Tag: Cost of acquisition

Cost of Acquisition for Capital Gains: Gifted, Inherited and Pre-2001 Assets (Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

Last updated: 16 August 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • A gift, will or inheritance is not a transfer, so the giver pays no capital gains tax. The receiver takes over the previous owner’s cost of acquisition and counts his holding period (section 70, section 73 Table serial 1, section 2(101)).
  • For assets acquired before 1 April 2001, the cost is the actual cost or the fair market value on that date, at your option; for land or building the fair market value is capped at the stamp duty value (section 90(9) and (10)).
  • For listed equity shares and equity-oriented fund units bought before 1 February 2018, the cost is the higher of actual cost and the lower of the value on 31 January 2018 and the sale price (section 90(7)).
  • If the previous owner’s cost cannot be found, his cost is the fair market value on the date he acquired it (section 90(11)).

To compute a capital gain you subtract the cost of acquisition from the sale price. For an asset you bought, that is simple. For an asset you received as a gift or inheritance, or that has been in the family since before 2001, the Income-tax Act, 2025 has specific rules. They are in sections 73 and 90.

Gifts and inheritance: no tax on receipt of the asset

  • A transfer by gift, will or irrevocable trust by an individual or HUF is not a transfer for capital gains (section 70(1)(b)), and a partition of a HUF is also outside it (section 70(1)(a)). The giver does not pay capital gains tax.
  • The receiver is not taxed on a gift of money or property received from a relative, on the occasion of marriage, under a will or by way of inheritance, or in contemplation of death (section 92(3)). A gift from a non-relative above ₹50,000 in a year, in cash or property, is taxed as income from other sources (section 92(2)(m)). “Relative” includes the spouse, brothers and sisters, and lineal ascendants and descendants and their spouses (section 92(5)(g)).
  • Income from an asset you gift to your spouse or minor child is generally added to your own income (section 99, income of other persons included), and a house gifted to a spouse or minor child remains yours for house property tax (section 25).

The receiver’s cost and holding period

When the receiver sells the asset:

  • Cost of acquisition is the cost for which the previous owner acquired it, increased by the cost of improvement borne by the previous owner or by the receiver (section 73(1), Table serial 1).
  • Previous owner means the last owner who acquired the asset in a way other than gift, will, inheritance, trust transfer, distribution on liquidation and the other modes in that serial (section 73(2)(a)).
  • Holding period includes the period the previous owner held the asset (section 2(101)(c)(B)(I)).
  • If the cost to the previous owner cannot be found, it is taken as the fair market value on the date he acquired the asset (section 90(11)).
  • Cost of improvement covers capital expenditure on additions and alterations. For an asset that came to the previous owner before 1 April 2001, only expenditure on or after 1 April 2001 counts (section 90(1)(b)(i)). It excludes expenditure already claimed against house property, business or other sources income (section 90(2)).

Assets held since before 1 April 2001

For an asset that became yours, or the previous owner’s, before 1 April 2001, the cost of acquisition is the actual cost or the fair market value on 1 April 2001, at your option (section 90(9)(a) and (b)). For land or building the fair market value on 1 April 2001 cannot exceed the stamp duty value on that date, where it is available (section 90(10)).

Shares and units bought before 1 February 2018 (grandfathering)

For long-term equity shares of a company, units of an equity-oriented fund or units of a business trust that are covered by section 198 and were acquired before 1 February 2018, the cost of acquisition is the higher of:

  • (a) the actual cost; and
  • (b) the lower of (i) the fair market value, and (ii) the sale price.

The fair market value is the highest quoted price on 31 January 2018 for a listed asset, the highest price on the nearest earlier trading day if there was no trade that day, and the net asset value for an unlisted unit (section 90(8)). For shares not listed on 31 January 2018 but listed on the transfer date, the Act gives an indexed cost formula.

Other cost rules

Asset Cost of acquisition
Bonus shares or other financial assets allotted without payment on the basis of holding Nil (section 90(6)(d))
Rights shares you subscribe for The amount you paid (section 90(6)(c))
The right to subscribe, if you renounce it Nil (section 90(6)(b))
Shares you buy from the person who renounced the right The price paid to him plus the amount paid to the company (section 90(6)(e))
Shares after consolidation, sub-division or conversion Cost worked out from the original shares (section 90(9)(d))
Shares on distribution of assets in liquidation Fair market value on the date of distribution (section 90(9)(c))
Shares allotted under an ESOP or RSU The fair market value taxed as a perquisite (section 73, serial 4)
Goodwill, brand, tenancy rights and other rights The purchase price, or nil in other cases (section 90(3))

Examples

1. Inherited house. Your father bought a house in 1990 for ₹2,00,000. Its fair market value on 1 April 2001 was ₹10,00,000, below the stamp duty value on that date. You inherit it in 2018 and sell it in September 2026 for ₹80,00,000. You can choose the cost: ₹2,00,000 (actual) or ₹10,00,000 (value on 1 April 2001). Choose ₹10,00,000, which gives the lower gain. The holding period includes your father’s, so the gain is long-term: 80,00,000 - 10,00,000 = ₹70,00,000. Tax is at 12.5% without indexation, or, as the house was acquired before 23 July 2024, the lower of that and 20% with indexation, if you are a resident individual (section 197).

2. Gifted shares. Your father gives you listed shares he bought in 2015 for ₹1,00,000. They were worth ₹3,00,000 on 31 January 2018. You sell them in 2026 for ₹5,00,000. The cost is the higher of ₹1,00,000 and the lower of ₹3,00,000 and ₹5,00,000, that is ₹3,00,000. The gain is ₹2,00,000, long-term, and taxable above ₹1,25,000 at 12.5%.

3. Gift from a friend. If a friend (not a relative) gives you land with a stamp duty value of ₹20,00,000, you are taxed on ₹20,00,000 as income from other sources in the year you receive it (section 92(2)(m)). That value is then your cost of acquisition if you sell the land later (section 73, serial 17).

Points to keep in mind

  • Keep the documents of the previous owner’s cost and any improvements. For old assets, a registered valuer’s report for the value on 1 April 2001 supports the option.
  • The cost of acquisition cannot include interest you claimed as a deduction elsewhere (section 72(3)).
  • For ESOP shares and shares of a foreign company, see our posts on ESOP taxation and on capital gains.
  • If the property was inherited, check whether the heir needs a will or legal heir certificate to prove the mode of acquisition.

Frequently asked questions

Is there capital gains tax when I gift or inherit an asset?

No. A transfer by gift, will or inheritance is not a transfer for capital gains (section 70(1)(b)), and the receiver is not taxed on a gift from a relative or on an inheritance (section 92(3)). Tax arises when the receiver later sells the asset.

What is the cost of an inherited or gifted asset?

The cost for which the previous owner acquired it, plus any cost of improvement borne by the previous owner or by you (section 73(1), Table serial 1). “Previous owner” is the last owner who acquired it other than by gift, will, inheritance or one of the other modes in that serial.

Does the holding period of the giver count?

Yes. The period for which the previous owner held the asset is included in your holding period (section 2(101)(c)), so an asset held by the giver for a long time is long-term in your hands even if you sell soon after receiving it.

What if the asset was bought before 1 April 2001?

You may take either the actual cost or its fair market value on 1 April 2001. For land or building the fair market value cannot exceed the stamp duty value on that date (section 90(9) and (10)). The same applies where the previous owner held it before that date.

How are shares bought before 1 February 2018 treated?

For long-term listed equity shares, units of an equity-oriented fund or a business trust, the cost is the higher of the actual cost and the lower of (i) the highest quoted price on 31 January 2018 (or net asset value for unlisted units) and (ii) the sale price (section 90(7) and (8)).

What is the cost of bonus and rights shares?

Bonus shares: nil. Rights shares: the amount you paid for them. A right to subscribe that you renounce: nil (section 90(5) and (6)).

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Capital Gains Tax in India: Short-Term, Long-Term, Rates and Computation (Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

Last updated: 26 July 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Capital gains are the profit on transfer of a capital asset, taxed in the year of transfer under section 67 of the Income-tax Act, 2025; they are computed as the sale value less expenses on the transfer, the cost of acquisition and the cost of improvement (section 72).
  • An asset held for 12 months or less (listed securities, equity-oriented fund units, UTI units, zero coupon bonds) or 24 months or less (everything else) is short-term; otherwise it is long-term (section 2(101)).
  • Short-term gains on listed equity with STT are taxed at 20%; long-term gains are taxed at 12.5%, and gains on listed equity with STT are taxed at 12.5% only on the part above ₹1,25,000 a year.
  • Resident individuals and HUFs can choose indexed cost at 20% for land or building acquired before 23 July 2024 if that gives a lower tax.

Profit on selling a house, plot, shares, mutual fund units or gold is taxed as capital gains. The rules sit in sections 67 to 91 of the Income-tax Act, 2025 (they were sections 45 to 55A of the 1961 Act), and the tax rates in sections 196 to 198. This post sets out the framework for tax year 2026-27, from the sale date to the tax.

What is taxed

Section 67(1): profits or gains from the transfer of a capital asset in a tax year are chargeable under the head “Capital gains” and are the income of the year in which the transfer took place. “Capital asset” means property of any kind held by you, whether or not connected with your business or profession (section 2(22)).

Some transactions are not a transfer (section 70): a gift or will by an individual or HUF, partition of a HUF, certain transfers between a company and its wholly owned subsidiary, amalgamation, and others. A gift is tax free to the giver, but the receiver takes over the cost and holding period of the giver (see our post on cost of acquisition).

The Act also specifically taxes some receipts as capital gains: insurance money received for destruction of a capital asset (section 67(2)), gains on conversion of a capital asset into stock-in-trade (section 67(6), taxed when the stock is sold), contributing an asset to a firm of which you are a partner (section 67(9)), enhanced compensation (section 67(12)), and a real estate joint development (section 67(14)).

Short-term or long-term (section 2(101))

Asset Short-term if held for
Security listed on a recognised stock exchange in India, unit of UTI, unit of an equity-oriented fund, zero coupon bond 12 months or less
Every other capital asset (unlisted shares, foreign shares, land, building, gold, debt fund units and so on) 24 months or less

The holding period runs from the date of acquisition to the date of transfer. It includes the previous owner’s period for a gift, will, inheritance and the other cases in section 73(1) Table serial 1, and, for shares or securities allotted by an employer under an ESOP, runs from the date of allotment. A specified mutual fund bought on or after 1 April 2023, a market linked debenture, and an unlisted bond or debenture transferred or redeemed on or after 23 July 2024 give short-term gains whatever the holding period (section 76).

How the gain is computed (section 72)

Capital gain = full value of consideration, less expenditure incurred wholly and exclusively on the transfer, less the cost of acquisition, less the cost of any improvement.

  • Interest claimed as a deduction under section 22(1)(b) or Chapter VIII and securities transaction tax are not deducted.
  • For land or building, if the sale price is less than the stamp duty value, the stamp duty value is taken as the sale price, but a gap of up to 10% is ignored (section 78). For unquoted shares sold below fair market value, the fair market value is used (section 79).
  • If the price cannot be ascertained, the fair market value on the transfer date is used (section 80).
  • Cost of improvement means capital expenditure on additions or alterations, not repairs (section 90(1) and (2)).

Cost of acquisition

Situation Cost
Bought What you paid
Gift, inheritance, will, certain transfers Cost to the previous owner (the last owner who acquired it otherwise), plus his cost of improvement (section 73(1), Table serial 1)
Acquired before 1 April 2001 Cost, or fair market value on 1 April 2001, at your option; for land or building the fair market value cannot exceed the stamp duty value on that date (section 90(9) and (10))
Long-term listed equity shares, equity-oriented fund units or business trust units acquired before 1 February 2018 The higher of (a) cost and (b) the lower of the fair market value on 31 January 2018 and the sale price (section 90(7))
Shares allotted under an ESOP or RSU The fair market value taken for the perquisite (section 73, serial 4)
Bonus shares and rights shares Nil for bonus shares; the amount paid for rights shares (section 90(5) and (6))

Tax rates (sections 196 to 198)

Gain Rate
Short-term gain on equity shares or units of an equity-oriented fund or a business trust, sold on a stock exchange with STT paid 20% (section 196)
Other short-term gains Normal slab rates
Long-term gain on listed equity shares, equity-oriented fund units or business trust units, where STT was paid on acquisition and transfer (STT on transfer only for fund and trust units) 12.5% on the gain above ₹1,25,000 in the year (section 198)
Other long-term gains (unlisted shares, property, gold, debt units and so on) 12.5%, without indexation (section 197)
Long-term gain on land or building acquired before 23 July 2024, by a resident individual or HUF The lower of 12.5% without indexation, and 20% with the indexed cost of acquisition and improvement (section 197(3))

Other points on rates:

  • For a resident individual or HUF, if the rest of your income is below the basic exemption limit, the shortfall is set against the capital gain before tax is applied (sections 196(2), 197(2) and 198(3)).
  • Chapter VIII deductions (section 123 and others) are allowed only from income other than these capital gains (sections 196(4), 197(5), 198(6)).
  • The rebate under section 156 is allowed against tax on income other than the special-rate capital gains. It does not wipe out tax on long-term gains under section 198 (section 198(7)).
  • Surcharge on tax on these capital gains is capped at 15% whatever the income (Finance Act, 2026), and cess is 4%.

Examples

1. Long-term gain on listed shares. A resident individual bought listed shares for ₹4,00,000 on 12/06/2025 and sold them on a stock exchange on 20/08/2026 for ₹6,10,000, with STT paid on both. Held for more than 12 months, so long-term.

  • Gain: 6,10,000 - 4,00,000 = ₹2,10,000
  • Exempt part: ₹1,25,000; taxable: ₹85,000
  • Tax at 12.5% = ₹10,625; cess 4% = ₹425; total ₹11,050

2. Short-term gain on listed shares. Bought on 01/04/2026 for ₹2,00,000, sold on 10/10/2026 for ₹2,50,000, STT paid. Gain ₹50,000; tax at 20% = ₹10,000 plus cess ₹400 = ₹10,400.

3. Listed shares bought before 1 February 2018. Cost ₹1,00,000 in 2015; value on 31 January 2018 ₹3,00,000; sold in 2026 for ₹5,00,000. Deemed cost = higher of 1,00,000 and the lower of 3,00,000 (value on 31/01/2018) and 5,00,000 (sale price) = ₹3,00,000. Gain = ₹2,00,000; taxable above ₹1,25,000 = ₹75,000 at 12.5% = ₹9,375.

4. Plot of land. Bought for ₹10,00,000 in March 2020 and sold for ₹30,00,000 in August 2026. Held more than 24 months, so long-term. Tax at 12.5% without indexation: 20,00,000 × 12.5% = ₹2,50,000. If indexing the cost at 20% gives a lower figure, the resident individual pays that lower tax, because the land was acquired before 23 July 2024. See our post on capital gains on property.

Losses

  • A short-term capital loss can be set off against any capital gain, short-term or long-term; a long-term capital loss only against long-term gains (section 108(2)).
  • A capital loss cannot be set off against other heads such as salary (section 109(2)).
  • Unabsorbed losses carry forward for eight tax years against capital gains of the matching kind (section 111), and only if the loss was determined in a return filed by the due date (section 121). See our post on capital loss set-off.

Reporting

Capital gains are reported in the capital gains schedule of the return, with each sale listed (date, cost, sale price). If you have capital gains beyond the long-term gains of ₹1,25,000 under section 198, you cannot use the simple ITR-1 (see our post on which ITR form to file). Pay advance tax on gains as they arise.

Frequently asked questions

What is a capital asset?

Property of any kind held by you, whether or not connected with your business, such as land, a house, shares, units, gold and jewellery, and certain other items (section 2(22)). Stock-in-trade and some other items are outside the definition.

When is a gain short-term or long-term?

Short-term if the asset is held for not more than 24 months before transfer; for a security listed in India, a UTI unit, a unit of an equity-oriented fund or a zero coupon bond the period is 12 months. A longer holding makes the gain long-term (section 2(101)).

What are the capital gains tax rates?

Short-term gain on listed equity shares and equity-oriented fund units sold with STT: 20%. Other short-term gains: slab rates. Long-term gains: 12.5%, and on listed equity shares and equity-oriented fund units with STT 12.5% only on gains above ₹1,25,000 in the year (sections 196 to 198).

Is indexation still available?

Only for a resident individual or HUF selling land or building acquired before 23 July 2024, who may pay the lower of 12.5% without indexation and 20% with indexation (section 197(3)). Indexation is not available for other assets.

How is the cost of acquisition fixed?

Generally what you paid; for gifted or inherited assets, the cost to the previous owner (section 73); for assets acquired before 1 April 2001, cost or fair market value on that date at your option; for listed equity acquired before 1 February 2018, the higher of cost and the lower of its value on 31 January 2018 and the sale price (section 90).

Can I set off a capital loss?

A short-term loss against any capital gain, a long-term loss only against long-term gains. Unabsorbed losses carry forward for eight tax years if the return was filed on time (sections 108, 111 and 121).

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.