There is a distinction between the obligation to discharge the mortgage debt created by the previous owner and the obligation to discharge the mortgage debt created by the assessee himself. Expenditure incurred on removing encumbrance, prior to transfer is to be deducted before computing capital gains that means whether expenditure incurred by assessee to discharge mortgage debt created by previous owner to acquire absolute right in a property is to be treated as ‘cost of acquisition’ and is deductible from full value of consideration received by assessee on transfer of that property. Like the payment made to withdraw a suit or injunction against transfer is transfer expenditure and to be deducted for computing capital gains. However, where a property is acquired by assessee free from encumbrances and, thereafter, an encumbrance by way of mortgaging said property is created by him, then assessee is not entitled to deduction under section 48(i) on account of repayment of mortgage debt or expenditure incurred to remove said encumbrance. We at Taxmantra.com have the expertise in handling individual taxation, do let us in case you any such issue troubling you. Taxmantra.com provides most hassle free tax return filing/ online return filing experience. Once you have collected, your salary certificate and other documents, we request you to please log in to www.taxmantra.com/ereturns or you can also directly mail at info@taxmantra.com to submit the details. Upon receiving the documents, we would contact you to file your return of income.