New Delhi: Recently, the Income Tax Appellate Tribunal (ITAT) has given its verdict on the case of Capital Gain Tax. In this judgment, the tribunal has empowered an NRI taxpayer to claim tax exemption for the money spent on repairs of the house. The court said in the order that the expenditure incurred for the upgradation of the amenities of the house such as tiling or painting, etc., can be claimed for tax exemption.
The tribunal said that even if the person has spent this amount in cash, then exemption can be claimed on it. This case was related to the tax levied on the capital gain tax on the sale of flats. Experts believe that unaccounted money was not used in the payment in this case and the taxpayer was not doing any business. That’s why the court gave such an order.
Capital gains are taxed
As per the tax rules, capital gains are calculated on the basis of sale amount minus cost of acquisition and cost of improvement. Both of these are calculated on the basis of Cost Inflation Index. Higher the cost of these two components, lower will be the taxable capital gain and tax will be levied on the basis of this calculation. The cost of acquisition includes the cost of the house, registration fees and broker’s fees. Capital expenditure is included in the cost of improvement, which increases the value of the property.
This is the case
NRI Komal Gurmukh Sangtani and her husband had appealed in ITAT. This case pertains to the financial year 2009-10. Sangtani said that he had to upgrade the flat to make it habitable. Normally in such cases the payment is made in cash only. Sangtani had claimed to include interest of Rs 5.5 lakh on the home loan as cost of acquisition. ITAT in its order said that the taxpayer may have claimed this interest under the head of income from house property. The tribunal has referred the matter to the IT officer for re-verification.
Tax on sale of house
You must pay a capital gains tax on capital gains due from selling any asset. Taxes to benefit the sale of a home are calculated in two ways. If you sold a house after storing it for two years, it would be considered a long-term capital gain. Long-term capital gains collect capital gains tax of up to 20%. But if you sold a house before 24 months, this short term will be considered as a short term capital gain. If you have done IT improvement or expansion after purchasing the property, then income tax can be issued by charging an index fee of the expense. This will reduce the capital gains tax burden.
