Section 39 Income Tax Act 2025: How Is Actual Cost of an Asset Calculated?

Section 39 of the Income-tax Act, 2025 prescribes the computation of the actual cost of an asset used for business or profession. The resulting figure is central to determining depreciation and other tax consequences.

Current law: The Income-tax Act, 2025 came into force on 1 April 2026. This article discusses Section 39 with reference to the Act as amended by the Finance Act, 2026. Always check the applicable statutory text and rules for the relevant tax year.

What does actual cost mean under Section 39?

Under Section 39(1), actual cost generally means the cost of an asset to the assessee, reduced by amounts borne by others and specified tax credits, subsidies and reimbursements. The provision concerns assets used for the purposes of business or profession. The tax actual cost need not equal the invoice price or the accounting carrying amount.

What must be deducted from actual cost under Section 39(1)?

Third-party contributions: Any portion of the asset cost met directly or indirectly by another person or authority.
GST input tax credit: GST paid for which input tax credit has been claimed and allowed under the relevant law.
Specified excise or customs duty credit: Duty for which the prescribed credit has been claimed and allowed.
Asset-related assistance: Subsidy, grant or reimbursement relating to the acquisition of the asset, received from the government, a statutory authority or another person.

A reduction is tied to the statutory conditions: for example, GST included in the invoice is not automatically excluded merely because credit might be available; the statutory rule refers to credit claimed and allowed.

Are cash payments for buying an asset included in actual cost?

Section 39(2) excludes payments, or the aggregate of payments, exceeding Rs. 10,000 in a day to a person for acquiring an asset or part of it, when paid otherwise than through a specified banking or online mode. The restriction affects the tax actual cost and therefore the depreciation base. The statutory test concerns the daily aggregate to a person, not merely the amount of an individual voucher.

How is a subsidy allocated when it relates to several assets?

Under Section 39(3), where a subsidy, grant or reimbursement cannot be directly related to one asset, the reduction attributable to that asset is allocated proportionately:

Reduction for an asset = A x B / C

A = unallocated subsidy, grant or reimbursement; B = cost of the particular asset; C = total cost of all assets to which the assistance relates.

Special circumstances under Section 39(4)

Section 39(4) provides a statutory table of special actual-cost rules. Important circumstances include:

Amalgamation: For a qualifying transfer to an Indian amalgamated company, continuity of the transferor's actual cost applies.
Demerger: For a qualifying transfer to an Indian resulting company, continuity rules apply, subject to the specified written-down-value ceiling.
Inventory converted to capital asset: Prescribed fair market value on the conversion date is used.
Gift or inheritance: The previous owner's actual cost is adjusted for the depreciation specified in the provision.
Personal building introduced into business: Actual cost is adjusted by notional depreciation as prescribed.
Holding and subsidiary company transfers: Qualifying transfers follow statutory cost-continuity rules.
Reacquisition of a formerly owned business asset: The statutory comparison may cap cost at the lower of adjusted historical cost and reacquisition price.
Sale and leaseback: Where the statutory conditions are met, the previous owner's written-down value determines the acquirer's actual cost.
Former scientific-research asset: Cost is adjusted for specified earlier capital expenditure deductions.
Asset brought into India by a former non-resident: Deemed depreciation for earlier use is deducted under the prescribed rule.
Corporatisation of a recognised stock exchange: Cost continuity applies where the statutory conditions are satisfied.
Assets subject to specified deductions: Actual cost may be deemed nil or adjusted as prescribed.
Acquisition interest: Interest attributable to a period after the asset is first put to use is not included in actual cost.

These are summaries of the statutory table, not substitutes for its conditions. The particular transfer, prior deductions and applicable cross-references must be checked before calculating cost.

Can the Assessing Officer substitute a different actual cost?

Under Section 39(5), where an asset was previously used in another person's business and the Assessing Officer is satisfied that the main purpose of its transfer was to reduce tax liability through depreciation on an enhanced cost, actual cost may be determined having regard to all the circumstances. Under Section 39(6), this determination requires prior approval of the Joint Commissioner. Section 39(7) defines special modes of acquisition for this section, including specified gifts, wills, irrevocable trusts, liquidation distributions and transfers under the cited provisions of Section 70.

Relevant statutory terms

Actual cost: The tax cost determined in accordance with Section 39, including its reductions and special-case rules.

Written-down value: A depreciation-related tax value determined under the applicable provisions, distinct from the asset's original invoice price.

Input tax credit: Credit of eligible input tax under the relevant GST law; Section 39 addresses GST for which credit has been claimed and allowed.

Special modes of acquisition: The acquisitions expressly listed in Section 39(7), including certain gifts, wills and qualifying transfers.

Practical illustrations

Example 1: GST credit

A machine has a base price of Rs. 5,00,000 and GST of Rs. 90,000. If the Rs. 90,000 GST input tax credit is claimed and allowed, the GST component is excluded from actual cost. Assuming no other adjustments, actual cost is Rs. 5,00,000.

Example 2: Asset-specific grant

Equipment costs Rs. 8,00,000 and a grant of Rs. 2,00,000 directly relates to its acquisition. Assuming no other adjustments, the actual cost is Rs. 6,00,000.

Example 3: Shared subsidy

A subsidy of Rs. 3,00,000 relates to two assets costing Rs. 6,00,000 and Rs. 4,00,000. The reduction for the first asset is Rs. 1,80,000 and for the second Rs. 1,20,000, using the proportionate formula in Section 39(3).

Frequently asked questions

Does Section 39 itself prescribe depreciation rates?

No. It determines actual cost; depreciation eligibility and computation must be read with Section 33 and the applicable rules.

Does a government subsidy always reduce actual cost?

Section 39 addresses subsidies, grants and reimbursements relatable to asset acquisition. Whether and how a particular receipt reduces actual cost depends on its connection with the assets and the statutory allocation rules.

Is interest after an asset is put to use part of actual cost?

No. Section 39(4)'s table excludes interest attributable to a period after the asset is first put to use.

Which earlier law covered actual cost?

The corresponding provisions were principally contained in Section 43(1) and its explanations under the Income-tax Act, 1961. The wording and cross-references of the 2025 Act should be used for the applicable tax year.

Official law and related reading

Official Section 39 Income-tax Act 2025 (official PDF)Income Tax e-Filing Portal

Updated: 10 November 2026. General legal information; apply the precise statutory provisions to the facts of each case.