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If you are selling a property, you can add home improvement expenses to the cost of acquisition of property for calculating capital gains. You can also claim indexation benefit on the cost of improvement of the property along with the purchase price as per the Income Tax Act. This will help bring down capital gains. But you need to first understand what home improvement expenses are to claim the deduction.

The expenses incurred should be of capital nature. “Any capital expenditure incurred by the assessee to make any addition or improvement in the house is treated as ‘cost of improvement’. Thus, if renovation cost is in the nature of capital expenditure only then such renovation cost can be considered as 'cost of improvement' for the house property. The expenditure incurred on renovation or modifying the structure of house to make it habitable is allowable as a deduction," said Tarun Kumar, a Delhi-based chartered accountant.

“There is no clear definition of what can be included under home improvement expenses but the expenditure has to be capital in nature," said Prakash Hegde, a Bengaluru-based chartered accountant.

Therefore, if you have added a floor, room or have changed the structure of the house, the same can be claimed as home improvement expenses. But regular painting of the house or other regular maintenances will not be considered as home improvement expenses.

Apart from this, expenditures incurred on or after 1 April 2001, can be claimed under home improvement expenses.

Therefore, all capital expenditure incurred on or after April 1, 2001 shall be deducted while calculating capital gains. “If house is acquired by the assessee before April 1, 2001, any expenditure incurred on renovation incurred prior to April 1, 2001, shall be ignored while computing the capital gains," added Kumar.

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