Can cost of improvement be in cash?

[AMEY SHARMA]

I've done expenses such as fencing, lighting, and various other expenses amounting to say ₹ 3 lac all in raw cash? is any disallowance or penalty initiated? Note: when i sale property capital gain tax is attracted meaning it was not my business expenditure

[DEV KUMAR KOTHARI]

Can cost of improvement be in cash?

Ans. Yes.

Take care to ensure that you have accounted for the same and recorded in cash book, ledger and Balance sheet.

If you have not maintained books of account, then you must be able to show sources from which you spent expenses (like cash balance in cash inflow statement, withdrawals from bank, cash income earned like salary or other income. Other wise expenses can be added in income as undisclosed expenses.

AI Summary

Cash-Paid Property Improvement Expenses: Proper Record-Keeping Crucial to Avoid Penalties Under Tax Rules A user inquired about whether expenses for property improvements, such as fencing and lighting, paid in cash totaling 3 lakh, could lead to disallowance or penalties, given that these are not business expenses but affect capital gains tax upon sale. The response clarified that such expenses can indeed be in cash, provided they are properly recorded in financial documents like the cash book, ledger, and balance sheet. If no formal accounting records are maintained, the individual must demonstrate the cash sources, such as bank withdrawals or income, to avoid these expenses being classified as undisclosed income.