Section 73
Section 73: cost with reference to certain modes of acquisition
Section 73 fixes what counts as the "cost of acquisition" for capital gains purposes when an asset was not simply bought outright, but was received through a gift, inheritance, amalgamation, demerger, conversion, or one of many other special transactions listed in Section 70. It is the successor to Section 49 of the old Act, and it works as a 24-row table matching each acquisition scenario to its deemed cost.
This explanation is AI-assisted and pending review by our CA/CS team. It is general information, not professional advice - always cross-check against the bare law text above or talk to our tax team for guidance specific to your situation.
Assets received by gift, inheritance or a Section 70 exempt transfer
Where a capital asset became the assessee's property under a gift or will; by succession, inheritance or devolution; on liquidation distribution; under a transfer to a revocable/irrevocable trust; via certain HUF distributions after 31 December 1969; or under most of the transactions listed in Section 70(1) (subsidiary/holding transfers, amalgamation, demerger, business reorganisation, relocation, and several others), the deemed cost of acquisition is the cost to the previous owner who acquired it otherwise than through one of these modes, increased by the cost of any improvement borne by that previous owner or the assessee.
Amalgamation, demerger and conversion scenarios
| Asset received via | Deemed cost of acquisition |
|---|---|
| Shares in an amalgamated Indian company (Section 70(1)(f)) | Cost of acquisition of the shares in the amalgamating company |
| Shares/debentures received on conversion of bonds/debentures/deposit certificates (Section 70(1)(z)/(za)) | That part of the original bond/debenture/deposit certificate's cost relating to the converted asset |
| Specified security or sweat equity shares (Section 17(1)(d)) | The fair market value already taken into account as a perquisite |
| Partner's rights on LLP conversion (Section 70(1)(ze)) | Cost of acquisition of the shares in the company immediately before conversion |
| Equity shares from conversion of preference shares (Section 70(1)(zb)) | That part of the preference shares' cost relating to the converted asset |
| Shares in a resulting company from a demerger | Cost of acquisition of shares in the demerged company × (net book value of assets transferred ÷ net worth of demerged company immediately before demerger) |
| Original shares retained in the demerged company | Original cost of acquisition, reduced by the amount allocated to the resulting company's shares above |
Other specific scenarios
- Shares acquired by a non-resident on redemption of Global Depository Receipts: the price prevailing on a recognised stock exchange on the date the redemption request was made.
- Units of a business trust received via Section 70(1)(zi) (SPV shares exchanged for trust units): cost of acquisition of the original SPV shares.
- Units in a consolidated mutual fund scheme or plan (Section 70(1)(zj)/(zk)): cost of acquisition of the units in the consolidating scheme/plan.
- Units in a segregated portfolio: computed by a formula apportioning the original portfolio's cost based on relative Net Asset Values; the original units retained in the main portfolio get the residual cost.
- Shares held under Section 70(1)(zl) (joint venture interest exchange by a public sector company): cost of acquisition of the joint venture interest.
- A capital asset deemed chargeable to tax under Section 71(1) (withdrawal-of-exemption cases): the cost for which the transferee company originally acquired the asset.
- An Electronic Gold Receipt received in exchange for gold, or gold released against an Electronic Gold Receipt (Section 70(1)(y)): the cost of the gold, or the cost of the Electronic Gold Receipt, respectively.
Key definitions
Section 73(2) clarifies that "previous owner of the property" means the last owner who acquired the asset by a mode other than the ones listed in the table; "net worth" (for the demerger rows) means paid-up share capital plus general reserves in the demerged company's books immediately before demerger; and the demerger-related rows also apply to a co-operative bank's business reorganisation under Section 64.
Frequently asked questions
What is the cost of acquisition for a capital asset I inherited?
The cost for which the previous owner (the last one who actually acquired it, other than by gift/inheritance/similar mode) originally acquired it, increased by the cost of any improvement borne by the previous owner or by you, per Section 73(1) Sl. No. 1.
How is the cost of shares received in a demerger computed?
By the formula: cost of acquisition of shares in the demerged company multiplied by (net book value of assets transferred in the demerger ÷ net worth of the demerged company immediately before the demerger), per Section 73(1) Sl. No. 14.
Related sections
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