I purchased a 15-year-old house. Can I offset renovation costs against ₹14 lakh LTCG in FY 2024-25

One of our readers, Mohit Satodia, purchased a 15-year-old house in FY 2024-25. He spent some amount on renovating the old house. Now, he wants to know whether the cost of the renovation of the house could be offset against the ₹14 lakh long-term capital gain (LTCG) he realised during the financial year.

"I have a specific concern regarding how to minimise LTCG. For FY 2024-25, my LTCG is approx. ₹14,00,000. I did the renovation of my newly purchased house during this financial year. Can I offset the cost of renovation from the LTCG so that I pay less tax? The house was 15 years old when purchased from a previous owner and then renovated," Mohit asked in an email dated April 25, 2025.

Answering Mohit's query, CA Dr Suresh Surana said, "To minimise Long-Term Capital Gains (LTCG) tax for FY 2024–25, where the reported LTCG is approximately ₹14,00,000, it is important to understand the treatment of renovation expenses under the Income Tax Act, 1961. If the renovation constitutes capital expenditure, such as structural changes, additions, or improvements that enhance the value of the asset it may be considered as part of the ‘cost of improvement’ and based on judicial precedents can be claimed while computing reinvestment benefit under section 54/54F, as the case may be. However, routine repairs or maintenance would not qualify."

Please note that the above is based on the assumption that Mohit's LTCG is from property.

As explained by Dr Surana, the cost of improvement can be adjusted against long-term capital gains if it has led to a substantial structural change. For example, if a new room or an additional floor has been constructed in the house.

However, if the renovation involves only interiors or minor repairs, then no deduction from LTCG will be allowed.

It is also important to have proper bills for house renovation, construction etc. as proof to claim improvement costs from capital gains.

Additional details

Mohit has not shared whether the ₹14 lakh capital gain is from selling a property or from his equity investments. If the LTCG is from equity shares or equity mutual funds, then it cannot be offset against the renovation cost.