Capital gains: Here's how expenses are calculated
There is a specific way in which the workings for the purpose of capital gains are considered while calculating the taxable figure. The sale price as reduced by the allowable expenditures would be compared with the cost price to arrive at the capital gains that have been earned.
By Arnav Pandya
There is a specific way in which the workings for the purpose of capital gains are considered while calculating the taxable figure. The sale price as reduced by the allowable expenditures would be compared with the cost price to arrive at the capital gains that have been earned. One of the questions that a lot of people have is the kind of expenses that will be considered as incurred for the purpose of the transfer since these will be reduced from the amount that has been received as the sale price. Here is a look at this with some examples so that there is a clear way to calculate this position.Wholly and exclusively
The main condition that any expenditure has to fulfill for the purpose of being allowed as a deduction is that this has to be wholly in connection with the transfer. It cannot be that there is a small element that is related to the transfer and this leads to the whole amount being considered for the deduction. There has to be an exclusive element of the end use which has to be the transfer of the capital asset. So if there are some vague claims saying that these are incurred for the purpose of the transfer then they are likely to be disallowed. Since the basic conditions are known it is important that there is a proper look at all the conditions to see that they are in line with the requirements.Brokerage or commission paid
When there are capital assets and there is a transaction that relates to the purchase or sale of the asset then it is likely that there is an intermediary that is involved. There are usually experts and specialists like brokers who are able to bring the various parties to the transaction to the deal table and when they do this it is obvious that they will also charge various fees for the same service. This can be called a brokerage or it can be in the form of commission. Whatever be the name this is an expense that is incurred for completion of the transaction and this will be allowed as a deduction. Take another example where you sell shares in the market and when this happens it is likely that the broker through whom you have transacted will have taken his share and this expense will be allowed as a reduction.Cost of stamp and other registration fees
There are a lot of areas including those related to property where the transaction will result in some additional procedure to be followed. This will happen as there are some documents that will need to be signed to transfer the ownership from one person to the other. In case there is a situation where the individual has incurred such expenses for the purpose of the transaction which would include the cost of stamp duty or some other forms of registration fees then this would have to be included for the benefit but the real point is that is should have been paid and incurred.Travelling expenses
One of the common expenses that are often incurred with respect to a transfer of a capital asset is the travelling expenses to get to the place where the asset is located in order to complete the transfer procedure. In case of house property there is a need for the registration which will require the presence of the buyer and in such a situation the individual will have incurred the expense to travel for this purpose. Since this will be wholly and exclusively for the purpose of the transfer then this would be allowed as a deduction and will hence be a part of the benefit.The author can be reached at arnavpandya@hotmail.com Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
