Deducting what you spent improving an Indian property when the bills are gone

The law lets you deduct the cost of improvement, meaning capital expenditure that adds to or alters the property, from the sale price when you compute the gain (Section 48). The test is whether you created something new and lasting or simply kept the house in the state it was in. An added floor, an extension, a garage, converting a terrace into a room, a structural rebuild, all add to the asset and qualify.

Repainting, replacing broken fittings, waterproofing a leak, annual maintenance, these keep the property usable but do not add to it, so they are not cost of improvement. The distinction matters because it decides what you can put against the gain. A useful line to hold: if the work changed what the property is, it is likely improvement; if it kept the property as it was, it is likely a repair.

Missing receipts do not automatically kill the claim, but they raise the standard of what else you show. A registered valuer can reconstruct the year-wise cost of the improvements from the approved building plans, the municipal or panchayat records of the sanctioned extra construction, photographs from before and after, and any bank withdrawals or loan sanctions from the period that line up with the work.

What the return relies on is that documented estimate rather than a number you assert. The more the estimate is tied to independent records, the sale being registered at a higher built-up area than the original, a home-improvement loan on the bank statement, a municipal assessment that rose after the additions, the harder it is for the assessing officer to disturb it. A bare claim with nothing behind it is the version that gets disallowed.

There is one limit worth stating plainly. If the property was acquired before 1 April 2001 and you have chosen to use its 1 April 2001 fair-market value as the cost (Section 55(2)(b)), then any improvement made before that date is already reflected in the 2001 value and cannot be added again. Only improvements made after 1 April 2001 are claimed on top of the 2001 cost. Improvements to an inherited property made by the previous owner also count as yours.

For an NRI, the gain that remains after cost and improvements is long-term if the property was held for more than twenty-four months, taxed at a flat 12.5% with no indexation for sales on or after 23 July 2024 (Section 112). The resident-only option of 20% with indexation is not available to an NRI, so getting every rupee of genuine improvement into the cost is one of the few levers you have on the rate.