Cost of acquisition in capital gains — old assets, pre-2001, no invoice, splits & grandfathering

Key takeaway

The lower your cost of acquisition, the higher your taxable gain — so getting the cost right (and using every uplift the law allows) directly cuts your tax. For assets bought decades ago, missing bills or acquired by gift/inheritance, the law provides specific answers. Use them; don't default to a nil or guessed cost that inflates your gain.

The basic rule

Cost of acquisition = what you actually paid to acquire the asset, plus the expenses of acquiring it (brokerage, stamp duty, registration, legal charges). You then subtract this (and any cost of improvement and transfer expenses) from the sale value to get the capital gain.

Inherited or gifted assets

When you receive an asset by inheritance, will or gift, there's no cost to you — so the law says take the previous owner's cost of acquisition, and count their period of holding too. So a flat your father bought in 1995 and gifted to you in 2020 carries his 1995 cost (or the 1-April-2001 value — below), and is long-term from his purchase date, not your receipt date.

Assets bought before 1 April 2001 — use the 2001 fair market value

For property, gold, unlisted shares and most assets acquired before 1 April 2001, you may take the higher of the actual cost or the fair market value (FMV) as on 1 April 2001 as your cost. This matters because decades of appreciation before 2001 would otherwise be taxed. Get a registered valuer's report (for property) or use published rates/circle rates to establish the 1-April-2001 FMV. (If you opt for the 20%-with-indexation route on old property, indexation also runs from 2001.)

Listed shares & equity funds — the 31 January 2018 grandfathering

For listed shares and equity mutual funds bought before 1 February 2018, gains up to 31 January 2018 are protected. The cost is computed as: higher of (a) the actual cost, and (b) the lower of the FMV on 31 January 2018 and the actual sale value. In plain terms, appreciation up to 31 January 2018 is not taxed — only the gain after that date is. This grandfathering applies to the Section 198 (old 112A) equity LTCG. Most brokers and the AMC statements already apply it in your capital-gains report.

No purchase invoice (old shares/units)?

A missing invoice isn't fatal. Reconstruct the cost from:

• Demat / broker transaction statements and contract notes.
• Bank statements showing the payment for the purchase.
• AMC / RTA (CAMS/KFintech) statements for mutual funds.
• The FMV on 1 April 2001 (pre-2001 assets) or the 31 January 2018 value (listed equity) where those apply.

Keep whatever evidence you have; the officer needs a reasonable, supportable basis, not necessarily the original paper invoice.

Cost of improvement

• Capital additions that enhance the asset — an extra floor, major renovation, a boundary wall — qualify as cost of improvement.
• Routine repairs and maintenance do not.
• Only improvements incurred on or after 1 April 2001 are counted, and you should keep bills/proof (a GST invoice is best, but contractor bills and bank payments also support it).

Stock splits and bonus shares

• Stock split: your total cost stays the same, spread over more shares. 100 shares bought at ₹1,000 become 200 at ₹500 each after a 1→2 split — total cost unchanged, and the holding period runs from the original purchase, not the split date.
• Bonus shares: the cost of acquisition is nil, and their holding period starts from the date of allotment. The original shares keep their own cost.
• Rights shares: cost = the amount you paid to subscribe; a renounced right has its own treatment.

Indexation and the 2001 base year

If you choose the 20%-with-indexation route on old property/gold (available to a resident individual/HUF for assets bought before 23 July 2024), your cost is indexed using the Cost Inflation Index (CII). The base year is 2001-02 (CII = 100), so for anything held from before 2001 you start indexation from the 1-April-2001 value. Indexation inflates your cost to today's money, shrinking the taxable gain — which is why, for a long-held property with modest actual appreciation, the 20%-with-indexation figure can beat the flat 12.5% no-indexation figure. Always compute both and take the lower.

Cost when you acquired the asset in special ways

• Under a will / on partition of an HUF: take the previous owner's / HUF's cost, with the 1-April-2001 FMV option if acquired before then.
• On conversion of a capital asset into stock-in-trade, or business into a company, or a firm into an LLP — specific cost rules apply; keep the conversion records.
• ESOPs / RSUs: the cost for the later capital-gains computation is the value already taxed as a perquisite at exercise/vesting — see how ESOPs are taxed.
• Self-generated assets (e.g. self-generated goodwill): historically no cost could be computed, but the law now deems the cost nil for several such assets, so the whole sale value is taxed.

Worked examples

• Old flat: bought 1990 for ₹3 lakh; FMV on 1 April 2001 = ₹12 lakh; sold 2025 for ₹90 lakh. Cost = ₹12 lakh (the 2001 FMV, being higher) — so the taxable gain is far lower than using the 1990 price.
• Old shares, no bill: bought a listed share in 2010, no invoice; FMV on 31 Jan 2018 = ₹800; sold 2025 at ₹1,500. Cost is grandfathered to ₹800, so only ₹700 is the taxed gain — your broker's report shows this.
• Bonus shares: 100 bonus shares (nil cost) sold at ₹500 → the whole ₹50,000 is the gain (long-term if held over 12 months from allotment).

Common mistakes that inflate your tax

• Using a nil or guessed cost because you lost the invoice — reconstruct it from records or the 2001 FMV instead of overpaying.
• Ignoring the 2001 FMV uplift on an old property, which can cut the taxable gain by lakhs.
• Forgetting the 31-January-2018 grandfathering on long-held listed shares.
• Claiming repairs as improvement — only genuine capital enhancements qualify, so keep the right proof.
• Taking the split date as the purchase date — the holding period runs from the original buy, which can turn a "short-term" gain into a lower-taxed long-term one.

Forms & records

• ITR-2 (or ITR-3) with the Capital Gains schedule.
• Your broker/AMC capital-gains statement (it applies the grandfathering), a valuer's report for pre-2001 property, and improvement bills.

Then apply the exemptions to save the tax — see capital gains on selling property and short-term vs long-term.

Frequently asked questions

How do I find the cost of shares bought before 2001 without an invoice?

Use your demat/broker statements, bank records of the payment, or — for pre-1-April-2001 assets — the fair market value as on 1 April 2001. For listed equity, the 31 January 2018 grandfathering usually applies, and the broker's capital-gains report computes it for you.

What is the cost of acquisition of inherited property?

The previous owner's cost of acquisition, and their period of holding counts as yours. If they acquired it before 1 April 2001, you can use the fair market value as on 1 April 2001 instead.

Does a stock split change my cost?

No — the total cost stays the same, just spread over more shares, and the holding period runs from your original purchase. Bonus shares, by contrast, have nil cost.

Should I use FMV as on 1 April 2001 or my actual cost?

For assets acquired before 1 April 2001 you may use whichever is higher — the actual cost or the 1-April-2001 fair market value. The 2001 value usually helps because it captures pre-2001 appreciation that would otherwise be taxed. Support it with a registered valuer's report for property.

What is the 31 January 2018 grandfathering for listed shares?

For listed shares and equity funds bought before 1 February 2018, gains up to 31 January 2018 are protected: the cost is the higher of the actual cost and the lower of the 31-January-2018 market value and the sale value. Only appreciation after that date is taxed under the equity LTCG rules, and your broker's report usually applies it automatically.