Cost of Improvement for computing Capital Gains as per Income Tax Act

Cost of Improvement for computing Capital Gains as per Income Tax Act COST OF IMPROVEMENT FOR COMPUTING CAPITAL GAINS AS PER INCOME TAX ACT Cost of improvement for computing capital gains is capital expenditure incurred by an assesses in making any additions/improvement to the capital asset. It also includes any expenditure incurred to protect or complete the title to the capital assets or to cure such title. To put it differently, any expenditure incurred to increase the value of the capital asset is treated as cost of improvement. Special provisions under the Income-tax Act in respect of cost of improvement should be noted as under : Expenditure incurred before April 1, 1981 not considered - Any cost of improvement incurred before April 1, 1981 is not taken into consideration for calculating capital gain chargeable to tax. This rule does not have any exception. In other words, cost of improvement includes only expenditure on improvement incurred on or after April 1, 1981. Expenditure incurred on improvement of a capital asset before April 1, 1981 is always taken as equal to zero. Double deduction not permitted - Cost of improvement does not include any expenditure which is deductible in computing the income chargeable under the heads Interest on securities, Income from house property, Profits and gains of business or profession and Income from other sources. COST OF IMPROVEMENT IN DIFFERENT SITUATIONS - Keeping in view the above provisions, cost of improvement shall be determined in the different situations as follows :

DifferentSituations	Whenthe capital asset was acquired by gift, will, etc., under the provisions of section 49(1)	Inany other case
Cost of improvement in relation togood-will of a business or a right to manufacture, produce or process anyarticle/thing or right to carry on any business
when these assets areself-generated	NIL	NIL
when these assets are purchased and later on transferred	NIL	NIL
Cost of improvement in relation toany other asset acquired
before April 1, 1981	Cost of improvement incurred bytheassessesand the previous owner (ignoring the expenditure incurred beforeApril 1, 1981)	Cost of improvement incurred by theassesses(ignoring the expenditure incurred before April 1, 1981)
on or after April 1, 1981	Cost of improvement incurred by theassessesand the previous owner	Cost of improvement incurred bytheassesses

INDEXED COST OF IMPROVEMENT Indexed cost of improvement is defined as an amount which bears to the cost of improvement, the same proportion as the cost inflation index for the year in which the asset is transferred bears to the cost inflation index for the year in which the improvement to the asset took place.