Capital Gain Computation under Section 48 | Savlana Init

Capital Gains · Computation

Capital Gain Computation — Built From Documents, Not Memory.

Section 48 gives three deductions and nothing else. Most disputes are not about the law but about whether the cost you are claiming can actually be evidenced.

Section 48 prescribes the mode of computation and it is short. From the full value of the consideration received or accruing on transfer, three deductions are allowed: expenditure incurred wholly and exclusively in connection with the transfer, the cost of acquisition of the asset, and the cost of any improvement. Nothing else is deductible. Interest on a loan taken to acquire the asset, ordinary maintenance, property tax and the general costs of holding do not enter the computation, though interest capitalised as part of cost has been allowed in certain circumstances where it was not claimed as a deduction elsewhere.

Where the asset is old or was not purchased at all, the cost has to be constructed. Under Section 55(2)(b) an asset acquired before 1 April 2001 may be substituted by its fair market value as on that date, and for land or building that substituted value cannot exceed the stamp duty value as on 1 April 2001. Where the asset was received by gift, will, inheritance or on partition, Section 49(1) carries forward the cost to the previous owner, and the Explanation to Section 2(42A) includes the previous owner’s holding period. For listed equity acquired before 1 February 2018, Section 55(2)(ac) applies the grandfathered cost by reference to the fair market value on 31 January 2018.

Two provisos to Section 48 remain important for non-residents. The first and second provisos give a foreign currency conversion mechanism on capital gains arising from shares or debentures of an Indian company acquired in foreign currency: the cost, the expenditure and the consideration are converted into the same foreign currency, the gain is computed in that currency and then reconverted, which neutralises rupee depreciation. Indexation, formerly available under the third proviso, was withdrawn for transfers on or after 23 July 2024, with a narrow transitional option preserved for resident individuals and Hindu undivided families on land or building acquired before that date. We build the computation from source documents, so that what is claimed can be produced.

Our Computation Services

Cost of Acquisition Determination

Establishment of cost from purchase deeds, allotment letters, contract notes and payment records, including instalment and construction-linked payments.

Fair Market Value Substitution

Valuation as on 1 April 2001 for older assets, with a registered valuer’s report and the stamp duty value ceiling applied for land and building.

Inherited and Gifted Asset Cost

Application of Section 49(1) to carry forward the previous owner’s cost, and inclusion of his holding period in the classification.

Cost of Improvement

Identification and substantiation of capital improvements as distinct from repairs and maintenance, which are not deductible.

Transfer Expenditure Review

Brokerage, legal fees, stamp duty borne by the seller, and other costs incurred wholly and exclusively in connection with the transfer.

Grandfathering Computation

Section 55(2)(ac) computation for listed equity held before 1 February 2018, using the fair market value on 31 January 2018.

Non-Resident Forex Computation

Application of the first and second provisos to Section 48 for shares and debentures acquired in foreign currency, under Rule 115A.

Valuation Support and Defence

Registered valuer coordination and defence of the adopted cost base where an assessing officer disputes it in scrutiny.

Our Process

Document Reconstruction

We assemble everything evidencing acquisition and improvement — deeds, receipts, bank records, contract notes, society records, approved plans.

Cost Base Establishment

The correct cost rule is selected — actual cost, previous owner’s cost, fair market value as on 1 April 2001, or grandfathered value — and applied.

Improvement and Expense Testing

Claimed improvements are tested against the capital versus revenue distinction, and transfer expenses against the wholly and exclusively requirement.

Computation and Regime Application

The gain is computed under Section 48 and charged under the applicable section, with the transitional option tested where the taxpayer is eligible.

Working Paper and Filing

A complete working paper with document references is prepared alongside the return, so the computation can be produced on demand.

Why It Matters

✓Cost base built on evidence that can actually be produced later

✓Fair market value as on 1 April 2001 used for older assets

✓Previous owner’s cost and holding period applied to inherited assets

✓Grandfathered equity cost as on 31 January 2018 correctly computed

✓Improvements distinguished from repairs before the claim is made

✓Foreign currency computation applied where a non-resident is eligible

✓Transitional indexation option evaluated for eligible land and building

✓A working paper that answers a scrutiny query without reconstruction

Frequently Asked Questions

Only three items under Section 48: expenditure incurred wholly and exclusively in connection with the transfer, the cost of acquisition, and the cost of improvement. Nothing else. Loan interest, property tax, society maintenance, insurance and ordinary repairs do not qualify, although interest capitalised into cost and not claimed as a deduction under any other head has been allowed in some circumstances.

Where the asset was acquired before 1 April 2001, you may substitute its fair market value as on that date for the actual cost under Section 55(2)(b). For land or building, that substituted value cannot exceed the stamp duty value as on 1 April 2001. A registered valuer’s report supporting the figure should be obtained, because the valuation is the item most frequently challenged in scrutiny.

Section 49(1) provides that the cost is that of the previous owner who last acquired it by a mode other than inheritance, gift, partition or the other specified modes. The Explanation to Section 2(42A) further includes the previous owner’s holding period, so an inherited asset is usually long-term immediately. If the previous owner acquired it before 1 April 2001, the fair market value substitution is available on top.

Capital improvements are deductible — an additional floor, a structural extension, a new permanent installation. Repairs, repainting, replacement of fittings and routine maintenance are revenue in character and are not. The distinction is one of enduring benefit and enhancement of the asset, and it must be supported by invoices, approvals and payment records to survive an assessment.

For transfers on or after 23 July 2024, indexation no longer applies to the computation. One transitional option survives: a resident individual or Hindu undivided family transferring land or building acquired before 23 July 2024 may pay the lower of twelve and a half per cent computed without indexation and twenty per cent computed with indexation. Non-residents, companies and firms cannot use it, and it applies only to land and building.

The computation still has to be made, and the burden of proving cost is on the taxpayer. The route is reconstruction: society and builder records, bank statements evidencing payment, registered deeds obtained from the sub-registrar, loan sanction records, and where the asset predates April 2001, a registered valuer’s report on fair market value. A weak cost base means a larger assessed gain, so this reconstruction is usually the highest-value part of the work.

Need a capital gain computed and evidenced properly?

Send us whatever purchase and improvement records you have. We will build the cost base, apply the right substitution rule, and give you a working paper that supports the figure.