Cost of Acquisition & Improvement - Definition / Legal Terminology - Income Tax

COST OF IMPROVEMENT for the purpose of section 48 or 49 [Section 55(1)] : The cost of improvement of the following shall be taken to be NIL: Goodwill of Business or any other Intangible Asset [Inserted vide Amendment as per FA, 2023 ] Right to manufacture, produce or process any article or thing Right to carry on any business or profession or any other right [Inserted vide Amendment as per FA, 2023 ] In relation to other capital assets Where the capital asset is acquired by the assessee or the previous owner before 01.04.2001 means all expenditure of capital nature on improvement by the assessee and the previous owner COST OF ACQUISITION for the purpose of Section 48 or 49 [ Section 55(2) ] Cost of acquisition of an asset is the value for which it was acquired by the assessee. Expenses of capital nature for completing or acquiring the title of property are includible in the cost of acquisition. Note: Interest on moneys borrowed to purchase asset is part of actual cost of asset. (A) Cost of acquisition in relation to a capital asset being goodwill of a business, or trade mark or a brand name associated with a business or profession, or any other intangible asset or a right, [Inserted vide Amendment as per FA, 2023 w.e.f 01 st April 2024] , or right to manufacture, produce or process any article or thing or Right to carry on any business or profession, tenancy rights, stage carriage permits, loom hours or any other right [Inserted vide Amendment as per FA, 2023 w.e.f 01 st April 2024] purchased from previous owner shall be the Purchase price and in any other case shall be Nil. Note 1: Cost of acquisition of self-generated assets other than those mentioned in Section 55, is indeterminate. Therefore no capital gains shall arise e.g. on sale of spontaneously grown trees, goodwill of profession etc. Note 2: The option to take cost of acquisition as FMV as on 01-04-2001 is not available even if above assets was acquired before 01-04-2001. (B) Capital Asset Cost of Acquisition Original shares/ securities Purchase Price Right shares/ Securities Price actually paid under the right issue Renouncement of right to subscribe shares/securities: In the hands of the person who renounces the right In the hands of the purchaser of right Nil Price paid to the person who renounced the right and amount paid to the company to acquire the right shares. Bonus Shares/ securities Nil Cost of acquisition for the purpose of calculating Tax payable u/s 112A [ Section 55(2)(ac) ] Cost of acquisition for the assets acquired before 1st February, 2018, shall be higher of the following : The actual cost of acquisition of such asset, and The lower of :- (i) the fair market value of such assets; and (ii) the full value of consideration received or accruing as a result of the transfer of the capital asset (C) In relation to other capital assets 1. Where the capital asset is acquired by the assessee or the previous owner before 1.4.2001 Cost of acquisition to the assessee or the previous owner, or FMV as on 1.4.2001 Whichever is higher 2. Where the capital asset is acquired by the assessee or the previous owner on or after 1.4.2001 Cost of acquisition to the assessee or the previous owner. 3. Where the capital asset is acquired by the assessee in distribution by the company on its liquidation Cost of acquisition to the assessee shall be the Fair Market Value of the asset on the date of distribution 4. Where the cost for which the previously acquired property cannot be ascertained, then the cost to such asset shall be the fair market value on the date on which the capital asset became the property of the previous owner.