Selling and buying of residential property

Hello.
I bought a ready house (resale) for myself in 2005 in mumbai with the help of home loan (first) which is due to be over 2019. I am claiming tax benefit on interest paid on home loan all these years. I made some house improvements during  2008, 2010, 2013, 2015. But I do not have kept any payment receipts with me. I shifted out of house in 2016 and put the house on rent. And I stayed on rent for a year.
I bought another ready flat (resale) in April 2017 in mumbai with the help of home loan (second). I made some major improvements in this house and shifted in June 2017. I am contemplating to sell my first property and use the proceed to pay back balance of first home loan and rest of it utilize to reduce some liability of my second home loan.
My second property is many times costlier than the first property. I am in service for all these years and even now. Age 43, Indian resident. Both homes are bought in same owner names (me and my wife).

Questions:
1. Can I add cost of all home improvement in different years as part of capital gain tax calculation.
2. Do I need to submit any proof for home improvement? What are the rules around that?
3. Can I add interest paid but tax not claimed of my first home loan interest in the cost of acquisition for capital gain calculation.
4. If I want to avoid any capital gain tax, what are the possible options? And any suggestion.
Thanks in advance for your response.
Asked 1 month ago in Capital Gains Tax from Mumbai, Maharashtra
Hi,

1. You can add cost of major improvements (structural changes such as building new home, complete floor change etc.)

2. Yes, ideally you should keep the evidence of improvement and income tax officer can ask for it at the time of scrutiny. You can also keep photos of before and after the improvements.

3. If you have not claimed any interest deduction, then you can add it in cost of acquisition but sometime income tax officer creates problem in it. 

4. If you sale your old home before April 2018 and use that proceeds to pay off the loan, then your capital gain will be exempted to the extent it is used for paying off the loan.

Please feel free to call/ revert in case you need more clarity.

Thanks and regards, 
Abhishek Dugar
CA CS B.Com
Abhishek Dugar
CA, Mumbai
2201 Answers
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Hii

1. Yes you can add improvement cost for capital gain purposes and show your banking transactions/source of such exp.
2. its depends officer to officer , if you have sufficient source of income to do such exp then in some cases officers not asking for documents and a part from material show major part as labour in which we dont need to show any proof.
3. yes you can but up to 30000 per year 
4. yes you can avail benefit of Section 54/54F
Lalit Bansal
CA, Delhi
434 Answers
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Hello,

1. Yes, you can very well add the cost of home improvement for all those years to arrive at your capital gains. 

But be sure it has to be cost of improvement (which increases live of your property) and not just internal furnishing/ renovation.

2. Yes, you will have to submit bills, vouchers, show payment proofs for all these expenses.

3. Yes, you can but that is subject to litigation and you may have to fight it out.

4. You will have to invest in another house property or deposit the sum upto a maximum of Rs.50 Lacs in capital gain tax saving bonds (NHAI/ REC bonds).

Trust this clarifies your query. 

Feel free to call / get back in case of further clarifications. 

Thanking You. 

Regards,
Rohit R Sharma
BCOM, FCA, LLB, CERT. FAFP
Rohit R Sharma
CA, Mumbai
1900 Answers
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1. Yes, if the improvements were major.

2. You don't need to submit unless and until your case is picked up and ITO asks for the same. You should maintain such document proofs.

3. Yes.

4. Sell off the old flat before expiry of 1 year of purchasing new flat I.e. Before April 2018. 
Lakshita Bhandari
CA, Mumbai
700 Answers
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Dear sir
Answer
1. Yes you can add cost of improvement in different years as part of capital gain tax calculation.
2. Yes you have to submit some proof in case of Notice come to you by tax deptt. otherwise at time of filling return you don't have to give proof.
3. Interest paid can't be taken as adding in cost of acquisition.
4. you can avoid tax payment through section 54 ,54EC  
Shiv Kumar Agarwal
CA, Delhi
236 Answers
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Hi,

To answer your question:
1. You can add cost of improvement to calculate the capital gain. Cost of improvement does not include cost incurred in furniture, painting, etc. There needs to be structural improvement.
2. Yes, there needs to be proof of cost of improvement.
3. Yes, you can add the interest on housing loan as well. But please note, that this position is litigative and in case, your case gets picked up for assessment, then the assessing officer may take a different view.
4. You do have an option of selling the first property before April 2018. In this case, you can claim deduction against the purchase of the second house, which was bought in April 2017 (i.e. purchase of a property one year prior to the sale of the old property). Alternatively, you can invest in another house within 2 years (in case of constructed house) or 3 years (in case of under constructed house).
You can also invest in Capital Gain Bonds to save tax.

Regards,
Keerthiga Padmanabhan
M.Com., CA, LL.B
Keerthiga Padmanabhan
CA, Greater Mumbai
688 Answers
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