Chapter IV - Computation of Total Income
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.
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This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(1) In the case of a capital asset specified in column B of the Table below, the cost of acquisition of the asset shall be deemed to be the cost as mentioned in column C of the said Table.
| Sl. No. | Description of the capital asset | Cost of acquisition |
|---|---|---|
| 1 | If the capital asset became the property of the assessee— (a) under a gift or will; or (b) by succession, inheritance or devolution; or (c) on any distribution of assets on the liquidation of a company; or (d) under a transfer to a revocable or an irrevocable trust; or (e) being a Hindu undivided family, by the mode referred to in section 99(3) after the 31st December, 1969; or (f) under any such transfer as is referred to in section 70(1)(a), (c), (d), (e), (g), (h), (i), (j), (l), (m), (n), (o), (t), (u), (v), (w), (zd), (ze) or (zf). | The cost for which the previous owner of the property acquired it, as increased by the cost of any improvement incurred or borne by the previous owner or the assessee. |
| 2 | Capital asset, being a share or shares in an amalgamated company which is an Indian company that became the property of the assessee in consideration of a transfer referred to in section 70(1)(f). | The cost of acquisition to him of the share or the shares in the amalgamating company. |
| 3 | Capital asset being a share or debenture of a company, which became the property of the assessee in consideration of a transfer referred to in section 70(1) (z) or (za). | That part of the cost of debenture, debenture-stock, bond or deposit certificate in relation to which such asset is acquired by the assessee. |
| 4 | Capital asset, being specified security or sweat equity shares, referred to in section 17(1)(d). | Fair market value taken into account for the purposes of the said clause. |
| 5 | Capital asset, being rights of a partner referred to in section 42 of the Limited Liability Partnership Act, 2008 (6 of 2009), which became the property of the assessee on conversion as referred to in section 70(1)(ze). | The cost of acquisition to him of the share or shares in the company immediately before its conversion. |
| 6 | Capital asset, being share or shares of a company acquired by a non-resident assessee on redemption of Global Depository Receipts referred to in section 209(1) (Table: Sl. No. 2) held by such assessee. | The price of the said share or shares prevailing on any recognised stock exchange on the date on which a request for redemption was made. |
| 7 | Capital asset, being a unit of a business trust, which became the property of the assessee in consideration of a transfer as referred to in section 70(1)(zi). | The cost of acquisition to him of the share referred to in the said clause. |
| 8 | Capital asset, being a unit or units in a consolidated scheme of a mutual fund, which became the property of the assessee in consideration of a transfer referred to in section 70(1)(zj). | The cost of acquisition to him of the unit or units in the consolidating scheme of the mutual fund. |
| 9 | Capital asset, being equity share of a company, which became the property of the assessee in consideration of a transfer referred to in section 70(1)(zb). | That part of the cost of the preference shares in relation to which such asset is acquired. |
| 10 | Capital asset, being a unit or units in a consolidated plan of a mutual fund scheme, which became the property of the assessee in consideration of a transfer referred to in section 70(1)(zk). | The cost of acquisition to him of the unit or units in the consolidating plan of the scheme of the mutual fund. |
| 11 | Capital asset being a unit or units in the segregated portfolio. | Computed as per the following formula:— X = (A × B) / C, where,— X = cost of acquisition of the unit or units in segregated portfolio; A = cost of acquisition of unit or units in the total portfolio; B = Net Asset Value of the asset transferred to the segregated portfolio; and C = Net Asset Value of the total portfolio immediately before segregation of portfolios. |
| 12 | Capital asset being original units held by the unit holder in the main portfolio. | The cost of acquisition of such original units as reduced by the amount as so arrived at under serial number 11. |
| 13 | Capital asset, being shares as referred to in section 70(1)(zl) which became the property of the assessee. | The cost of acquisition to it of the interest in the joint venture referred to in the said clause. |
| 14 | Shares in the resulting company as a result of demerger. | Computed as per the following formula:— X = (A × B) / C, where,— X = cost of acquisition of shares in the resulting company; A = cost of acquisition of shares in demerged company; B = net book value of assets transferred in demerger; and C = net worth of demerged company immediately before demerger. |
| 15 | Original shares held by the shareholder in the demerged company. | The cost of acquisition of such original shares as reduced by the amount so arrived at under serial number 14. |
| 16 | Capital asset deemed to be chargeable to tax according to the provisions of section 71(1). | Cost for which such asset was acquired by the transferee company. |
| 17 | Capital asset being property, where the capital gain arises from the transfer of such property the value of which has been subject to income-tax under section 92(2)(m). | The value taken into account under section 92(2)(m). |
| 18 | Capital asset declared under the Income Declaration Scheme, 2016, where the tax, surcharge and penalty have been paid as per the provisions of such Scheme on the fair market value as on the date of the commencement of that Scheme. | The fair market value of the asset taken into account for the purposes of the said Scheme. |
| 19 | Specified capital asset referred to in clause (c) of the Explanation to section 10(37A) of the Income-tax Act, 1961 (43 of 1961), which has been transferred after the expiry of two years from the end of the tax year in which the possession of such asset was handed over to the assessee. | The stamp duty value as on the last day of the second tax year after the end of the tax year in which the possession of the said specified capital asset was handed over to the assessee. |
| 20 | Capital asset, being share in the project, in the form of land or building, or both, under section 67(14), not being a capital asset referred to in section 67(16). | The amount deemed as full value of consideration under section 67(14). |
| 21 | Capital asset, being the asset held by a trust or an institution in respect of which accreted income has been computed and tax paid thereon as per section 352. | The fair market value of the asset considered for computation of accreted income as on specified date as per section 352(2). |
| 22 | Capital asset referred to in section 26(2)(j). | The fair market value for section 26(2)(j). |
| 23 | Capital asset, being an Electronic Gold Receipt issued by a Vault Manager, which became the property of the person as consideration of a transfer, as referred to in section 70(1)(y). | The cost of gold for the person in whose name Electronic Gold Receipt is issued. |
| 24 | Capital asset being gold released against an Electronic Gold Receipt, which became the property of the person as consideration for a transfer as referred to in section 70(1)(y). | The cost of the Electronic Gold Receipt for such person. |
(2) For the purposes of the Table in sub-section (1), in respect of the entries against— (a) serial number 1, “previous owner of the property” for any capital asset owned by an assessee, means the last previous owner of the capital asset who acquired it by a mode of acquisition other than that referred to in column B thereof; (b) serial numbers 11 and 12, “main portfolio”, “segregated portfolio” and “total portfolio” shall have the same meanings as respectively assigned to them in the Circular No. SEBI/HO/IMD/DF2/CIR/P/2018/160, dated the 28th December, 2018, issued by the Securities and Exchange Board of India; (c) serial numbers 14 and 15, “net worth” means the total of the paid-up share capital and general reserves as appearing in the books of account of the demerged company immediately before the demerger;(d) serial numbers 2, 14 and 15, the provisions as contained therein, shall, as far as may be, also apply in relation to business reorganisation of a co-operative bank as referred to in section 64.
Introduction
An asset acquired through gift, succession or a tax-neutral reorganisation often carries earlier cost history into a later capital-gains calculation. Section 73 identifies which prior owner's cost and holding facts matter.
Key takeaways
Cost depends on acquisition route
The statutory table assigns a deemed cost of acquisition to assets received through listed routes such as inheritance, gift, liquidation and qualifying reorganisations.
Previous-owner rule
For several listed no-consideration transfers, cost carries over from the previous owner, increased by qualifying improvements by that owner or the current owner.
Assets received by gift, inheritance or a Section 70 exempt transfer
Row 1 applies to gifts or wills, succession/inheritance/devolution, liquidation distributions, transfers to revocable or irrevocable trusts, the section 99(3) mode for an HUF after 31 December 1969, and the particular section 70(1) clauses expressly listed in that row. Cost is the previous owner’s acquisition cost plus improvements incurred or borne by that owner or the assessee. Check the exact listed clause rather than assuming that every section 70 transaction follows row 1.
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
For row 1, the previous owner is the last owner who acquired the capital asset by a mode other than one listed in that row’s column B. For demerger rows14 and15, net worth means paid-up share capital plus general reserves in the demerged company’s books immediately before demerger. Subsection (2)(d) extends rows2,14 and15, as far as may be, to co-operative-bank business reorganisation under section64. Portfolio terms in rows11 and12 follow the specified SEBI circular.
Step-by-step flow for applying Section 73
- 1
How did the capital asset become your property?
Section 73 applies only to the acquisition routes listed in column B of the Table, such as gift, will, inheritance, liquidation distribution, listed Section 70 transfers, demerger, conversion, ESOP or sweat equity, or Electronic Gold Receipt conversions.
- Ordinary purchase: Use the actual cost under Section 72.
- A listed route: Go to the next step.
- 2
Which serial number of the Table matches the route?
Match the exact row. For example, row 1 carries the previous owner's cost; row 4 uses the fair market value already taken into account under Section 17(1)(d); rows 11 and 14 use allocation formulae.
- 3
For row 1, who is the 'previous owner'?
Under Section 73(2)(a), it is the last previous owner who acquired the asset by a mode other than those listed in row 1. Add the cost of any improvement borne by the previous owner or by you.
- 4
Apply the deemed cost in the capital-gains computation
The cost from column C is used as the cost of acquisition when the asset is later transferred.
Practical checklist
Do
- Trace the full ownership chain and collect predecessor acquisition and improvement evidence.
- Match the acquisition route to the particular Section 73 clause before calculating cost.
- Check whether the previous owner's holding period carries through under the applicable rule.
Avoid
- Do not substitute the gift or merger-date market value automatically for statutory acquisition cost.
- Do not rely on the current owner's documents alone when prior-owner cost controls.
Illustrative example
Worked example: splitting share cost after a demerger (rows 14 and 15)
Hypothetical facts (illustration only, not a real taxpayer): Ms. Iyer holds shares in D Ltd that cost her ₹4,00,000. D Ltd demerges an undertaking into R Ltd and she receives shares in R Ltd. The net book value of assets transferred in the demerger is ₹30 crore. D Ltd's net worth (paid-up share capital plus general reserves) immediately before the demerger is ₹120 crore.
Identify the variables (row 14)
A = ₹4,00,000 (cost of shares in the demerged company); B = ₹30 crore (net book value of assets transferred); C = ₹120 crore (net worth of the demerged company immediately before demerger).
Cost of shares in R Ltd
X = (A × B) / C = ₹4,00,000 × 30 / 120 = ₹1,00,000.
Cost of the original D Ltd shares (row 15)
₹4,00,000 − ₹1,00,000 = ₹3,00,000.
Outcome
- Total cost stays at ₹4,00,000 (₹1,00,000 + ₹3,00,000); the demerger only splits it between the two holdings.
- Net worth for this purpose is defined in Section 73(2)(c); revaluation reserves or other items outside paid-up capital and general reserves are not part of it.
Glossary
- Previous owner
- The person whose acquisition cost is carried forward for a specified mode of acquiring the asset.
- Cost continuity
- Use of earlier owner cost rather than a fresh value on a non-taxable acquisition.
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.
Does every tax-neutral acquisition carry the same previous-owner cost?
No. Match the transaction to the exact table row. Some rows carry previous cost, while others use a prescribed allocation, a specified market value or an amount already taken into account for tax. For example, rows11 and14 use allocation formulae and row4 uses the fair market value used for the salary perquisite.
Need help applying this provision to your situation?
Get expert help determining your cost of acquisitionLast updated 10 October 2026