House Property Renovation Cost in Capital Gains: Evidence and Improvement-Cost Checklist
By Ravi Sisodia · Reviewed by CA Divyanshu Sengar · Updated 5 October 2026
2-minute summary
- Property renovation is not automatically “cost of improvement” for capital gains. The taxpayer should distinguish capital additions or enduring improvements to the asset from routine repairs, maintenance, personal furnishings and expenses that were already allowed elsewhere. The classification must follow the applicable capital-gains provisions for the relevant Act/year.
- Evidence quality matters as much as the description. A lump-sum claim supported only by self-made estimates is weak. Build a project file with contractor agreements, tax invoices, bank payments, architect/engineer records, municipal approvals where relevant, photographs and a clear link between each cost and the property sold.
- For AY 2026-27 the computation remains under the 1961 Act; Tax Year 2026-27 uses the Income Tax Act, 2025. Do not mix old-law indexation/exemption assumptions with a new-Act transaction without confirming the current provision and Finance Act changes for the actual transfer date.
Current position
Control and evidence map
| # | Control / evidence requirement |
|---|---|
| 1 | Create a line-item renovation ledger with date, vendor, nature of work, invoice and payment reference. |
| 2 | Classify each item as capital improvement, routine repair/maintenance, movable furnishing or another category. |
| 3 | Remove amounts already claimed as revenue deduction or reimbursed by another person where double benefit would result. |
| 4 | Retain before/after plans, photographs, approvals and contractor certifications for material structural work. |
| 5 | Apply the capital-gains rules, indexation and exemptions for the transfer date under the correct Act. |
Worked example
A taxpayer claims Rs 18 lakh for a flat renovation. Rs 9 lakh relates to structural redesign and permanent civil/electrical work supported by invoices and bank transfers; Rs 4 lakh is annual painting and repairs; Rs 5 lakh is movable furniture. The capital-gains file should not simply include Rs 18 lakh. Each item must be tested for eligibility, evidence and whether it forms part of the capital asset cost.
Common mistakes
- Treating every home-improvement payment as capital-gains cost.
- Relying on cash estimates with no vendor/evidence trail.
- Including movable furniture in immovable-property cost without legal basis.
- Applying a legacy indexation rule to a new-Act transfer without checking the current provision.
Frequently asked questions
Are painting and routine repairs always cost of improvement?
No. The nature and applicable statutory definition must be tested.
Do bank payments alone prove eligibility?
They prove payment, not necessarily that the expense is an eligible capital improvement.
Why separate old and new Act?
Because the transfer-date law controls computation, rates, indexation and related conditions.
Official sources
- Income Tax Department - Income Tax Act, 2025 - official transition and guidance hub (Income-tax Act, 2025; effective 2026-04-01)
- Income Tax Department - Income Tax Returns FAQs - 1961 Act / 2025 Act transition (Current FAQ; 2026)
- Income Tax Department - ITR-2 Online User Manual - Schedule FSI, TR and FA (ITR-2; AY 2026-27 portal guidance)
Disclaimer
Educational and professional reference only; confirm the current law, rates and the facts of your case before relying on this page.