Section 43C of Income Tax Act 1961: Cost of Acquisition of Certain Assets
Section 43C prescribed a special cost-of-acquisition rule where specified assets received through amalgamation, gift, will, irrevocable trust or partition of a Hindu undivided family were later sold as stock-in-trade.
Updated: 28 September 2026
- Section 43C applied to specified assets sold as stock-in-trade.
- It covered assets received by an amalgamated company under amalgamation and assets received through HUF partition, gift, will or irrevocable trust.
- The statutory rule generally carried forward the predecessor's cost, with specified improvement and transfer-related expenditure added.
- For the law in force from 1 April 2026, refer to Section 40 of the Income-tax Act, 2025.
What did Section 43C of the Income Tax Act 1961 provide?
Section 43C was a special computation provision under the head "Profits and gains of business or profession." It determined the cost to be used when an asset acquired through certain non-purchase modes became stock-in-trade and was sold by the recipient.
The rule prevented the recipient from adopting an unrelated fresh cost merely because ownership had passed through amalgamation, gift, will, trust or HUF partition. Instead, the provision linked the recipient's cost to the cost in the hands of the amalgamating company, transferor or donor, together with the additions specifically permitted by the section.
Section 43C(1): Asset received under a scheme of amalgamation
Sub-section (1) applied where an asset, other than an asset covered by Section 45(2), became the property of an amalgamated company under a scheme of amalgamation and was sold after 29 February 1988 as stock-in-trade of the business carried on by the amalgamated company.
Section 43C(2): HUF partition, gift, will or irrevocable trust
Sub-section (2) applied where an asset, other than an asset covered by Section 45(2), became the property of the assessee on a total or partial partition of a Hindu undivided family, or under a gift, will or irrevocable trust, and was sold after 29 February 1988 as stock-in-trade of the assessee's business.
Under the 1961 Act wording, qualifying transfer expenditure included expenditure connected with effecting the partition, accepting the gift, obtaining probate of the will or creating the trust, and included gift-tax, if any, incurred by the transferor or donor.
Meaning of important expressions
| Expression | Practical meaning in this provision |
|---|---|
| Stock-in-trade | An asset held as trading inventory of the business rather than as a capital asset. Section 43C addressed the cost used when the specified asset was sold as business stock. |
| Amalgamated company | The company into which one or more companies amalgamate under a qualifying scheme of amalgamation. The precise statutory conditions must be checked under the Act applicable to the relevant year. |
| Cost of improvement | Qualifying expenditure on improvement of the asset that the provision permits to be added to the predecessor's acquisition cost. |
| Hindu undivided family partition | A total or partial partition through which the relevant asset becomes the property of the assessee, subject to the tax law applicable to that transaction and year. |
Current provision: Section 40 of the Income-tax Act 2025
From 1 April 2026, the current provision is Section 40 of the Income-tax Act, 2025. It applies, for computation of business or professional income, where an asset becomes the property of an amalgamated company under a scheme of amalgamation, or of an assessee under a gift, will, irrevocable trust, or total or partial HUF partition, and the asset is sold as stock-in-trade.
Under Section 40, the cost is the aggregate of the predecessor's cost of acquisition, any cost of improvement, and qualifying expenditure incurred wholly and exclusively in connection with the transfer. Section 40(2) states that the section does not apply to an asset referred to in Section 67(6).
Section 43C and Section 40: key transition point
For a transaction, assessment, proceeding or other matter spanning the change in law, the applicable provision should not be selected only by looking at the current calendar date. The Income-tax Act, 2025 contains repeal and savings provisions governing the transition from the Income-tax Act, 1961. The relevant tax year, transaction date, proceeding and transitional rule should therefore be checked before applying either provision.
Simple example
Assume an asset became the property of an amalgamated company under a qualifying amalgamation and is held as stock-in-trade. If the predecessor's qualifying acquisition cost was Rs. 10,00,000, qualifying improvement cost was Rs. 1,00,000 and qualifying transfer expenditure was Rs. 50,000, the special rule would use Rs. 11,50,000 as the cost base for this computation, subject to all statutory conditions and exclusions.
Official references
For authoritative verification, consult the Income Tax Department page for Section 43C of the Income-tax Act, 1961 and the Income Tax Department portal for the Income-tax Act, 2025, Rules 2026 and transition resources.
This article is a general legal and tax information resource. The statutory provision, applicable Finance Act amendments, rules, notifications, circulars and binding judicial decisions should be checked for the relevant tax year and facts.