Analysis of Section 48
The income chargeable under the head ‘Capital gains’ shall be computed by deducting the following items from the full value of the consideration received or accruing as a result of the transfer of the capital asset:
- Expenditure incurred wholly and exclusively in connection with such transfer like brokerage, stamp duty, registration fee, legal expenses etc.
- The cost of acquisition and cost of any improvement thereto.
However, the cost of acquisition of the asset or the cost of improvement thereto would not include the deductions claimed on interest u/s 24(b) or under the provisions of Chapter VI-A.
Interest on loan taken for acquisition, construction, repairs, reconstruction of house property is allowable as deduction under section 24(b). Sections 80EE and 80EEA in Chapter VI-A provide for deduction of interest payable on loan taken for acquisition of house property, subject to fulfillment of certain conditions.
The interest allowed as deduction under section 24(b) while computing income from house property and interest allowed as deduction under section 80EE or 80EEA of Chapter VI-A would not be included in the cost of acquisition or cost of improvement while computing capital gains on transfer of house property.
No deduction in respect of STT:
No deduction shall, however, be allowed in computing the income chargeable under the head “Capital Gains” in respect of any amount paid on account of securities transaction tax (STT) under Chapter VII of the Finance (No.2) Act, 2004.
Cost inflation index:
Under section 48, for computation of long-term capital gains arising from the transfer which takes place before 23.7.2024, the cost of acquisition and cost of improvement will be increased by applying the cost inflation index (CII).
Once the cost inflation index is applied to the cost of acquisition and cost of improvement, it becomes indexed cost of acquisition and indexed cost of improvement.
“Cost Inflation Index” in relation to a previous year means such index as may be notified by the Central Government having regard to 75% of average rise in the Consumer Price Index (Urban) for the immediately preceding previous year to such previous year.
Indexed cost of acquisition means an amount which bears to the cost of acquisition, the same proportion as CII for the year in which the asset is transferred bears to the CII for the first year in which the asset was held by the assessee or for the year beginning on 1st April, 2001, whichever is later.
Similarly, indexed cost of any improvement means an amount which bears to the cost of improvement, the same proportion as CII for the year in which the asset is transferred bears to the CII for the year in which the improvement to the asset took place.