Computation of actual cost
[As per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 39(1) of Income Tax Act 2025
39(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
39(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
39(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
39(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 transferee company 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
39(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
39(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
39(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).
FAQs on Section 39 of Income Tax Act 2025
- What is meant by “actual cost” under Section 39 of the Income Tax Act, 2025?
“Actual cost” refers to the real cost incurred by the assessee to acquire an asset for business/profession use, adjusted for subsidies, grants, credits, and non-eligible payments. - Why is the concept of “actual cost” important for tax purposes?
It forms the basis for calculating depreciation and other deductions related to capital assets under the Act.
- Are subsidies or grants deducted from the actual cost of an asset?
Yes. Any subsidy, grant, or reimbursement received in relation to asset acquisition is deducted while computing the actual cost. - Is GST included in the actual cost of an asset?
No. GST is excluded if input tax credit is claimed and allowed under relevant GST laws. - What happens if I purchase an asset and pay more than ₹10,000 in cash in a day?
The amount exceeding ₹10,000 paid other than through specified banking/online modes is excluded from the actual cost.
- How is the actual cost computed in case of amalgamation?
The amalgamated company shall treat the actual cost of the asset as it was in the hands of the amalgamating company. - What is the actual cost if an asset is reacquired by the assessee?
It is the lower of:
(a) Original cost less depreciation up to the preceding tax year; or
(b) Reacquisition price. - How is actual cost computed when inventory is converted into a capital asset?
The fair market value (FMV) on the date of conversion is considered the actual cost. - What if an asset is acquired via inheritance or gift?
The actual cost is deemed to be the previous owner’s cost, reduced by depreciation that would have been allowed. - Is interest paid on acquisition of asset part of actual cost?
Only interest up to the date the asset is put to use is included. Interest for any period after that is excluded.
- Can the Assessing Officer adjust the actual cost?
Yes, under Section 39(5), if the asset was used by another person earlier and there’s suspicion of tax avoidance, the AO can determine the cost. - What is required before the Assessing Officer can revise actual cost?
Prior approval of the Joint Commissioner is mandatory before making such adjustments.
- How is cost allocated if a grant/subsidy is not directly linked to an asset?
A proportionate formula is used:
A × (B / C)
where A = total grant, B = cost of the asset in question, C = cost of all related assets.
- What are “special modes of acquisition”?
Includes acquisition via gift, inheritance, trust, liquidation, amalgamation, demerger, etc. - What is the actual cost if an asset is acquired under special mode and was allowed a deduction under Section 46?
The actual cost is deemed to be nil.
Section 39 lays out a comprehensive framework for determining the actual cost of assets used in business or profession. It ensures accuracy by deducting subsidies, indirect payments, ineligible taxes, and inappropriate cash transactions.
The section also covers complex scenarios like amalgamations, gifts, and reacquisitions with specific rules and formulas. Furthermore, it empowers tax authorities to reassess costs in potential tax avoidance cases. Overall, Section 39 promotes fairness and transparency in asset valuation for tax purposes.
