POSTED BY August 18, 2013 7:51 pm COMMENTS (5)

ONHow will the Cost of Acquisition & Capital Gains be calculated for a Property if a person has bought it in 2011-12 taking a Bank Loan for 20 years & sells after the Loan Repayment period is Over i.e. in 2031-32. **(For Simplification purposes , let’s just consider that entire Property bought solely from Loan amount)**

Details –

1)Loan Amount – Rs. 50,00,000

2)Tenure – 20 Years

3)Rate of Interest – 10 %

4)Monthly E.M.I. – Rs.48251.08

5)Property sold at Rs. 3,30,00,000 in 2031-32

Dear Jignesh, do as per advised by those 2 CAs who are qualified to answer it clearly.

Thanks

Ashal

Dear Ashal ,

I asked the same Question on Caclubindia.com & I got a couple of answers which you can see by copying & pasting the following link in the address bar of your Web Browser :

https://www.caclubindia.com/experts/cost-of-acquisition-calculation-for-property-bought-on-loan-1410934.asp#.UhTvyX8Sieo

(A) So what I understand is that Provided that no Income Tax Benefit , namely (a) Section 124 which allows maximum deduction upto 1.5 lacs p.a. for Interest paid on Home Loan & (b) Section 80C which allows maximum Deduction of 1 lacs p.a. for Principal Repayment on Home Loan , is taken during the 20 Years of Loan Repayment ,the Cost of Acquisition will be calculated in following manner :-

(i) Original Investment (Margin Money) * Cost Inflation Index of ’31-’32 / Cost Inflation Index of ’11-’12 plus

(ii) Loan Amount (50,00,000) * Cost Inflation Index of ’31-’32 / Cost Inflation Index of ’11-’12 plus

(iii) The sum Total of the Interest Portion of every EMI * Cost Inflation Index of ’31-’32 / Cost Inflation Index of the year in which that EMI was paid .

For e.g if the EMIs were from April 2011 to March 2032 (TOTAL 240 EMIS in 20 yrs) , then for the interest portion of the first 12 EMIs (Let’s take it as “X”), it will be calculated as :-

X * Cost Inflation Index of ’31-’32 / Cost Inflation Index of ’11-’12 .

For the next 12 EMIs , it will be calculated as :-

X * Cost Inflation Index of ’31-’32 / Cost Inflation Index of ’12-13 & so on .

Is my understanding correct ?

(B) Is it correct that in case the Interest portion of all EMIs is taken as allowable Expense u/s 124 & Principal Repayment portion taken as deduction from income u/s 80C in each year’s Income , in that case , the Interest paid on the Loan will not be able to be added to the Cost of Acquistion when the Property is sold ?

Dear Jignesh, you purchased the property @ 5000000 Rs. today & loan repayment (principal) has nothing to do with your capital gains calculation. So the indexed purchase price ‘ll be 5000000 * CII of 2031-2032/CII of 2013-2014.

Thanks

Ashal

I would like to make my Question more Clear . What I mean is that :-

To acertain the Cost of Acquisition , will the Cost Inflation Index Formula be applied directly to the Loan amount of 50,00,000 (i.e. 5000000 * CII of 2031-32/CII of 2011-12) or will it be applied individually to the principal – repayment portion of each EMI (For e.g. Principal Payment in first EMI i.e. Rs. 6584.42 * CII of 2031-32/CII of 2011-12 + Second EMI i.e. Rs. 6639.29 * CII of 2031-32/CII of 2011-12 & so on ?

Dear Jignesh, Home loan interest can not be set off against Capital Gains. So capital gains ‘ll be 33000000 – indexed value of 5000000.

thanks

Ashal