A ₹1.87 Lakh Mistake: Are You Losing Money on Your Property Sale?
Thank you for reading this post, don't forget to subscribe!Selling a property? You could be making a costly mistake that’s quietly draining lakhs from your pocket. Sujit Bangar, the founder of taxbuddy.com, shared a real-life example of a taxpayer who nearly overpaid their capital gains tax by ₹1.87 lakh, simply by failing to account for legally deductible expenses.
The individual had a property they sold for ₹1.2 crore, which they had originally purchased for ₹80 lakh. Their initial calculation was straightforward: subtract the purchase price from the sale price, leaving them with a taxable capital gain of ₹40 lakh.
However, they were forgetting about crucial expenses that could have significantly reduced their tax bill. Under Section 55 of the Income Tax Act, sellers are allowed to deduct specific costs from their taxable gains. In this case, the homeowner had missed:
- ₹4.7 lakh in registration charges
- ₹6 lakh in renovations
- ₹3 lakh in unclaimed home loan interest
By including these legally allowable deductions, the total taxable gain would have been much lower, saving them a significant amount of money.
What You Can Deduct to Reduce Your Tax Bill
So, what expenses can you include to reduce your capital gains? According to Bangar, you should document and account for:
- Cost of Acquisition: This includes the original purchase price, stamp duty, registration fees, and any brokerage or legal charges paid at the time of buying the property.
- Capital Improvement: This refers to any major structural additions or renovations that increase the property’s value. Think installing a modular kitchen or adding a new floor. This does not include routine maintenance like painting walls or fixing a leaky faucet.
- Unclaimed Home Loan Interest: If you haven’t already used it as a deduction under Section 24(b), you can include this interest.
A Word of Warning
The Income Tax Department is getting smarter. They now use AI to scan for suspicious or inflated claims. Bangar strongly advises sellers to keep invoices with proof of payment and to “avoid forged or backdated bills.”
With India’s property market booming, understanding these tax rules and keeping meticulous records is key. Don’t let a simple oversight cost you lakhs.
