Under Section 48 of the Income Tax Act, 1961, certain expenses incurred during the transfer of a capital asset are deductible when computing capital gains. These expenses reduce the taxable capital gain.
1. Allowable Deductions (Section 48)
| EXPENSE TYPE | DESCRIPTION | EXAMPLES |
| Brokerage/Commission | Fees paid to brokers, agents, or intermediaries | Real estate agent fees (1-2% of sale value) |
| Legal Fees | Charges for legal documentation and registration | Lawyer fees for sale agreement |
| Stamp Duty & Registration | Government charges for property transfer | Stamp duty (5-7% of property value) |
| Advertising Costs | Expenses to advertise the sale of the asset | Newspaper ads, online listings |
| Travel Expenses | Costs incurred for buyer meetings or site visits | Flight/train tickets, local transport |
| Valuation Charges | Fees for professional valuation reports | Chartered surveyor’s valuation report |
| Loan Repayment Penalty | Prepayment charges on home loans (if applicable | Bank foreclosure charges |
2. Conditions for Deductibility
✔ Must be directly related to the transfer process.
✔ Must be supported by bills/receipts (cash expenses without proof are disallowed).
✔ Cannot include personal expenses (e.g., renovation costs before sale).
3. Non-Deductible Expenses
- Improvement costs(already accounted for under Cost of Improvement).
- Interest on loans(treated separately under Section 24).
- Capital expenses(e.g., painting before sale).
4. Practical Example
Scenario: Mr. A sells a property for ₹1.5 Cr with the following expenses:
- Brokerage: ₹1.5L (1%)
- Stamp Duty: ₹7.5L (5%)
- Legal Fees: ₹50,000
- Advertising: ₹20,000
Taxable Capital Gain Calculation:
Full Value of Consideration = ₹1.5 Cr
(-) Cost of Acquisition (COA) = ₹60L (indexed)
(-) Cost of Improvement (COI) = ₹10L (indexed)
(-) Transfer Expenses = ₹9.7L (1.5L + 7.5L + 50k + 20k)
Taxable Capital Gain = ₹1.5 Cr – ₹60L – ₹10L – ₹9.7L = **₹70.3L**
