Is interest on home loan considered a part of cost of acquisition

I purchased a property for 32 lacs in march 2012. I intend to sell it in march/ April 2016 for rs 52.5 lacs. The property was purchased with Rs 20 lac home loan. My queries are-
1. Whether interest paid by me on home loan be considered a part of cost of acquisition?
2. In case of long term capital gains, do I have to reinvest entire sale consideration in property to save tax or only the extent of capital gain?
3.does it benefit me to make the transfer in April instead of march on account of indexation, time available for reinvesting, tax exemption already claimed towards interest/ principal on home loan?
Asked 10 months ago in Capital Gains Tax from Noida, Uttar Pradesh
Type your answer here...1. Interest paid on loan will not form part of cost of acquisition. However registration fee paid will form part of cost of acquisition

2. No, you don't need to reinvest entire sale proceedings. You need to reinvest only capital gain subject to the fact that both old and new properties are residential properties.


Capital Gains shall be exempt to the extent it is invested in the purchase and/or construction of another house i.e.
1. If the entire amount is equal to or less than the cost of the new house, then the entire capital gain shall be exempt

2. If the amount of Capital Gain is greater than the cost of the new house, then the cost of the new house shall be allowed as an exemption

3. Yep...it make sense to sale the property in April 2016 because of indexation and cash outflow of tax.  Time available for reinvesting is irrelevant here. as it is calculated from the date of transfer.

Abhishek Dugar
CA, Mumbai
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1 Yes interest paid by you on home loan be considered a part of cost of acquisition 
2 Yes in case you invest in house you have to invest entire sales consideration 
3 Yes, obviously there will be some increase in index and you will get benefit of same 
Anuj Agarwal
CA, Aligarh
34 Answers
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Hello!

1) Interest on Home loan can be claimed as deduction under section 24(b) of Income Tax Act on yearly basis, and can not be added to cost of the house property.

2) For availing exemption under section 54, you need to invest to the extent of capital gain and not the entire sale consideration. However, for claiming exemption under section 54F (In case of investment against sale of capital asset other than residential property) calculation would slightly differ. 

3) Yes, transferring in April would bring you higher cost inflation index plus the time available for reinvesting shall also be extended accordingly.

Regards,
CA Ankit Adhyaru
Mo. +91 9898789180
Ankit Adhyaru
CA, Ahmedabad
19 Answers
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1 Interest paid by you on the housing loan till the completion of construction can be capitalised and treated as part of the cost of acquisition. However, interest paid after the completion of the construction cannot be treated as cost of acquisition. Such interest could have been claimed as deduction u/s 24.

2 If the property sold is a residential house, it is sufficient if you invest only capital gains in acquiring another residential house to claim exemption u/s 54. However, if the property sold is not a residential house, you can claim exemption u/s 54F by investing the sale proceeds in acquisition of a residential house, subject to fulfillment of conditions specified therein. You can also claim exemption u/s 54 EC if you invest the sale proceeds in capital gains bonds, subject to fulfillment of conditions specified therein. If your investment u/s 54 is less than capital gains or your investment u/s 54F or 54EC is less than the sale proceeds, your exemption will be proportionate to the investment. 
3 If you can sell the property in April or thereafter, definitely your indexed cost of acquisition will be more than what it is till March. In terms of time available for investment, it is with reference to the date of sale and not with reference to the financial year.
B Vijaya Kumar
CA, Hyderabad
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You became the owner of property in the year 2011-12 when registration was done. Hence, the  year of acquisition would be 2011-12 and so does the cost inflation index. Payment to builder is not relevant as there are various options offered by them like full down payment at the time of booking, construction linked payments etc.
Ankit Adhyaru
CA, Ahmedabad
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Take indexation benifit from date of allotment letter to the extent amount paid till that date and for remaining as and when paid
Anuj Agarwal
CA, Aligarh
34 Answers
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For the purpose of capital gain, date of allotment will be considered as a date of purchase of property. Hence you can avail indexation benefit from 2007-08.
Abhishek Dugar
CA, Mumbai
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The critical issue is when was the property transferred to you? The property was only allotted and you could take possession only in 2011-12 and not in 2007-08. The payment made in 2007-08 is in the nature of advance payment of consideration. Hence, you can claim benefit of indexation from 2011-12 only.
B Vijaya Kumar
CA, Hyderabad
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1. Yes, There is a case law (i.e. a tribunal ruling)  which states deduction of interest against the income from house property does not preclude the tax payer to include the same interest in the cost of acquisition at the time computing capital gains on sale of such house property. Thus interest can be considered in cost of acquisition.
2. Capital gains will be exempt to the extent it is invested in Purchase or Construction of another house property that is if sale consideration is less than the cost of new house then the entire capital gain is exempt however if the amount of capital gains is more than the cost of new house then the cost of new asset is exempt.  
3. In order to avail more time for exemption, it would be beneficial to transfer the asset in the month of April as It would also be beneficial in case of indexation. 
Shyam Sunder Modani
CA, Hyderabad
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Hello Sir,

1. Interest paid before taking possession of property/ construction getting completed can be capitalised and also be considered as Cost of Purchase and considered for indexation. For period after construction period is a debatable issue, there a few cases where the department has considered the interest paid as part of purchase cost but you will have to fight it out.

2. It can either be the amount of Capital Gain or the amount of Sale Proceeds depends on the type of property and the category of investment opted.
For further clarity you may read the same : https://expertmile.com/arti.php?article_id=976

3. Yes, it does benefit you from the Indexation point of view but not on the time available for reinvestment, as the date is calculated from the date of sale and not as per Financial year end.

Hope this clarifies your query.

Please feel free for any further clarifications.

Thanking You.

Regards,
CA Rohit R Sharma
BCOM, CA, LLB - GEN, CERT. FAFP, CERT FAFD.
Rohit R Sharma
CA, Mumbai
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