Section 73 — Cost in Special Modes of Acquisition | ITA 2025

Section 73 — COST OF ACQUISITION IN SPECIAL MODES (24-ROW TABLE)

Section 73 is the substantive equivalent of 1961 s. 49. It prescribes the cost of acquisition for capital assets acquired through 24 specific 'special modes' — gift / will / inheritance / liquidation / trust / amalgamation / demerger / business reorganisation / specified-securities (sweat equity / ESOP) / GDR redemption / mutual-fund consolidation / segregated portfolio / corporatisation of stock exchange / co-operative bank reorganisation / Electronic Gold Receipts / and more. Theme: cost-base CONTINUITY across non-transfer / restructuring events — the cost is typically inherited from the previous owner OR a formula-derived equivalent.

Statutory text — Income-tax Act, 2025

Marginal note — Cost with reference to certain modes of acquisition

(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.

TABLE — Section 73(1)

Sl. No. (A)	Description of the Capital Asset (B)	Cost of Acquisition (C)
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, being a share or shares in an Indian company, which became the property of the assessee in consideration of demerger referred to in section 70(1)(j).	The cost of acquisition to him of the share or shares in the demerged foreign company.
17.	Capital asset, being share of a foreign company referred to in section 9(10)(a), which derives directly or indirectly its value substantially from the share or shares of an Indian company, which became the property of the assessee in consideration of a demerger referred to in section 70(1)(k).	The cost of acquisition to him of the share or shares in the demerged foreign company.
18.	Capital asset, being trading or clearing rights of a recognised stock exchange acquired by a person pursuant to demutualisation or corporatisation of the recognised stock exchange in India as referred to in section 70(1)(s).	Nil.
19.	Capital asset, being equity share allotted to a shareholder of recognised stock exchange in India under a scheme for demutualisation or corporatisation as referred to in section 70(1)(s).	The cost of acquisition of his original membership of the exchange.
20.	Capital asset, being a share / shares in a successor co-operative bank that became the property of the assessee in consideration of a transfer referred to in section 70(1)(p), (q) or (r).	The cost of acquisition to him of the share / shares in the predecessor co-operative bank.
21.	Capital asset, being securities allotted to the assessee in lieu of self-generated goodwill / right to manufacture / patent / trademark.	The cost of acquisition shall be deemed to be NIL.
22.	Capital asset, being any specified security under section 17(1)(d) or sweat equity shares allotted before introduction of FBT regime.	The fair market value as on date of vesting / allotment as recorded in books of the employer.
23.	Capital asset, being Electronic Gold Receipt issued in respect of gold deposited, in whose name Electronic Gold Receipt is issued, which became the property of the person as consideration of a transfer, as referred to in section 70(1)(y).	The cost of acquisition of gold for such person.
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. Special provision for computation of capital gains in case of depreciable assets.

Corresponding provision — 1961 regime

INCOME-TAX ACT, 2025	INCOME-TAX ACT, 1961
INCOME-TAX ACT, 2025 — s. 73	INCOME-TAX ACT, 1961 — s. 49
Sl. No. 1 — gift/will/inheritance/liquidation/trust/HUF/specified s.70 transfers	1961 s. 49(1)(i)(ii)(iii)(iv) and various
Sl. No. 2 — amalgamated co. share-swap	1961 s. 49(2)
Sl. No. 3 — convertible debenture / convertible bond	1961 s. 49(2A)
Sl. No. 4 — sweat equity / ESOP (FMV at perquisite)	1961 s. 49(2AA)
Sl. No. 5 — LLP-converted shares (s. 70(1)(ze))	1961 s. 49(2AAA)
Sl. Nos. 11-12 — segregated portfolio split (mutual fund)	1961 s. 49(2AG)/(2AH)
Sl. Nos. 14-15 — demerger share allocation formula	1961 s. 49(2C)/(2D)
Sl. No. 18 — stock-exchange demutualisation trading rights — NIL cost	1961 s. 55(2)(ab)
Sl. Nos. 23-24 — Electronic Gold Receipt cost continuity	1961 s. 49(10)/(11)
Sub-section (2) — definitions ('previous owner', 'segregated portfolio', 'net worth')	1961 s. 49 Explanations

STATUTORY ARCHITECTURE

Section 73 codifies the cost-base CONTINUITY principle across 24 distinct fact-patterns. The unifying logic: where a transfer is tax-NEUTRAL under s. 70 (or via similar non-transfer events like inheritance / gift / liquidation), the transferee inherits the previous owner's cost-base — not a fresh / market-value cost. On subsequent disposal by the transferee, the original-owner-acquisition-cost provides the cost-base for s. 72 computation. Holding-period continuity (s. 2(101) Explanation) operates in tandem — the previous owner's holding period clubs into the transferee's.

MAJOR FAMILIES OF SPECIAL MODES

(I) FAMILY/GRATUITOUS: Sl. No. 1 — gift / will / inheritance / HUF distribution / trust transfers / s. 70 carved-out modes. Cost = previous owner's cost + improvement borne by previous owner OR assessee. (II) AMALGAMATION/DEMERGER: Sl. No. 2 (shareholder share-swap), Sl. Nos. 14-15 (demerger formula split), Sl. No. 16 (Indian co. shares from foreign demerger), Sl. No. 17 (s. 9(10)(a) deemed-Indian shares). (III) ESOP/SWEAT-EQUITY: Sl. No. 4 — cost = FMV taken into account for perquisite-tax purposes (s. 17(1)(d)). (IV) BUSINESS-FORM CONVERSIONS: Sl. No. 5 — pvt./unlisted-public co. → LLP; partner's interest = pre-conversion shareholder's cost. Sl. Nos. 18-19 — stock exchange demutualisation. (V) MUTUAL FUND MECHANICS: Sl. Nos. 8, 10 (consolidated scheme/plan unit-cost), Sl. Nos. 11-12 (segregated portfolio formula split). (VI) SPECIFIC SECURITY MECHANICS: Sl. No. 3 (debenture conversion), Sl. No. 6 (GDR redemption — market price on redemption-request date), Sl. No. 9 (preference → equity conversion). (VII) SPECIAL ASSETS: Sl. No. 7 (business trust units), Sl. No. 13 (PSU JV interest swap), Sl. No. 20 (co-op bank reorganisation), Sl. Nos. 23-24 (Electronic Gold Receipts).

KEY DEFINITIONS (Sub-section 2)

'Previous owner' — for Sl. No. 1, the LAST previous owner who acquired the asset by a mode OTHER than those in column B (i.e., trace back through chain of gratuitous transfers to the original purchase-for-consideration). 'Main / segregated / total portfolio' — per SEBI Circular IMD/DF2/CIR/P/2018/160 (28-Dec-2018). 'Net worth' — paid-up share capital + general reserves of demerged co., per books, immediately before demerger. Sub-section (2)(d) extends Sl. Nos. 2, 14, 15 mutatis mutandis to co-operative bank reorganisations under s. 64.

CASE LAW

CIT v. Manjula J. Shah (Bom HC, 2011) — for inherited assets, indexation cost-of-acquisition is computed from year of FIRST holding by previous owner, NOT year of inheritance — strongly pro-assessee. Codified principle still applies under s. 73 read with s. 90. DCIT v. Smt. Meena Devi Agarwal — gift-cost-basis = donor's cost + improvement; donor's holding-period clubs. B.C. Srinivasa Setty v. CIT (SC) — where machinery section (cost determination) fails, charging-section also fails. CIT v. Dempo & Co. P. Ltd (SC) — for self-generated goodwill, NIL cost rule (Sl. No. 21 substantive equivalent) applies.

PLANNING NOTES

(i) Inherited assets: ALWAYS use Manjula J. Shah indexation principle — index from year of original acquisition, not year of inheritance. (ii) For ESOP/sweat-equity (Sl. No. 4), cost = FMV-at-perquisite-date — maintain Form 12BA / TDS proof. (iii) For demerger / amalgamation, document the formula inputs (net book value of transferred assets, net worth of demerged co. immediately before demerger) — these are scrutiny-magnets. (iv) For stock-exchange-demutualisation trading rights (Sl. No. 18) — cost is NIL by statutory fiction; full sale-proceeds become CG. (v) For Electronic Gold Receipts (Sl. Nos. 23-24), cost continuity preserves no-tax-arbitrage between physical gold and EGR; maintain depository chain-of-custody documentation.

CROSS-REFERENCES

Section 70 — Transactions not regarded as transfer (gateway).
Section 71 — Withdrawal of exemption (claw-back).
Section 72 — Mode of computation (uses cost from this section).
Section 90 — Cost of improvement / indexed cost (Manjula J. Shah).
Section 17(1)(d) — Sweat equity / ESOP perquisite valuation.
Section 99(3) — HUF distribution post-31-Dec-1969.
Section 64 — Co-operative bank reorganisation.
Section 209(1) Sch. 2 — GDRs.

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