How Are Capital Gains Computed Under Section 72 of the Income-tax Act, 2025?
Section 72 prescribes the basic method of calculating taxable capital gains when a capital asset is transferred. It identifies deductible transfer expenses, acquisition costs and improvement costs, while imposing specific restrictions and adjustments.
What Is the Formula for Computing Capital Gains?
Under Section 72(1), the general computation begins with the full value of consideration received or accruing on transfer of a capital asset. From that amount, the taxpayer may deduct eligible expenditure incurred wholly and exclusively in connection with the transfer, the cost of acquisition, and the cost of any improvement.
Capital gain = Full value of consideration - eligible transfer expenditure - cost of acquisition - cost of improvement.
Special valuation rules, indexation provisions, exemptions and other statutory adjustments may change the final taxable amount.
Section 72 Explained Subsection by Subsection
Section 72(1): Deductions From Sale Consideration
Deductible amounts are (a) expenditure incurred wholly and exclusively in connection with the transfer and (b) the asset's cost of acquisition and cost of improvement. Brokerage or legal expenses directly connected with a qualifying transfer may fall within the first category, depending on the facts and supporting records.
Section 72(2): Indexed Costs in Specified Cases
For the purpose of item B of the formula in Section 197(3), Section 72(1) operates with "indexed cost of acquisition" and "indexed cost of improvement" substituted for the corresponding unindexed costs. This is a targeted cross-reference, not a general entitlement to indexation for every capital asset or transfer.
Section 72(3): Amounts That Cannot Be Deducted Again
Capital gains computation does not allow deduction of interest already claimed under Section 22(1)(b) or Chapter VIII. Securities transaction tax paid under Chapter VII of the Finance (No. 2) Act, 2004 is also expressly excluded as a deduction when computing capital gains.
Section 72(4): Payments Received by Business Trust Unit Holders
Where a unit holder receives an amount from a business trust that is neither income under the specified entries in Schedule V nor chargeable under Section 92(2)(k) or Section 223(2), that amount reduces the cost of acquisition of the unit. In the specified non-transfer situations under Section 70, where cost is determined under Section 73, qualifying amounts received both before and after that transaction reduce the cost.
Section 72(5): Specified Entity and Specified Person
Where money or a capital asset is received by a specified person from a specified entity as referred to in Section 67(10), the specified entity may claim an additional deduction calculated in the prescribed manner for the amount chargeable under that provision attributable to the transfer of the capital asset.
Relevant Statutory Concepts and Definitions
Illustration: How Does the Calculation Work?
Assume an asset is sold for Rs. 30,00,000. The eligible transfer expenses are Rs. 50,000, its allowable acquisition cost is Rs. 18,00,000, and qualifying improvement costs are Rs. 1,50,000.
| Particulars | Amount (Rs.) |
|---|---|
| Full value of consideration | 30,00,000 |
| Less: eligible transfer expenses | 50,000 |
| Less: cost of acquisition | 18,00,000 |
| Less: cost of improvement | 1,50,000 |
| Illustrative capital gain | 10,00,000 |
This simplified illustration assumes ordinary unindexed costs and no deemed-consideration adjustment, exemption or other special provision. The amount of tax depends separately on the nature of the asset, holding period and applicable rate provisions.
Related Sections and Official Legal Sources
Section 67 deals with chargeability of capital gains; Section 70 with transactions not regarded as transfers; Section 73 with cost in specified modes of acquisition; Section 74 with depreciable assets; Section 78 with deemed full value of consideration in certain cases; Section 90 with relevant cost definitions; and Section 197 with certain long-term capital gains taxation provisions.
Frequently Asked Questions
Is Section 72 of the 2025 Act about business loss carry-forward?
No. Section 72 of the Income-tax Act, 2025 concerns computation of capital gains. The similarly numbered Section 72 of the Income-tax Act, 1961 concerns carry-forward and set-off of business losses.
Can securities transaction tax be deducted from capital gains?
No. Section 72(3)(b) specifically disallows deduction of securities transaction tax in capital gains computation.
Is indexation available for every long-term capital gain?
No. Section 72(2) refers specifically to the computation under Section 197(3); availability of indexation must be tested against the applicable statutory provisions.
Can the same interest be deducted twice?
No. Interest already claimed under Section 22(1)(b) or Chapter VIII cannot be deducted again in the Section 72 capital gains computation.
Last reviewed: 10 November 2026. Readers should check the latest amendments and notifications before relying on the provision for a particular transaction.