Computation of actual cost
Section 39(1) of Income Tax Act 2025
(1) The actual cost of an asset used for the purposes of the business or profession shall be the actual cost to the assessee as, reduced by the following amounts:—
(a) part of cost of asset, if any, met by any other person or authority, directly or indirectly;
(b) goods and services tax paid in respect of which input tax credit has been claimed and allowed under the relevant law;
(c) additional duty leviable under section 3 of the Customs Tariff Act, 1975 in respect of which a claim of credit has been made and allowed under the Central Excise Rules, 1944;
(d) subsidy, grant or reimbursement, by whatever name called, if any, relatable to the acquisition of the asset, received by the assessee from—
(i) the Central Government;
(ii) a State Government;
(iii) any authority established under any law; or
(iv) any other person.
Section 39(2) of Income Tax Act 2025
(2) The payment or aggregate of payments exceeding ten thousand rupees in a day for acquisition of an asset, made to a person in a mode otherwise than by specified banking or online mode, shall be excluded from the actual cost of the asset.
Section 39(3) of Income Tax Act 2025
(3) In a case where the subsidy, grant or reimbursement referred to in sub-section (1)(d) is not directly relatable to the asset acquired, the amount of reduction under sub-section (1)(d) shall be determined as under:
𝐴 × (𝐵/𝐶)
Where,—
A = total amount of subsidy, grant or reimbursement not directly relatable to the asset;
B = cost of the asset acquired for which actual cost is to be determined;
C = cost of all the assets in respect of or in reference to which the subsidy or grant or reimbursement is so received.
Section 39(4) of Income Tax Act 2025
(4) In circumstances specified under column B of the Table below, the actual cost of the capital asset shall be as specified in column C thereof.
Table
| Sl. No. | Specified circumstances | Determination of actual cost |
|---|---|---|
| A | B | C |
| 1 | Where capital asset is transferred by an amalgamating company to an amalgamated company being an Indian company in a scheme of amalgamation. | Actual cost to amalgamated company shall be the same as it would have been if the amalgamating company had continued to hold such capital asset for the purpose of its own business. |
| 2 | Where capital asset is transferred by a demerged company to a resulting company being an Indian company in a demerger. | Actual cost to resulting company shall be the same as it would have been, if the demerged company had continued to hold such asset for the purpose of its own business, which shall not exceed the written down value of such capital asset in the hands of demerged company. |
| 3 | Where inventory is converted into capital asset. | Fair Market Value as on date of conversion, as determined in the manner as prescribed. |
| 4 | Where capital asset is acquired by the assessee by way of gift or inheritance. | Actual cost to previous owner as reduced by the depreciation allowable up to the immediately preceding tax year, as if such asset was the only asset in the relevant block of asset. |
| 5 | Where a building, being the property of the assessee, is put to use for the purpose of business or profession during the tax year. | Actual cost of the building as reduced by the depreciation— (a) that would have been allowable had the building been used for the purpose of business from the date of acquisition; and (b) calculated at the rate in force on the date on which such asset was put to use for business. |
| 6 | Where capital asset is transferred by— (a) a holding company to its subsidiary company; or (b) a subsidiary company to its holding company, and the conditions of section 70(1)(c) and (d) are satisfied. | Actual cost to the transfereecompany shall be the same as it would have been, if the transferor company had continued to hold such asset for the purpose of its own business. |
| 7 | Where a capital asset, which previously belonged to the assessee, is reacquired by the assessee. | (a) Actual cost of the asset in the hands of assessee, when it was first acquired, as reduced by the depreciation allowable up to the immediately preceding tax year, as if such asset was the only asset in the relevant block of asset; or (b) actual price for which such asset is reacquired by the assesse, whichever is lower. |
| 8 | Where the capital asset is acquired by the assessee from previous owner and subsequently asset is given back to the previous owner by way of lease, hire or otherwise, and— (a) the asset was being used for the purpose of business by the previous owner; and (b) depreciation has been claimed by the previous owner. | Actual cost of asset to the assessee shall be the written down value of the asset in the hands of the previous owner at the time of transfer by the previous owner. |
| 9 | Where the capital asset is used in business after it ceases to be used for scientific research related to that business and a deduction is made under section 33(3). | Actual cost of asset as reduced by deduction allowed for the capital asset under section 45(1)(a) or (c) or under any corresponding provision of the Income-tax Act, 1961(43 of 1961). |
| 10 | Where the assessee had acquired an asset outside India, as a nonresident, and the asset is brought by him to India and put to use in business or profession in India | Actual cost of the asset as reduced by the depreciation–– (a) that would have been allowable had the asset been used for the purpose of business or profession in India since the date of its acquisition; and (b) calculated at the rate in force. |
| 11 | Where capital asset is acquired under the scheme of corporatisation of a recognised stock exchange approved by the Securities and Exchange Board of India. | Actual cost of the asset, as if there was no corporatisation. |
| 12 | (a) Where deduction under section 46 was allowed or allowable in respect of the capital asset— (i) to the assessee; or (ii) to any person and the assessee acquires or receives such asset through special modes of acquisition from such person. (b) Where deduction allowed under section 46 in respect of a capital asset becomes deemed income as per section 46(9)(b). | Actual cost shall be deemed to be nil. Actual cost of the asset as reduced by the depreciation,— (a) that would have been allowable had the asset been used for the purpose of business since date of acquisition; and (b) calculated at the rate in force |
| 13 | Where any amount is paid or payable as interest in connection with the acquisition of an asset. | Actual cost shall not include so much of such amount as is relatable to any period after such asset is first put to use. |
Section 39(5) of Income Tax Act 2025
(5) Irrespective of anything contained in sub-section (4), in a case where the asset is acquired by the assessee, its actual cost shall be determined by the Assessing Officer having regard to all circumstances of the case, subject to the following conditions:—
(a) the asset was used by any other person for the purposes of his business, before such acquisition; and
(b) the Assessing Officer is satisfied that the main purpose of the transfer of the asset was to reduce tax liability (by claiming depreciation on enhanced actual cost).
Section 39(6) of Income Tax Act 2025
(6) The determination of actual cost under sub-section (5) shall be made with the prior approval of the Joint Commissioner.
Section 39(7) of Income Tax Act 2025
(7) In this section, “special modes of acquisition” means acquisition—
(a) by way of a gift or will or an irrevocable trust; or
(b) upon distribution on the liquidation of a company; or
(c) by such mode of transfer as is referred to in section 70(1)(a), (c), (d), (e), (j), (zd), (ze) and (zf).