I’ll be selling my house in a few months. At the time of selling, can I add the cost of furnishing to the cost of acquisition? If yes, what all qualifies as furnishing? - Sanish Jain
Under income tax provisions, taxable capital gains from the sale or transfer of a house are computed after deducting the following from the sale consideration:
Cost of acquisition: This includes the property's purchase price or, for inherited or gifted properties, the price paid by the previous owner.
Cost of improvement: Expenditure of a capital nature incurred on additions or alterations to the property.
Transfer-related expenses: Costs incurred wholly and exclusively for the property’s transfer, such as brokerage and legal fees.
However, as no reference has been provided to any specific items of expenditure to be included herein, it is open to interpretation and conflicting judicial precedents which are fact specific.
Few judicial precedents have held that expenditure incurred on furnishings or interiors, which would enhance the longevity or usability of the property and would make such property ‘habitable’, may be considered as investment made towards cost of improvement in the property and hence may be allowable as a deduction while calculating capital gain.
The term ‘habitable’ is not explicitly defined under tax provisions but has been interpreted in various judicial precedents. Expenses such as extensive civil work, plumbing, electrical upgrades, painting, or installing new flooring and tiles have been deemed essential for making a property suitable for living.
On the other hand, expenses related to air-conditioners, consumer electronics, entertainment systems, electrical appliances, and furniture are typically classified as luxury or comfort items and are therefore excluded from the cost of improvement.
Few precedents have held that that most of the items which are said to have been acquired (wooden temple, crockery, fans, geysers, light fittings etc.) are primarily 'personal effects' which are excluded from the definition of capital asset under section 2(14) if they are meant for personal use and hence deduction was disallowed.
Since tax authorities scrutinise such claims, it’s essential to evaluate each expenditure thoroughly, ensuring proper documentation. Consulting a tax professional is recommended to avoid disputes and accurately calculate capital gains.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.
