Section 48 of Income Tax Act 1961: Mode of Computation of Capital Gains
Section 48 of the Income-tax Act, 1961 prescribed the basic method for computing income chargeable under the head "Capital gains". From 1 April 2026, the Income-tax Act, 2025 is in force, and the corresponding current provision is Section 72, "Mode of computation of capital gains". Section 48 remains relevant for tax years and proceedings governed by the repealed 1961 Act.
What did Section 48 provide?
Section 48 laid down the computation mechanism after a transfer gives rise to income chargeable as capital gains. In its basic form, the gain is determined from the full value of consideration and reduced by specified transfer expenditure and the applicable cost of acquisition and improvement. Other provisions of the Act may substitute a deemed consideration, prescribe a special cost, modify the computation, or grant an exemption.
Amounts deductible in computing capital gains
Under Section 48 of the 1961 Act, the principal deductions from the full value of consideration included:
| Component | Meaning |
|---|---|
| Transfer expenditure | Expenditure incurred wholly and exclusively in connection with the transfer, such as qualifying brokerage, commission, or other direct transfer expenses, depending on the facts. |
| Cost of acquisition | The cost attributable to acquiring the capital asset, subject to the special cost rules contained elsewhere in the Act. |
| Cost of improvement | Eligible capital expenditure on improvements, subject to the statutory rules governing the relevant asset and period. |
| Specified-entity adjustment | The amended provision also dealt with the amount attributable to a capital asset in cases covered by section 45(4), calculated in the prescribed manner. |
Interest already claimed as a deduction
For the relevant years, the cost of acquisition or improvement cannot include an amount of interest for which a deduction has already been claimed under section 24(b) or the applicable provisions of Chapter VI-A. This prevents the same interest expenditure from receiving a double tax benefit.
Indexation and transfers on or after 23 July 2024
For transfers before 23 July 2024, the second proviso to old Section 48 generally substituted indexed cost of acquisition and indexed cost of improvement when computing eligible long-term capital gains, subject to statutory exclusions. The Finance (No. 2) Act, 2024 restricted that proviso to transfers taking place before 23 July 2024.
Accordingly, indexation is generally not available for long-term capital assets transferred on or after 23 July 2024. A separate grandfathering relief under the capital-gains tax-rate provision applies to a resident individual or Hindu undivided family in respect of land or building, or both, acquired before 23 July 2024: the law protects against a higher tax burden by reference to the former 20 per cent computation with indexation where the statutory conditions are satisfied. This relief should not be confused with a general restoration of indexation under Section 48.
Meaning of indexed cost
Under the old Section 48 framework, indexed cost adjusted eligible acquisition or improvement cost by reference to the Cost Inflation Index (CII). The statutory definitions used the notified CII for the year of transfer and the relevant base year. For assets acquired before 1 April 2001, the old law contained special cost rules elsewhere in the capital-gains provisions.
Important special rules connected with Section 48
Section 48 did not operate in isolation. Depending on the asset and transaction, special provisions could alter the consideration, cost, classification, or manner of computation. Important examples include section 49 for cost in specified modes of acquisition, section 50 for depreciable assets, section 50C for certain transfers of land or building, and section 50D where consideration is not ascertainable.
Non-resident shares and debentures
The old Section 48 contained a special foreign-currency computation mechanism for a non-resident transferring shares in, or debentures of, an Indian company. The prescribed amounts were converted into the same foreign currency initially used for purchase and the resulting capital gain was reconverted into Indian currency in the prescribed manner.
Securities transaction tax
No deduction was allowed under old Section 48 for a sum paid on account of securities transaction tax under Chapter VII of the Finance (No. 2) Act, 2004.
Current provision: Section 72 of the Income-tax Act, 2025
The Income-tax Act, 2025 came into force on 1 April 2026. Section 72 now states the basic computation rule for capital gains: from the full value of consideration, deduct expenditure incurred wholly and exclusively in connection with the transfer and the cost of acquisition and improvement. The new Act reorganises the related rules into a simplified structure while preserving transition rules for periods governed by the 1961 Act.
For current transactions and Tax Year 2026-27 onwards, readers should use the official Income Tax Department text of Section 72 of the Income-tax Act, 2025. For the old provision, see the official text of Section 48 of the Income-tax Act, 1961.
Simple example of the computation method
Assume the applicable law treats Rs. 50,00,000 as the full value of consideration, eligible transfer expenditure is Rs. 1,00,000, cost of acquisition is Rs. 30,00,000 and eligible cost of improvement is Rs. 4,00,000. Before considering any special deeming rule, indexation rule, exemption, or special rate, the basic computation would be:
| Full value of consideration | Rs. 50,00,000 |
|---|---|
| Less: transfer expenditure | Rs. 1,00,000 |
| Less: cost of acquisition | Rs. 30,00,000 |
| Less: cost of improvement | Rs. 4,00,000 |
| Basic capital gain | Rs. 15,00,000 |
This example is illustrative only. Actual tax treatment depends on the governing Act and tax year, type and holding period of the asset, deemed-consideration provisions, special cost rules, exemptions, tax rates, and the taxpayer's facts.
Related capital gains provisions
For the surrounding provisions under the 1961 Act, see Section 45 - Capital gains, Section 47 - Transactions not regarded as transfer, and Section 47A - Withdrawal of exemption in certain cases.
Updated: 28 September 2026