 lakh that we have used for construction? No loan taken for this.
Asked 7 months ago in Property Tax from GURGAON, Haryana



If you have sufficient proofs for the construction expenses, it shall be allowable as deduction.

In case you don't have sufficient proofs, a valuation report can be obtained in this reference.


Further, the cost of acquisition and cost of improvement (construction) shall be indexed till the year of sale. 

(We may assist you with the capital gain calculations)


Sales consideration less (indexed COA and indexed COI) shall be the long term capital gains.


You may further invest the capital gain in a residential house property or section 54 EC eligible bonds to exempt the capital gain taxes.

Lakshita Bhandari
CA, Mumbai
4519 Answers
272 Consultations

5.0 on 5.0

Dear Sir,


Here are my replies to your query: 


Calculation of Capital Gain:

Sale Proceeds- 60,00,000

Less Indexed Cost of Aquisition- 23,43,243


Less Indexed Cost of Improvement- 19,52,702



Capital Gain- 17,04,055


* Following assumptions were taken while calculating capital gain

- Purchase of House Property in FY 2009-10

- Improvement/ Construction of House Property in FY 2009-10. 

- index rate of FY 2009-10 - Rs.  148

- index rate of FY 2019-20- Rs. 289


So, according to above calculation you have to pay tax at the rate of 20 percent on the above calculated amount. 


You can save the tax on the above calculated amount also by the following ways: 


1. You can invest the same amount in House Property if still you donot have your own house. 

2. You can invest the same in Bonds as mentioned in Sec 53EC of income tax act. 


Thanks and Regards

Divya Chugh 


Divya Chugh
CA, Delhi
163 Answers
1 Consultation

5.0 on 5.0

No you need to pay tax on that 38 lakh only if you have proper bills of the construction which you have done or it will attract litigation and it will be further reduced by using indexation as it will be a long term capital gain and you can further save tax by making certain investment.

If you need any further assistance you can have a phone consultation.


Hope you find the information helpful if you do please rate it 5 and provide your valuable feedback for my improvement.

Thank you.

Naman Maloo
CA, Jaipur
2999 Answers
29 Consultations

5.0 on 5.0



You would be liable for capital gains on the sale of this property.

Capital Gain would be Sale consideration minus Indexed Cost of Acquisition and Indexed Cost of improvement(Construction cost)

You can claim construction cost as cost of improvement if you have sufficient invoices for the same or you can get a valuation report for the same.

Further, you can use Sec. 54EC for exemption from capital gains by investing in specified bonds.

I hope that this answer satisfies your requirements.



CA Hunny Badlani

Hunny Badlani
CA, Madhya Pradesh
1891 Answers
5 Consultations

5.0 on 5.0

Dear Sir,


Hope you are doing well !!


To calculate the capital gain & long-term capital gains tax payable, the following formula is to be used:


Long-term capital gain = full value of consideration received or accruing – (indexed cost of acquisition + indexed cost of improvement + cost of transfer),




Indexed cost of acquisition = cost of acquisition x cost inflation index of the year of transfer/cost inflation index of the year of acquisition.


Indexed cost of improvement = cost of improvement x cost inflation index of the year of transfer/cost inflation index of the year of improvement.


-You can take the benefit of indexations on construction cost provided you have sufficient proofs to justify the same. It would be treated as cost of improvement.


-For capital gain calculation, we need the further details.


-You can save capital gain tax by investing the money (capital gain amount) in any of the following:


  1. REC/NHAI bonds within 6 months from the date of sale of house (max. 50 lacs). Such bonds shall be redeemable after 5 years.

       2. Investing in another house property in India within 2/3 years.


We may assist you in entire procedure.


Payal Chhajed
CA, Mumbai
4064 Answers
62 Consultations

5.0 on 5.0

- When you have sold the property?. Also what is the exact date of purchase of property?

- If the property was sold after holding it for more than 2 years then the gain arises from it would be long term capital gain and you would be eligible for indexation benefit on cost. Construction cost will also be deducted while calculating capital gain.

Vivek Kumar Arora
CA, Delhi
3451 Answers
197 Consultations

5.0 on 5.0

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