The term “Cost of Acquisition” plays an important role while computing the income under the head “Capital Gain”. It basically refers to the amount for which the asset was originally purchased by the assessee. It also includes expenses of capital nature for completing or acquiring title to the property. In case of shares or units of equity oriented fund it shall not include securities transaction tax paid on such acquisition.

As per the Income Tax Act, 1961 (the Act) cost of acquisition depends on the mode of acquisition. It may happen that the asset was not purchased by the assessee but becomes the property of the assessee under any of the mode of transfer described below

1. acquisition of property on any distribution of assets on the total or partial partition of Hindu Undivided Family
2. acquisition of property under a gift or a will
3. acquisition of property-

• by succession, inheritance or devolution, or
• on any distribution of assets on the dissolution of a  firm,   body   of  individuals,   or   other   association   of    persons, where such dissolution had taken place at any  time before 01.04.1987; or
• on any distribution of assets on the liquidation of the company, or
• under a transfer to a revocable or an irrevocable trust, or
• on any transfer by a wholly-owned Indian Subsidiary Company from its holding company, or
• on any transfer by an Indian holding Company from its wholly-owned subsidiary company, or
• on any transfer, in a scheme of amalgamation, by the amalgamated company from the amalgamating company which comes under section 47(vi)/(via), or
• any transfer in a scheme of conversion of private company / unlisted public company into Limited Liability Partnership which comes under section 47(xiiib) (applicable from assessment year 2011-2012)
• acquisition of property by a Hindu Undivided Family where one of its member has converted his self acquired property into joint family property after 31.12.1969.

In the aforesaid circumstances cost of acquisition of the asset shall be the cost for which the previous owner of the property acquired it. Where the previous owner had also acquired the capital asset by any of the modes above, then the cost to that previous owner, who had acquired it by mode of acquisition other than those mentioned above, should be taken as cost of acquisition. Cost of improvement of the asset borne by the previous owner or the assessee will also be added to such cost.

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