What cost can I deduct, and do I still get indexation after the 2024 changes?
Cost of acquisition is what you paid, or for assets received by gift, will, inheritance or HUF partition, what the previous owner paid. For transfers on or after 23 July 2024 indexation is gone and long-term gains are taxed at 12.5%, with one carve-out: a resident individual or HUF selling land or building acquired before 23 July 2024 can ignore any tax in excess of the old 20%-with-indexation figure.
Start with s.48. Gain is full value of consideration less expenditure wholly and exclusively in connection with the transfer, less cost of acquisition and cost of improvement. The second proviso to s.48 used to substitute "indexed cost" for long-term assets, with the indexed cost defined by reference to the Cost Inflation Index for the year of transfer over the index for the year of first holding or 2001-02, whichever is later.
Where you did not buy the asset, s.49(1) applies. If the asset came to you on partition of an HUF, under a gift or will, by succession or inheritance, on dissolution of a firm or liquidation of a company, or under a trust transfer, your cost is "the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement". The Explanation defines the previous owner as the last owner who acquired it by a mode other than those listed — so you trace back through successive gifts to the last real purchase.
If the asset (or the previous owner's acquisition) predates 1 April 2001, s.55(2)(b) lets you substitute the fair market value on 1 April 2001 for actual cost. For land or building there is a cap: the FMV so adopted "shall not exceed the stamp duty value, wherever available, of such asset as on the 1st day of April, 2001". Improvements incurred before 1 April 2001 are ignored entirely under s.55(1)(b).
Now the 2024 change. The CBDT's own FAQ on the new regime says the changes apply "from 23.7.2024 and shall apply to any transfer made on or after 23.7.2024". Holding periods were simplified to 12 months for listed securities and 24 months for all other assets, with immovable property and unlisted shares unchanged at 24 months. Long-term gains move to 12.5% without indexation, replacing 20% with indexation. For STT-paid listed equity and equity mutual funds, long-term gains go to 12.5% (from 10%) with the annual exemption raised from Rs 1 lakh to Rs 1.25 lakh, and short-term gains to 20% (from 15%).
The carve-out matters for property. For a resident individual or HUF transferring land or building acquired before 23 July 2024, tax is computed both ways and, in the words of the professional summary of the enacted Act, "if such tax amount exceeds tax computed as per the earlier capital gains regime (i.e. 20% after considering indexation benefit), the excess tax will be ignored". This is carried into s.197 of the Income-tax Act, 2025 in the same form, and s.72(8) of that Act is the surviving indexation machinery. Non-residents, and property held through a company or LLP, do not get this option.
The Cost Inflation Index is still notified because of that carve-out and other residual uses. Base year 2001-02 is 100; 2023-24 is 348; 2024-25 is 363; 2025-26 is 376; and 2026-27 is 384, notified by Notification No. 85/2026 dated 15 July 2026 under s.72(8)(a) of the Income-tax Act, 2025.
For inherited or gifted property the cost is almost never what the executor's papers show — it is the previous owner's cost, which can be tiny, and the 1 April 2001 fair market value substitution is often the single largest lever in the computation. For post-23 July 2024 sales, running the old 20%-with-indexation comparison is the difference between the right tax and an overpayment, and it is only available to resident individuals and HUFs on land or building acquired before that date.
My mortgaged property was auctioned and the department kept what I owed it out of the proceeds. Do I pay capital gains on the whole price or only on what reached me?
We sold the goodwill our own firm built up over the years. It cost us nothing to acquire. Is the price taxable as a capital gain?
Our JDA was never registered and the project collapsed. Am I still taxed on capital gains?
The landlord paid my company to give up its tenancy. Is that taxable, and if it cannot be computed as a capital gain can the officer tax it as a casual receipt instead?
I received bonus shares and later sold my holding. What is the cost of the bonus shares: face value, nil, or something else?
My client sold its whole running business in one go. The Assessing Officer says the plant and machinery were part of a block on which depreciation was allowed, so the gain is short-term under s.50. Is he right?
I sold shares well below market value. Can the officer compute my capital gain on the market price instead of the price I actually received?
I sold shares to a company I control for an agreed price and took the company's own shares, at face value, in satisfaction. Can the officer compute my capital gain on what those shares were really worth?
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