Mode of computation of capital gains
[Section-72 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 72(1) of Income Tax Act 2025
72(1) Income chargeable under the head “Capital gains” shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset, the following amounts:—
- (a) expenditure incurred wholly and exclusively in connection with such transfer; and
- (b) the cost of acquisition of the asset and the cost of any improvement thereto.
Section 72(2) of Income Tax Act 2025
72(2) In cases, as prescribed, the provisions of sub-section (1) shall have effect as if for the words “cost of acquisition” and “cost of any improvement”, the words “indexed cost of acquisition” and “indexed cost of any improvement” had respectively been substituted.
Section 72(3) of Income Tax Act 2025
72(3) In computing the income chargeable under the head “Capital gains”, the following amounts shall not be allowed as a deduction:—
- (a) the interest claimed as deduction under section 22(1)(b) or under Chapter VIII;
- (b) any sum paid as securities transaction tax under Chapter VII of the Finance (No.2) Act, 2004.
Section 72(4) of Income Tax Act 2025
72(4) If a unit holder receives any amount from a business trust with respect to a unit that is not in the nature of income under Schedule V (Table: Sl. No. 3. or 4) and is not chargeable to tax under section 92(2)(k) or 223(2), then,––
- (a) such amount shall be reduced from the cost of acquisition of such unit; and
- (b) if the transaction of transfer of a unit is not considered as transfer under section 70 and cost of acquisition of such unit is determined under section 73, the amount received with respect to such unit before as well as after such transaction, shall be reduced from the cost of acquisition.
Section 72(5) of Income Tax Act 2025
72(5) In case of value of any money or capital asset received by a specified person from a specified entity, as referred to in section 67(10), the specified entity is entitled to a deduction calculated in such manner, as prescribed for computing the amount chargeable to income-tax in its hands under that sub-section which is attributable to the transfer of such capital asset.
Section 72(6) of Income Tax Act 2025
72(6) In the case of an assessee, who is a non-resident, capital gains arising from the transfer of a capital asset being shares in, or debentures of, an Indian company (other than equity shares referred to in section 198) shall be computed––
- (a) by converting the cost of acquisition, expenditure incurred, wholly and exclusively, in connection with such transfer and the full value of the consideration received or accruing as a result of the transfer of the capital asset into the same foreign currency as was initially utilised in the purchase of the shares or debentures; and
- (b) the capital gains so computed in such foreign currency shall be reconverted into Indian currency, so, however, that the said manner of computation of capital gains shall be applicable in respect of capital gains accruing or arising from every reinvestment thereafter in, and sale of, shares in, or debentures of, an Indian company.
Section 72(7) of Income Tax Act 2025
72(7) In the case of an assessee who is a non-resident, any gains arising on account of appreciation of rupee against a foreign currency at the time of redemption of rupee denominated bond of an Indian company held by the assessee, shall be ignored for the purpose of computing the full value of consideration.
Section 72(8) of Income Tax Act 2025
72(8) In this section, the expressions––
- (a) “Cost Inflation Index”, in relation to a tax year, means such Index as the Central Government may, having regard to 75% of average rise in the Consumer Price Index (urban) for the immediately preceding tax year to such tax year, by notification, specify, in this behalf;
- (b) “indexed cost of acquisition” means an amount which bears to the cost of acquisition, the same proportion as Cost Inflation Index for the year in which the asset is transferred 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 1st April, 2001, whichever is later; and
- (c) “indexed cost of any improvement” means an amount which bears to the cost of improvement, the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the year in which the improvement to the asset took place.
FAQs on Section 72 of Income Tax Act 2025
1. What is the general mode of computation of capital gains under Section 72(1) of the Income Tax Act, 2025?
Capital gains are computed by deducting from the full value of consideration the expenditure incurred wholly and exclusively in connection with the transfer, and the cost of acquisition and cost of any improvement to the asset.
2. What amounts can be deducted while computing capital gains?
The expenditure incurred wholly and exclusively in connection with the transfer and the cost of acquisition and any cost of improvement can be deducted.
3. What is the effect of Section 72(2) regarding indexed cost of acquisition and improvement?
In prescribed cases, the cost of acquisition and cost of improvement are replaced by indexed cost of acquisition and indexed cost of improvement for computing capital gains.
4. What does ‘indexed cost of acquisition’ mean?
It refers to the cost of acquisition adjusted based on the Cost Inflation Index notified by the Central Government.
5. What is meant by ‘indexed cost of any improvement’?
It is the cost of improvement adjusted according to the Cost Inflation Index applicable for the year in which the improvement took place.
6. What is the Cost Inflation Index under Section 72(8)?
It is an index notified by the Central Government considering 75% of the average rise in the Consumer Price Index (urban) for the immediately preceding tax year.
7. What expenses are not allowed as deduction while computing capital gains as per Section 72(3)?
Interest claimed as deduction under Section 22(1)(b) or Chapter VIII, and any sum paid as securities transaction tax are not allowed as deductions.
8. Is interest claimed under Section 22(1)(b) allowed again during capital gains computation?
No, such interest is specifically disallowed under Section 72(3)(a).
9. Is Securities Transaction Tax (STT) deductible when calculating capital gains?
No, STT paid under Chapter VII of the Finance (No.2) Act, 2004 cannot be deducted.
10. How is the cost of acquisition adjusted when a unit holder receives amounts from a business trust as per Section 72(4)?
Such amounts are reduced from the cost of acquisition of the unit.
11. What happens if the unit transfer is not regarded as a transfer under Section 70?
The amount received with respect to such units, both before and after the non-transfer transaction, must be reduced from the cost of acquisition determined under Section 73.
12. How is the capital gain computed when a specified person receives money or a capital asset from a specified entity as per Section 72(5)?
The specified entity is allowed a prescribed deduction for computing the amount chargeable to tax attributable to the transfer.
13. How is capital gain computed for a non-resident transferring shares or debentures of an Indian company under Section 72(6)?
The cost of acquisition, expenditure, and sale consideration are converted into the same foreign currency used for purchase and then the capital gains are reconverted into Indian currency.
14. Is special currency conversion applicable for all investments made by non-residents?
Yes, the method of conversion applies for every reinvestment and sale of shares or debentures thereafter.
15. What happens if there is appreciation of the rupee against a foreign currency on redemption of rupee denominated bonds by a non-resident as per Section 72(7)?
The gain arising due to appreciation of the rupee is ignored for the purpose of computing the full value of consideration.
16. Does the mode of computation differ for equity shares referred under Section 198?
Yes, Section 72(6) specifically excludes equity shares referred to in Section 198 from its special computation method for non-residents.
17. What is the relevance of 1st April, 2001 in computation of indexed cost of acquisition?
For assets held prior to 1st April, 2001, the Cost Inflation Index of 1st April, 2001 is considered for indexation.
18. Can the Cost Inflation Index be different every year?
Yes, the Central Government may notify a different Cost Inflation Index for each tax year based on inflation.
19. What is meant by ‘full value of consideration’?
It refers to the total amount received or accruing from the transfer of the capital asset.
20. Does Section 72 cover both resident and non-resident assessees?
Yes, it provides rules for both, with specific provisions for non-residents in sub-sections (6) and (7).
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