Meaning of “adjusted”, “cost of improvement” and “cost of acquisition”.

1. (1) For the

purposes of 5[sections 48 and 49],6* 7[(b) “cost of any improvement”,—

1. (1) in relation to a capital asset being goodwill of a business 8[or a right to manufacture, produce or process any article or thing] 9[or right to carry on any business 10[or profession]] shall be taken to be nil ; and
2. (2) in relation to any other capital asset,—]
   • (i) where the capital asset became the property of the previous owner or the assessee before the 11[1st day of April, 2001], 12*** means all expenditure of a capital nature incurred in making any additions or alterations to the capital asset on or after the said date by the previous owner or the assessee, and
   • (ii) in any other case, means all expenditure of a capital nature incurred in making any additions or alterations to the capital asset by the assessee after it became his property, and, where the capital asset became the property of the assessee by any of the modes specified in 13[sub-section (1) of section 49], by the previous owner, but does not include any expenditure which is deductible in computing the income chargeable under the head “Interest on securities”, “Income from house property”, “Profits and gains of business or profession”, or “Income from other sources”, and the expression “improvement” shall be construed accordingly. 3. The figures and letter “, 54E” omitted by Act 18 of 1992, s. 33 (w.e.f 1-4-1992). 6. Clause (a) omitted by s. 32, ibid. (w.e.f. 1-4-1988). 12. The words “and the fair market value of the asset on that day is taken as the cost of acquisition at the option of the assessee,” omitted by s. 34, ibid. (w.e.f. 1-4-1993).
3. (2) 1[For the purposes of sections 48 and 49, “cost of acquisition”,— 2[(a) in relation to a capital asset, being goodwill of a business 3[or a trade mark or brand name associated with a business] 4[or a right to manufacture, produce or process any article or thing]5[or right to carry on any business 6[or profession]], tenancy rights, stage carriage permits or loom hours,—
   • (i) in the case of acquisition of such asset by the assessee by purchase from a previous owner, means the amount of the purchase price; and
   • (ii) in any other case [not being a case falling under sub-clauses (i) to (iv) of sub-section (1) of section 49], shall be taken to be nil ; (aa) 7[in a case where, by virtue of holding a capital asset, being a share or any other security, within the meaning of clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) (hereafter in this clause referred to as the financial asset), the assessee(A) becomes entitled to subscribe to any additional financial asset; or (B) is allotted any additional financial asset without any payment, then, subject to the provisions of sub-clauses (i) and (ii) of clause (b),—
   • (i) in relation to the original financial asset, on the basis of which the assessee becomes entitled to any additional financial asset, means the amount actually paid for acquiring the original financial asset;
   • (ii) in relation to any right to renounce the said entitlement to subscribe to the financial asset, when such right is renounced by the assessee in favour of any person, shall be taken to be nil in the case of such assessee;
   • (iii) in relation to the financial asset, to which the assessee has subscribed on the basis of the said entitlement, means the amount actually paid by him for acquiring such asset; 8[(iiia) in relation to the financial asset allotted to the assessee without any payment and on the basis of holding of any other financial asset, shall be taken to be nil in the case of such assessee;] and
   • (iv) in relation to any financial asset purchased by any person in whose favour the right to subscribe to such asset has been renounced, means the aggregate of the amount of the purchase price paid by him to the person renouncing such right and the amount paid by him to the company or institution, as the case may be, for acquiring such financial asset;] 9[(ab) in relation to a capital asset, being equity share or shares allotted to a shareholder of a recognised stock exchange in India under a scheme for 10[demutualisation or corporatisation] approved by the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), shall be the cost of acquisition of his original membership of the exchange: 1[(ac) subject to the provisions of sub-clauses (i) and (ii) of clause (b), in relation to a long-term capital asset, being an equity share in a company or a unit of an equity oriented fund or a unit of a business trust referred to in section 112A, acquired before the 1st day of February, 2018, shall be higher of—
   • (i) the cost of acquisition of such asset; and (ii) lower of—
   • (A) the fair market value of such asset; and (B) the full value of consideration received or accruing as a result of the transfer of the capital asset. Explanation.—For the purposes of this clause,(a) “fair market value” means,—
     • (i) in a case where the capital asset is listed on any recognised stock exchange as on the 31st day of January, 2018, the highest price of the capital asset quoted on such exchange on the said date: Provided that where there is no trading in such asset on such exchange on the 31st day of January, 2018, the highest price of such asset on such exchange on a date immediately preceding the 31st day of January, 2018 when such asset was traded on such exchange shall be the fair market value;
     • (ii) in a case where the capital asset is a unit which is not listed on a recognised stock exchange as on the 31st day of January, 2018, the net asset value of such unit as on the said date;
     • (iii) in a case where the capital asset is an equity share in a company which is—
   • (A) not listed on a recognised stock exchange as on the 31st day of January, 2018 but listed on such exchange on the date of transfer;
   • (B) listed on a recognised stock exchange on the date of transfer and which became the property of the assessee in consideration of share which is not listed on such exchange as on the 31st day of January, 2018 by way of transaction not regarded as transfer under section 47, an amount which bears to the cost of acquisition the same proportion as Cost Inflation Index for the financial year 2017-2018 bears to the Cost Inflation Index for the first year in which the asset was held by the assessee or for the year beginning on the first day of April, 2001, whichever is later;
   • (b) “Cost Inflation Index” shall have the meaning assigned to it in clause (v) of the Explanation to section 48;
   • (c) “recognised stock exchange” shall have the meaning assigned to it in clause (ii) of Explanation 1 to clause (5) of section 43.] 1[Provided that the cost of a capital asset, being trading or clearing rights of the recognised stock exchange acquired by a shareholder who has been allotted equity share or shares under such scheme of demutualisation or corporatisation, shall be deemed to be nil;]
   • (b) in relation to any other capital asset,—]
     • (i) where the capital asset became the property of the assessee before the 2[1st day of April, 2001], means the cost of acquisition of the asset to the assessee or the fairmarket value of the asset on the 2[1st day of April, 2001], at the option of the assessee;
     • (ii) where the capital asset became the property of the assessee by any of the modes specified in 3[sub-section (1) of section 49], and the capital asset became the property of the previous owner before the 2[1st day of April, 2001], means the cost of the capital asset to the previous owner or the fairmarket value of the asset on the 2[1st day of April, 2001], at the option of the assessee;
     • (iii) where the capital asset became the property of the assessee on the distribution of the capital assets of a company on itsliquidation and the assessee has been assessed to income-tax under the head “Capital gains” in respect of that asset under section 46, means the fairmarket value of the asset on the date of distribution;

¹ Ins. by Act 28 of 2016, s. 33 (w.e.f. 1-4-2017).

² Ins. by Act 49 of 1991, s. 21 (w.e.f. 1-10-1991).

⁴ Subs. by Act 14 of 2001, s. 33, for “, 54EA, 54EB” (w.e.f. 1-4-2001).

⁵ Subs. by Act 46 of 1986, s. 32, for “sections 48, 49 and 50” (w.e.f. 1-4-1988).

⁷ Subs. by 11 of 1987, s. 25, for clause (b) (w.e.f. 1-4-1988).

⁸ Ins. by Act 26 of 1997, s. 19 (w.e.f. 1-4-1998).

⁹ Ins. by Act 20 of 2002, s. 26 (w.e.f. 1-4-2003).

¹⁰ Ins. by Act 28 of 2016, s. 34 (w.e.f. 1-4-2017).

¹¹ Subs. by Act 7 of 2017, s. 28, for “1st day of April, 1981” (w.e.f. 1-4-2018). Earlier “1st day of April, 1974” was substituted by Act 23 of 1986, s. 13, for “1st day of January, 1964” (w.e.f. 1-4-1987) and later “1981” was substituted by Act 18 of 1992, s. 34, for “1974” (w.e.f. 1-4-1993).

¹³ Subs. by Act 20 of 1967, s. 21, for “section 49” (w.e.f. 1-4-1967).

¹ Subs. by Act 11 of 1987, s. 25, for the “For the purposes of sections 48 and 49, “cost of acquisition”, in relation to a capital asset,—” (w.e.f. 1-4-1988).

² Subs. by Act 32 of 1994, s. 18, for clause (a) (w.e.f. 1-4-1995).

³ Ins. by 14 of 2001, s. 34 (w.e.f. 1-4-2002).

⁴ Ins. by Act 26 of 1997, s. 19 (w.e.f. 1-4-1998).

⁵ Ins. by 20 of 2002, s. 26 (w.e.f. 1-4-2003).

⁶ Ins. by Act 28 of 2016, s. 34 (w.e.f. 1-4-2017).

⁷ Subs. by Act 22 of 1995, s. 14, for “in a case where, “and ending with “sub-clauses (i) and (ii) of clause (b)” (w.e.f. 1-4-1996).

⁸ Ins. by Act 22 of 1995, s. 14 (w.e.f. 1-4-1996).

⁹ Ins. by Act 14 of 2001, s. 34 (w.e.f. 1-4-2002).

¹⁰ Subs. by Act 32 of 2003, s. 31, for “corporatisation” (w.e.f. 1-4-2004).

¹ Ins. by Act 13 of 2018, s. 22 (w.e.f. 1-4-2018).

4* 5[(v) where the capital asset, being a share or a stock of a company, became the property of the assessee on—

1. (a) the consolidation and division of all or any of the sharecapital of the company into shares of larger amount than its existing shares,
2. (b) the conversion of any shares of the company into stock,
3. (c) the re-conversion of any stock of the company into shares,
4. (d) the sub-division of any of the shares of the company into shares of smaller amount, or
5. (e) the conversion of one kind of shares of the company into another kind, means the cost of acquisition of the asset calculated with reference to the cost of acquisition of the shares or stock from which such asset is derived.]

1. (3) Where the cost for which the previous owner acquired the property cannot be ascertained, the cost of acquisition to the previous owner means the fair market value on the date on which the capital asset became the property of the previous owner.