Tax Talk: Key data points to compute capital gains on property sale; you can claim deduction for interest paid during the construction phase

https://www.financialexpress.com/money/tax-talk-key-data-points-to-compute-capital-gains-on-property-sale-you-can-claim-deduction-for-interest-paid-during-the-construction-phase/3214099/

Receipts for direct sale-related expenses

Expenses directly incurred in relation to the purchase and sale are allowed as a deduction when calculating capital gains. If a property is sold through an agent, the brokerage fees paid to the agent can be reduced from the gain amount. To claim this deduction, the taxpayer must possess the receipt for the brokerage payment along with proof of payment.

Purchase agreement documentation

The cost of acquisition pertains to the property’s purchase price along with other expenses that the taxpayer may have incurred for the purchase of the property. The income tax department typically requires the taxpayer to produce the purchase documents, letter of allotment from the builder, letter of possession along with all other supporting documents like call money letters and payment receipts. As a result, it’s crucial for taxpayers to maintain all relevant documents and invoices linked to the property’s purchase.

Valuation report

In cases where a property was bought before April 1, 2001, the taxpayer must obtain the fair market value from a valuation officer. This value is determined based on ready reckoner rates and the property’s location. Taxpayers can obtain this value during the sale process.

Home loan interest certification

Taxpayers can also claim deductions for the interest payments made when the property was under construction. Therefore, maintaining annual interest certificates for the period when the property was under construction is also essential for accurate capital gain tax calculations.

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Renovation cost invoices

The cost of improvements refers to capital expenses incurred by the taxpayer to enhance or add value to the property. This cost is subtracted from the sale amount when computing applicable taxes. To claim this deduction, the taxpayer must possess invoices for renovation work conducted, along with evidence of payment. Only expenses incurred after April 1, 2001, are eligible.

The writer is partner, Nangia Andersen India. Inputs from Neetu Brahma