Section 90 · Computation of total income
Section 90 of the Income-tax Act, 2025 — Meaning of "Adjusted", Cost of Improvement and Cost of Acquisition
By CA Rajat Agrawal
Updated 04 Jul 2026
Chapter IV
📜 What the law says — Section 90, Income-tax Act 2025
90. (1) For the purposes of sections 72 and 73, “cost of improvement”,—
(a) in relation to a capital asset being goodwill or any intangible asset of a
business, or a right to manufacture, produce or process any article or
thing, or right to carry on any business or profession, or any other right,
shall be taken to be nil; and
(b) in relation to any other capital asset,—
(i) if the capital asset became the property of the previous owner or
the assessee before the 1st April, 2001, means all expenditure of
a capital nature incurred on or after the said date in making any
additions or alterations to the capital asset by the previous owner
or the assessee; and
(ii) in any other case, means all expenditure of a capital nature incurred
in making any additions or alterations to the capital asset by the
assessee after it became his property, and, where the capital asset
became the property of the assessee by any of the modes specified
in section 73 (Table: Sl. No. 1), by the previous owner.
(2) For the purposes of sub-section (1)(b), the cost of improvement does not include
any expenditure which is deductible in computing the income chargeable under the
head “Income from house property”, “Profits and gains of business or profession”
or “Income from other sources”.
(3) For the purposes of sections 72 and 73, “cost of acquisition” of a capital
asset (being goodwill of a business or profession, or a trade mark or brand name
associated with a business or profession, or any other intangible asset, or a right
to manufacture, produce or process any article or thing, or a right to carry on any
business or profession, or tenancy rights, or stage carriage permits, or loom hours,
or any other right) means—
(a) the purchase price, if acquisition of such asset by the assessee is by
purchase from the previous owner; and
(b) the purchase price for the previous owner, in the case covered in section
73 (Table: Sl. No. 1), where such asset was acquired by purchase by
the previous owner as defined in sub-section (2) of the said section; and
(c) nil, in any other case.
(4) For the purposes of sub-section (3)(a) or (b), if—
(a) the capital asset is goodwill of a business or profession; and
(b) the assessee has obt
In plain language
What Section 90 is about
Section 90 of the Income-tax Act, 2025 is the "definitions" engine that powers the entire capital-gains chapter. Before you can compute capital gain under Section 72 (charge) and Section 78 (mode of computation), you must know three numbers: the cost of acquisition (what the asset cost you), the cost of improvement (money spent later to upgrade it), and the "adjusted"/indexed versions of these. Section 90 tells you exactly how to arrive at each figure. It is the direct successor to Section 55 of the Income-tax Act, 1961 — the language has been simplified and re-numbered but the substance is largely carried forward.
Cost of improvement
- Goodwill and intangibles = nil. For goodwill of a business or profession, a trademark, brand name, right to manufacture/produce any article, or a right to carry on business, the cost of improvement is taken as nil.
- Other assets. Cost of improvement is all capital expenditure incurred in making additions or alterations to the asset. If the asset was acquired before 1 April 2001, only improvements made on or after 1 April 2001 count; improvements made before that date are ignored.
- Exclusion. Any expenditure already deductible under "Income from house property", "Profits and gains of business or profession" or "Income from other sources" cannot be counted again as cost of improvement.
Cost of acquisition
- Self-generated goodwill/intangibles/rights = nil. Where goodwill, a trademark, a right to manufacture or a right to carry on business was not purchased from a previous owner, the cost of acquisition is nil. If it was purchased, the actual purchase price is the cost (reduced by any depreciation claimed on goodwill before 1 April 2020 under the old law).
- Assets acquired before 1 April 2001. The taxpayer may choose, at their option, either the actual cost OR the fair market value (FMV) as on 1 April 2001. For land or building, this FMV cannot exceed the stamp duty value available on that date.
- Inherited/gifted assets (Section 73 modes). The cost to the previous owner is treated as your cost; if the asset was with the previous owner before 1 April 2001, the FMV-on-1-April-2001 option is again available.
Bonus shares, rights issues and pre-2018 listed shares
- Bonus shares = nil cost (received without payment).
- Rights shares subscribed = amount actually paid; renounced rights = nil in the hands of the original holder; the person buying the renunciation adds the amount paid to the renouncer plus the amount paid to the company.
- Grandfathering of listed equity shares/units held before 1 February 2018: cost = higher of (actual cost) and (lower of FMV on 31 January 2018 and the sale consideration). For listed shares, FMV means the highest quoted price on 31 January 2018.
The word "adjusted" and indexation
"Adjusted" refers to the indexed cost of acquisition and indexed cost of improvement — the base cost scaled up by the Cost Inflation Index (CII) so that inflation is not taxed. The CII base year is 2001-02. Note that the Finance Act, 2024 already removed indexation for most assets alongside a lower 12.5% long-term rate (with a resident-individual/HUF option to use the old 20%-with-indexation for land/building bought before 23 July 2024). The 2025 Act carries these definitions forward, so indexation now mainly survives for the grandfathered land/building cases.
Practical implications
- Owning property or shares from before 2001 or before Feb 2018? Section 90 lets you legitimately step up your cost and cut your taxable gain.
- Keep purchase deeds, improvement bills, 1-April-2001 valuation reports (from a registered valuer) and demat statements — the burden of proof is on you.
- Self-created brands and goodwill have zero cost, so almost the entire sale price is taxable gain.
💡 Example
Example 1 — Old property with FMV option. Rahul's father bought a plot in 1995 for ₹2,00,000 and Rahul inherited it. He sells it in FY 2026-27 for ₹90,00,000. Because the plot was held before 1 April 2001, Rahul opts for its FMV on 1 April 2001, valued at ₹8,00,000 (within the stamp-duty cap). His cost of acquisition becomes ₹8,00,000 instead of ₹2,00,000 — a much higher base that reduces his taxable long-term capital gain. He should get a registered valuer's report to support the ₹8,00,000 figure.
Example 2 — Grandfathered listed shares. Meena bought 1,000 listed shares in 2015 for ₹1,00,000 (₹100 each). Their highest quoted price on 31 January 2018 was ₹250, and she sells them in 2026 for ₹4,00,000. Cost = higher of actual cost (₹1,00,000) and [lower of FMV ₹2,50,000 and sale ₹4,00,000 = ₹2,50,000]. So her cost is ₹2,50,000 and her taxable gain is ₹1,50,000, not ₹3,00,000 — the pre-Feb-2018 appreciation is protected.
A short story. Suresh built a small snack brand over ten years and sold it for ₹50 lakh. He assumed only his "profit" was taxable. His CA explained Section 90: because the goodwill and brand name were self-generated (never purchased), their cost of acquisition is nil — so nearly the whole ₹50 lakh is a taxable capital gain. Suresh was glad he learned this before signing, not after.
| Asset / Situation | Cost of Acquisition under Section 90 |
|---|
| Self-generated goodwill, trademark, brand, right to manufacture | Nil (actual price if purchased, less pre-1.4.2020 depreciation on goodwill) |
| Asset acquired before 1 April 2001 | Actual cost OR FMV on 1 April 2001, at taxpayer's option |
| Land/building before 1.4.2001 | FMV on 1.4.2001, capped at stamp duty value on that date |
| Inherited / gifted asset (Sec 73 modes) | Previous owner's cost (FMV-1.4.2001 option available) |
| Bonus shares | Nil |
| Rights shares subscribed / renounced | Amount paid / nil for renounced right to original holder |
| Listed equity shares & units held before 1 Feb 2018 | Higher of actual cost and [lower of FMV on 31.1.2018 and sale value] |
| Cost of improvement — goodwill/intangibles | Nil |
| Cost of improvement — other assets | Capital additions/alterations made on or after 1 April 2001 |
Related sections
Section 72 — Capital gains (charging provision) Section 73 — Transactions not regarded as transfer / mode of acquisition Section 78 — Mode of computation of capital gains Section 71 — Meaning of capital asset and transfer Section 82 — Exemption on transfer of residential house (reinvestment) Section 196 — Tax rates on long-term capital gains
Frequently asked questions
Which section of the old Income-tax Act 1961 does Section 90 replace?
Section 90 of the Income-tax Act, 2025 corresponds to Section 55 of the Income-tax Act, 1961. It carries forward the definitions of cost of acquisition, cost of improvement and the 'adjusted'/indexed cost with simplified drafting.
Can I still use the fair market value as on 1 April 2001 for old property?
Yes. For any capital asset acquired before 1 April 2001, you may choose the actual cost or the FMV on 1 April 2001, whichever is higher. For land or building, that FMV cannot exceed the stamp duty value available on that date.
What is the cost of acquisition of bonus shares?
Bonus shares are received without any payment, so their cost of acquisition is nil. When you sell them, the entire sale value (less selling expenses) is capital gain.
How are listed shares bought before 1 February 2018 treated?
They are grandfathered. Cost is the higher of the actual cost and the lower of FMV on 31 January 2018 (highest quoted price) and the sale consideration, so gains up to 31 January 2018 are effectively protected from tax.
Why is the cost of self-created goodwill or a brand taken as nil?
Because it was never purchased, Section 90 assigns a nil cost of acquisition and nil cost of improvement to self-generated goodwill, trademarks and similar rights. Almost the whole sale price therefore becomes taxable capital gain.
Is indexation still available under the 2025 Act?
Indexation was largely withdrawn by the Finance Act, 2024 in favour of a lower 12.5% long-term rate. It mainly survives for resident individuals/HUFs on land or building acquired before 23 July 2024, who may opt for the old 20%-with-indexation method. The CII base year remains 2001-02.
Can improvement costs incurred before 2001 be claimed?
No. For assets acquired before 1 April 2001, only capital additions or alterations made on or after 1 April 2001 qualify as cost of improvement. Earlier improvements are ignored.
C
CA Rajat Agrawal
Chartered Accountant, EaseValue · Reviewed 04 Jul 2026
This explainer is prepared and reviewed by EaseValue's tax team, based on the text of the Income-tax Act, 2025 (as amended by the Finance Act, 2026).
Disclaimer: This page explains the law in general terms for education and is not professional advice. The Income-tax Act, 2025 takes effect from 1 April 2026; provisions, thresholds and interpretations may change. Please confirm your specific position with our team before acting.
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