Income Tax 2025

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Cost with reference to certain modes of acquisition. ​

73(1) ​

In the case of a capital asset specified in column B of the Table below, the cost of acquisition of the asset shall be deemed to be the cost as mentioned in column C of the said Table.

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73(2) ​

For the purposes of the Table in sub-section (1), in respect of the entries against––

  • (a) serial number 1, “previous owner of the property” for any capital asset owned by an assessee, means the last previous owner of the capital asset who acquired it by a mode of acquisition other than that referred to in column B thereof;
  • (b) serial numbers 11 and 12, “main portfolio”, “segregated portfolio” and “total portfolio” shall have the same meanings as respectively assigned to them in the Circular No. SEBI/HO/IMD/DF2/CIR/P/2018/160, dated the 28th December, 2018, issued by the Securities and Exchange Board of India;
  • (c) serial numbers 14 and 15, “net worth” means the total of the paid-up share capital and general reserves as appearing in the books of account of the demerged company immediately before the demerger;
  • (d) serial numbers 2, 14 and 15, the provisions as contained therein, shall, as far as may be, also apply in relation to business reorganisation of a co-operative bank as referred to in section 65.
Explanation

Section Summary: ​

This section (Section 73) deals with determining the cost of acquisition for specific types of capital assets listed in a table. The cost of acquisition is a critical factor in calculating capital gains when such assets are sold. The section provides clarity on how to calculate the cost of acquisition for assets acquired through specific modes, such as inheritance, demerger, or business reorganization. It also defines key terms like "previous owner," "main portfolio," "segregated portfolio," and "net worth" to ensure consistency in application.

Key Changes: ​

  1. Deemed Cost of Acquisition: The section introduces a deemed cost of acquisition for specific capital assets, as outlined in the table. This replaces the need to determine the actual cost in certain cases.
  2. Definitions Added: New definitions for terms like "previous owner," "main portfolio," "segregated portfolio," and "net worth" are provided to align with other regulations (e.g., SEBI circulars) and ensure uniformity.
  3. Applicability to Co-operative Banks: The section explicitly extends the provisions to co-operative banks undergoing business reorganization, aligning with Section 65 of the Income Tax Act.

Practical Implications: ​

  1. Taxpayers: Taxpayers who inherit or acquire assets through modes like demerger or business reorganization will benefit from clear rules on calculating the cost of acquisition. This simplifies capital gains computation.
  2. Businesses: Companies undergoing demerger or business reorganization (including co-operative banks) must ensure compliance with the defined terms and methods for calculating net worth and cost of acquisition.
  3. Compliance: Taxpayers and businesses must refer to the table and definitions provided in this section to accurately determine the cost of acquisition for capital gains purposes.

Critical Concepts: ​

  1. Deemed Cost of Acquisition: The cost of acquisition is not the actual purchase price but a value determined by the law for specific scenarios (e.g., inherited assets, demerged assets).
  2. Previous Owner: For inherited assets, the "previous owner" refers to the last person who acquired the asset through a mode other than inheritance.
  3. Net Worth: In the context of demergers, net worth is calculated as the sum of paid-up share capital and general reserves of the demerged company before the demerger.
  4. Main Portfolio and Segregated Portfolio: These terms are defined by SEBI and relate to mutual funds or similar financial instruments.

Compliance Steps: ​

  1. Identify the Mode of Acquisition: Determine how the capital asset was acquired (e.g., inheritance, demerger, business reorganization).
  2. Refer to the Table: Use the table in Section 73(1) to find the deemed cost of acquisition for the specific asset.
  3. Apply Definitions: Use the definitions provided in Section 73(2) to interpret terms like "previous owner," "net worth," or "main portfolio."
  4. Documentation: Maintain records of the acquisition mode, previous owner details (if applicable), and calculations of net worth or portfolio values.
  5. Report Accurately: Use the deemed cost of acquisition when reporting capital gains in tax returns.

Examples: ​

  1. Inherited Property:

    • A taxpayer inherits a property from their father, who originally purchased it in 1990 for ₹10 lakh.
    • Under Section 73, the cost of acquisition is deemed to be the cost incurred by the previous owner (father), i.e., ₹10 lakh.
    • If the taxpayer sells the property in 2023 for ₹1 crore, the capital gains will be calculated based on the deemed cost of ₹10 lakh.

  2. Demerger Scenario:

    • Company A demerges, and a taxpayer receives shares in the new entity (Company B).
    • The net worth of Company A before demerger is ₹50 crore (paid-up capital + general reserves).
    • The cost of acquisition for the shares in Company B will be determined based on the net worth and the proportion of shares received.

By following these rules, taxpayers can ensure accurate capital gains calculations and compliance with the law.