Income Tax Act 2025: Section 90 for Tax Year 2026-27

Meaning of “adjusted”, “cost of improvement” and “cost of acquisition”

[Section-90 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]

Section 90(1) of Income Tax Act 2025

90(1) For the purposes of sections 72 and 73, “cost of improvement”,—

• 90(1)(a) in relation to a capital asset being goodwill or any intangible asset of a business, or a right to manufacture, produce or process any article or thing, or right to carry on any business or profession, or any other right, shall be taken to be nil; and
• 90(1)(b) in relation to any other capital asset,—
  • (i) if the capital asset became the property of the previous owner or the assessee before the 1st April, 2001, means all expenditure of a capital nature incurred on or after the said date in making any additions or alterations to the capital asset by the previous owner or the assessee; and
  • (ii) in any other case, all expenditure of a capital nature incurred in making any additions or alterations to the capital asset by the assessee after it became his property, and, where the capital asset became the property of the assessee by any of the modes specified in section 73 (Table: Sl. No. 1), by the previous owner.

Section 90(2) of Income Tax Act 2025

90(2) For the purposes of sub-section (1)(b), the cost of improvement does not include any expenditure which is deductible in computing the income chargeable under the head “Income from house property”, “Profits and gains of business or profession” or “Income from other sources”.

Section 90(3) of Income Tax Act 2025

90(3) For the purposes of sections 72 and 73, “cost of acquisition”, of a capital asset (being goodwill of a business or profession, or a trade mark or brand name associated with a business or profession, or any other intangible asset, or a right to manufacture, produce or process any article or thing, or a right to carry on any business or profession, or tenancy rights, or stage carriage permits, or loom hours, or any other right) means—

• (a) purchase price, if acquisition of such asset by the assessee is by purchase from the previous owner; and
• (b) purchase price for the previous owner, in the case covered in section 73 (Table: Sl. No. 1), where such asset was acquired by purchase by the previous owner as defined in sub-section (2) of the said section; and
• (c) nil, in any other case.

Section 90(4) of Income Tax Act 2025

90(4) For the purposes of sub-section (3)(a) or (b), if—

• (a) the capital asset is goodwill of a business or profession; and
• (b) the assessee has obtained a deduction on account of depreciation under section 32(1) of the Income-tax Act, 1961 in a tax year preceding the tax year commencing on the 1st April, 2020,

then the total amount of depreciation obtained before the tax year commencing on the 1st April, 2020 shall be reduced from the amount of purchase price.

Section 90(5) of Income Tax Act 2025

90(5) For the purposes of sections 72 and 73(a) and (b), and subject to the provisions of sub-sections (9)(a) and (b), “cost of acquisition” shall be as per sub-section (6), in a case where, by virtue of holding a capital asset, being a share or any other security, within the meaning of section 2(h) of the Securities Contracts (Regulation) Act, 1956 (herein referred to as the financial asset), the assessee—

• (a) becomes entitled to subscribe to any additional financial asset; or
• (b) is allotted any additional financial asset without any payment.

Section 90(6) of Income Tax Act 2025

90(6) In a case referred to in sub-section (5), “cost of acquisition”, in relation to––

• (a) the original financial asset, on the basis of which the assessee becomes entitled to any additional financial asset, means the amount actually paid for acquiring the original financial asset;
• (b) any right to renounce the said entitlement to subscribe to the financial asset, when such right is renounced by the assessee in favour of any person, shall be taken to be nil in the case of such assessee;
• (c) the financial asset, to which the assessee has subscribed on the basis of the said entitlement, means the amount actually paid for acquiring such asset;
• (d) the financial asset allotted to the assessee without any payment and on the basis of holding of any other financial asset, shall be taken to be nil; and
• (e) any financial asset purchased by any person in whose favour the right to subscribe to such asset has been renounced, means the total amount of the purchase price paid to the person renouncing such right and the amount paid to the company or institution, for acquiring such financial asset.

Section 90(7) of Income Tax Act 2025

90(7) For the purposes of sections 72 and 73, “cost of acquisition”, subject to sub-sections (9)(a) and (b), in relation to a long-term capital asset, being an equity share in a company or a unit of an equity oriented fund or a unit of a business trust referred to in section 198, acquired before the 1st February, 2018, shall be higher of—

• 90(7)(a) the cost of acquisition of such asset; and
• 90(7)(b) lower of—
  • (i) the fair market value of such asset; and
  • (ii) the full value of consideration received or accruing as a result of the transfer of the capital asset.

Section 90(8) of Income Tax Act 2025

90(8) For the purposes of sub-section (7),—

• 90(8)(a) “Cost Inflation Index”, shall have the meaning assigned to it in section 72(8)(ii);
• 90(8)(b) “fair market value” means,—
  • (i) in a case where the capital asset is listed on any recognised stock exchange as on the 31st January, 2018, the highest price of the capital asset quoted on such exchange on that date;
  • (ii) irrespective of sub-clause (i), if there is no trading in such asset on such exchange on the 31st January, 2018, the highest price of such asset on such exchange on a date immediately preceding the 31st January, 2018 when such asset was traded shall be the fair market value;
  • (iii) if the capital asset is a unit which is not listed on a recognised stock exchange as on the 31st January, 2018, the net asset value of such unit as on that date;
  • (iv) if the capital asset is an equity share in a company which is—
    • (A) not listed on a recognised stock exchange as on the 31st January, 2018 but listed on the date of transfer;
    • (B) not listed on a recognised stock exchange as on the 31st January, 2018, or which became the property of the assessee in consideration of share which is not listed on such exchange as on the 31st January, 2018 by way of transaction mentioned in section 70, but listed on such exchange subsequent to the date of transfer (where such transfer is in respect of sale of unlisted equity shares under an offer for sale to the public included in an initial public offer);
    • (C) listed on a recognised stock exchange on the date of transfer and which became the property of the assessee in consideration of share which is not listed on such exchange as on the 31st January, 2018 by way of transaction mentioned in section 70,

an amount which bears to the cost of acquisition the same proportion as Cost Inflation Index for the tax year 2017-18 bears to the Cost Inflation Index for the first year in which the asset was held by the assessee or for the year beginning on the 1st April, 2001, whichever is later.

Section 90(9) of Income Tax Act 2025

90(9) For the purposes of sections 72 and 73, cost of acquisition in relation to any other capital asset,—

• (a) if the capital asset became the property of the assessee before the 1st April, 2001, subject to sub-section (10), shall be the cost of acquisition of the asset to the assessee or its fair market value on the 1st April, 2001, at the option of the assessee;
• (b) if the capital asset became the property of the assessee by any of the modes specified in section 73 (Table: Sl. No. 1), and the capital asset became the property of the previous owner before the 1st April, 2001, subject to sub-section (10), shall be the cost of the capital asset to the previous owner or its fair market value on the 1st April, 2001, at the option of the assessee;
• (c) if the capital asset became the property of the assessee on the distribution of the capital assets of a company on its liquidation and the assessee has been assessed to income-tax under the head “Capital gains” in respect of that asset under section 68, means the fair market value of the asset on the date of distribution;
• (d) if the capital asset, being a share or a stock of a company, became the property of the assessee on—
  • (i) the consolidation and division of all or any of the share capital of the company into shares of larger amount than its existing shares; or
  • (ii) the conversion of any shares of the company into stock; or
  • (iii) the re-conversion of any stock of the company into shares; or
  • (iv) the sub-division of any of the shares of the company into shares of smaller amount; or
  • (v) the conversion of one kind of shares of the company into another kind,

means the cost of acquisition of the asset calculated with reference to the cost of acquisition of the shares or stock from which such asset is derived.

Section 90(10) of Income Tax Act 2025

90(10) In case of a capital asset referred to in sub-sections (9)(a) and (9)(b), being land or building, or both, the fair market value of such asset on the 1st April, 2001 for the said clauses shall not exceed the stamp duty value, wherever available, of such asset as on the 1st April, 2001.

Section 90(11) of Income Tax Act 2025

90(11) If the cost for which the previous owner acquired the property is unable to be ascertained, the cost of acquisition to the previous owner shall be the fair market value on the date on which the capital asset became the property of the previous owner.

FAQs on Section 90 of Income Tax Act 2025

What does “cost of improvement” mean under section 90(1) of the Income Tax Act, 2025?
“Cost of improvement” refers to capital expenditure incurred to make additions or alterations to a capital asset, subject to specific conditions for intangible assets and other assets.

What is the cost of improvement for goodwill or intangible assets?
For goodwill or any intangible asset, the cost of improvement is taken to be nil.

What is the cost of improvement for other capital assets acquired before 1st April, 2001?
It includes all capital expenditure incurred on or after 1st April, 2001 by the previous owner or the assessee to make additions or alterations to the asset.

What is the cost of improvement for capital assets acquired after 1st April, 2001?
It includes all capital expenditure incurred by the assessee after acquisition, or by the previous owner if acquired by the specified modes under section 73 (Table Sl. No. 1).

Does cost of improvement include deductible expenditure?
No, expenditure deductible under “Income from house property”, “Profits and gains of business or profession”, or “Income from other sources” is excluded from the cost of improvement.

What does “cost of acquisition” mean under section 90(3)?
“Cost of acquisition” generally means the purchase price paid for acquiring the capital asset or the previous owner’s purchase price, or nil, depending on the situation.

When is the cost of acquisition considered as the assessee’s purchase price?
When the assessee directly purchased the asset from the previous owner.

When is the cost of acquisition considered as the previous owner’s purchase price?
When the asset was acquired by the assessee through any of the modes specified in section 73 (Table Sl. No. 1), and the previous owner had purchased it.

When is the cost of acquisition considered nil?
When the asset was neither purchased by the assessee nor the previous owner, and falls outside the specified cases.

How is the cost of acquisition adjusted for goodwill with earlier depreciation?
If the assessee had claimed depreciation for goodwill under the old 1961 Act before 1st April, 2020, the total depreciation obtained must be reduced from the purchase price.

What is the cost of acquisition in case of additional financial assets?
It follows the rules under section 90(6) based on whether the asset was allotted, subscribed to, or rights were renounced.

What is the cost of acquisition of the original financial asset for additional entitlements?
It is the amount actually paid for acquiring the original financial asset.

What is the cost of acquisition for a right to renounce entitlement?
It is taken to be nil for the assessee.

What is the cost of acquisition for a financial asset subscribed on entitlement basis?
It is the actual amount paid for acquiring the financial asset.

What is the cost of acquisition for a financial asset allotted without payment?
It is taken to be nil.

What is the cost of acquisition for a buyer of renounced rights?
It is the total of the price paid to the renouncer and the price paid to the company or institution.

What is the cost of acquisition for equity shares and units acquired before 1st February, 2018?
It is the higher of the actual cost of acquisition or the lower of the fair market value as on 31st January, 2018 and the full value of consideration received.

How is “fair market value” determined for listed shares as on 31st January, 2018?
It is the highest quoted price of the share on that day on a recognised stock exchange.

What if there was no trading on 31st January, 2018?
The highest price quoted on a date immediately preceding 31st January, 2018 is considered.

How is fair market value determined for unlisted units as on 31st January, 2018?
It is the net asset value (NAV) of the unit as on 31st January, 2018.

What happens for unlisted shares that later got listed?
A proportionate cost adjustment is made based on the Cost Inflation Index for 2017-18 and the first year of holding or 1st April, 2001, whichever is later.

What is the meaning of “Cost Inflation Index”?
It has the meaning assigned in section 72(8)(ii) of this Act.

How is the cost of acquisition determined for capital assets acquired before 1st April, 2001?
It is either the original cost or the fair market value as on 1st April, 2001, at the option of the assessee.

How is cost determined if the asset was received by specified modes before 1st April, 2001?
It is either the cost to the previous owner or the fair market value as on 1st April, 2001, at the option of the assessee.

What is the cost of acquisition for assets received on liquidation of a company?
It is the fair market value on the date of distribution.

What is the cost of acquisition for shares resulting from reorganisation events like split, consolidation, etc.?
It is determined with reference to the cost of the original shares or stock from which they are derived.

What is the maximum fair market value for land or building as on 1st April, 2001?
It cannot exceed the stamp duty value as on 1st April, 2001, wherever available.

What if the previous owner’s cost cannot be determined?
The cost of acquisition will be the fair market value on the date when the previous owner acquired the property.