I constructed a house in 1988 by availing of a bank loan for ₹1.65 lakh. I got an additional bank loan for ₹2.5 lakh in 2002 for improving facilities in the same house like laying tiles, building compound walls and a water tank. My questions are:

if I sell the house, can I include this amount as capital expenditure for calculating capital gains in indexation method;

if I sell the house in August 2015, what is the time limit, that is, the financial year within which I should complete transactions for the purchase of another flat — like entering into purchase agreement, making final payment and taking possession of the flat?

If I sell the house in August 2015, what is the date by which I should open and remit the amount in capital gains account with the bank to avoid paying capital gains tax?

Venkatramani S

Under income-tax provisions, the income chargeable under the head capital gains shall be computed by deducting the cost of acquisition of the asset and the cost of any improvement thereto from the full value of the consideration received or accruing on transfer of the capital asset.

The cost of improvement undertaken in 2002 (after indexation) shall be deducted while calculating the long-term capital gain (LTCG) arising on transfer of the house, provided the cost of improvement includes all those expenditures which are incurred to increase the value of the capital asset.

The aforesaid LTCG can be exempt from tax by reinvesting the LTCG (in the case of sale of flat) in a new residential property within the specified time frames, that is, within one year prior to the date of sale or two years from the date of sale for purchase of property or within three years for construction of the house property.

As per the Act, the amount of capital gain which is not appropriated/utilised for purchase of the new asset before the due date of filing the tax return, should be deposited in an account with the specified bank before the due date of furnishing the tax return.

As per the prevailing law as on date, individual taxpayers need to file the tax return by July 31, 2016, for FY 2015-16.

Please note that such an amount can be kept in the specified account until it is utilised for the purchase of the new asset within the period specified above. The unutilised amount after lapse of the specified period shall be taxable and will be dealt with as per the relevant provisions of the Income-Tax Act.

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