Deemed Cost of Acquisition

The cost of acquisition is the amount paid or incurred by the assessee for acquiring a property or asset.

There are certain instances where the above general rule is not applicable and we have to find out the deemed cost of acquisition.

Below are examples where we have to find out deemed cost of acquisition for calculating capital gain:

  1. The cost to the Previous owner u/s 49 (1): where the capital asset became the property of the assesse, the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, in the following cases:
  1. on the distribution of assets on the total or partial partition of HUF;
  2. under a gift or will;
  3. by succession, inheritance or devolution;
  4. distribution of assets on the liquidation of a company;
  5. transfer to a revocable or Irrevocable trust;
  6. transfer by a wholly owned Indian subsidiary company to Its holding company or vice versa;
  7. transfer In the scheme of amalgamation of two Indian companies u/s 47(vl);
  8. transfer in the scheme of amalgamation between two foreign companies;
  9. transfer of a capital asset by a banking company to a banking Institution In. the scheme of amalgamation;
  10. transfer in the case of business reorganization by a predecessor cooperative bank to the successor cooperative bank;
  11. on the conversion of a self-acquired property of a member of an HUF to the joint property of the HUF.

II. Cost of Shares of Amalgamated Company u/s 49(2): the cost of acquisition of shares in the amalgamating company.

III. Cost of acquisition in case of shares/debentures acquired on conversion of debentures u/s 49(2A): the cost of the shares/debentures issued on conversion shall be deemed to be that part of the cost of debenture/ debenture stock/deposit certificate, in relation to which such an asset is acquired by the assessee.

III. Cost of acquisition of shares, debentures or warrants u/s 49(2AA): the fair market value on the date of exercise of such option.

IV. Cost of acquisition of specified security or sweat equity shares ujs 49(2AB) read with Sec.115 WC (l)(ba): the fair market value of securities on the date on which the option vests with the employee. The holding period shall be reckoned from the date of allotment or transfer of such shares.

          V. Costof acquisition of resulting company’s shares on demerger. [Section 49(2C)]

VI. Costof acquisition of demerged company’s shares after demerger. [Section 49(2D)] Original Cost of Acquisition of shares in demerged company Less Cost of acquisition of Resulting Company’s shares (as calculated above)

VII. Cost of acquisition to Transferee Company where section 47A is applicable: [section 49(3)] – the cost of acquisition of the capital asset to the transferee company shall be the cost for which such asset was acquired by it.

VIII. Business reorganization of Co-operative Bank [Sec 49(2E)]: Sec 49(2C) and Sec 49(2D) are applicable tobusiness reorganization of a Co-operative Bank u/s 44DB.

IX. Cost of acquisition of Bonus Shares u/s 55(2)(iiia)

a. Where bonus shares are issued prior to 1.4.81, the cost of acquisition shall be the fair market value as on 1.4.81.

b. Where such bonus shares are issued on or after 1.4.81, the cost of acquisition shall be taken as NIL.

X. Cost of acquisition of Original Shares u/s 55(2)(b):

a. Where the original shares were acquired prior to 1.4.81, the cost of acquisition shall be the higher of the fair market value as on 1.4.81 or the original cost of acquisition.

b. Where such shares were acquired on or after 1.4.81, the original cost of acquisition shall be considered.

XI. Cost of Right Shares u/s 55(2) (aa) read with sec. 55 (2) (b) Cost of acquisition shall be the amount actually pald by the assessee to acquire such shares [sec.55(2)(aa)(III)]

a. If such shares were acquired prior to 1.4.81, the assessee shall be entitled to opt for fair market value on 1/4/81 as the cost of acquisition.

b. If the rights entitlement is renounced, the cost of acquisition of renouncing the rights entitlement to the renouncer is nil.Where the renounce acquires the right entitlement, the cost of acquisition of right shares to the renounce is the aggregate of (i) the amount paid to the renouncer (ii) the amount paid by him to the company/institution for acquiring such right shares [ sec.55(2)(aa)(iv)].

c. Where the renounce acquires the right entitlement, the cost of acquisition of right shares to the renounce is the aggregate of (i) the amount paid to the renouncer (ii) the amount paid by him to the company/institution for acquiring such right shares [ sec.55(2)(aa)(iv)].

XII. Cost of acquisition of shares allotted to a shareholder under a scheme of Demutualization or Corporatisation and Trading or Clearing Rights of a Recognized Stock Exchange [Sec. 55 (2) (ab)] : The cost of acquisition Is the cost of acquisition of his original membership of the stock exchange.

XIII. Cost of Right is taken as NIL.

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