Section 39 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 39 says how the "actual cost" of an asset used for business or profession is found. The starting point is the cost to the assessee, which is then reduced by cost met by others, input credits and subsidies, and cash payments above a daily limit. A Table of thirteen special cases then fixes the actual cost for mergers, demergers, gifts, re-acquisitions, imported assets and others. This article explains the section as per the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026.
The actual cost of a business asset is the actual cost to the assessee less (a) part of the cost met by another person or authority, (b) GST for which input tax credit was claimed and allowed, (c) excise or additional customs duty for which credit was claimed and allowed, and (d) any subsidy, grant or reimbursement relatable to the asset. A payment above Rs. 10,000 in a day to a person made otherwise than by a specified banking or online mode is excluded from actual cost. For thirteen special situations, the Table in sub-section (4) decides the figure. Where an asset is bought mainly to cut tax, the Assessing Officer, with the prior approval of the Joint Commissioner, may determine the cost.
Where this section sits
Section 39 is the base for depreciation: depreciation is worked out on actual cost, as our post on Section 33 on depreciation explains, and written down value under section 41 builds on it. The next section, section 40, is in the article on sections 40, 42 and 43. Getting the cost right at the time of purchase saves rework in every later year; our books of accounts compliance team can help set up the asset register.
Section 39(1): the general rule
The actual cost of an asset used for the purposes of the business or profession is the actual cost to the assessee, as reduced by:
| Clause | Reduction |
|---|---|
| (a) | Part of the cost of the asset, if any, met by any other person or authority, directly or indirectly |
| (b) | Goods and services tax paid in respect of which credit of input tax has been claimed and allowed under the relevant law |
| (c) | Duty of excise or additional duty leviable under section 3 of the Customs Tariff Act, 1975 in respect of which a claim of credit has been made and allowed under the Central Excise Rules, 1944 |
| (d) | Subsidy, grant or reimbursement, by whatever name called, relatable to the acquisition of the asset, received directly or indirectly from the Central Government, a State Government, any authority established under any law, or any other person |
Section 39(2): cash and non-bank payments
The payment, or aggregate of payments, exceeding Rs. 10,000 in a day for acquisition of an asset or part of it, made to a person otherwise than by specified banking or online mode, shall be excluded from the actual cost of that asset. The text of section 39 does not list the modes; they are "specified".
Section 39(3): subsidy not directly relatable to the asset
Where the subsidy, grant or reimbursement under (1)(d) is not directly relatable to the asset acquired, the reduction is A x B / C, where:
- A = total amount of subsidy, grant or reimbursement not directly relatable to the asset;
- B = cost of the asset acquired for which actual cost is to be determined;
- C = cost of all the assets in respect of or in reference to which the subsidy, grant or reimbursement is received.
Worked example: from price to actual cost
Hari Foods (an invented firm) buys a machine for Rs. 11,80,000 including goods and services tax of Rs. 1,80,000, for which input tax credit is claimed and allowed. It also receives a subsidy of Rs. 1,00,000 directly relatable to the machine, and none of the cost is met by others. Starting from 11,80,000, subtract the credited tax (clause (b)) of 1,80,000 to get 10,00,000, then the subsidy (clause (d)) of 1,00,000. The actual cost is Rs. 9,00,000. If Hari Foods had also paid Rs. 15,000 in cash in one day to the machine's installer, that sum would be excluded from actual cost under sub-section (2).
Worked example: a general subsidy
A State grant of Rs. 6,00,000 (A) is received in respect of three assets costing Rs. 30,00,000 in total (C), and is not directly relatable to any one of them. For the asset costing Rs. 10,00,000 (B), the reduction is 6,00,000 x 10,00,000 / 30,00,000 = Rs. 2,00,000.
Section 39(4): the Table of special circumstances
In the circumstances in column B, the actual cost is as column C says.
| Serial number | Specified circumstance | Actual cost |
|---|---|---|
| 1 | Capital asset transferred by an amalgamating company to an amalgamated company that is an Indian company in a scheme of amalgamation | Same as it would have been had the amalgamating company continued to hold the asset for its own business |
| 2 | Capital asset transferred by a demerged company to a resulting company that is an Indian company in a demerger | Same as if the demerged company had continued to hold the asset for its own business, not exceeding the written down value in the hands of the demerged company |
| 3 | Inventory converted into or treated as a capital asset | Fair market value on the date of conversion, as determined in the manner as may be prescribed |
| 4 | Asset acquired by gift or inheritance | Actual cost to the previous owner as reduced by (a) depreciation actually allowed for the tax year commencing on 1st April, 1986 or any earlier tax year, and (b) depreciation allowable for tax years commencing on or after 1st April, 1987 under this Act or under the Income-tax Act, 1961 (as printed), as if the asset were the only asset in the block |
| 5 | A building, being the property of the assessee, put to use for business or profession during the tax year | Actual cost reduced by the depreciation that would have been allowable had it been used for business from the date of acquisition, calculated at the rate in force on the date it was put to use |
| 6 | Capital asset transferred by a holding company to its subsidiary, or a subsidiary to its holding company, where the conditions of section 70(1)(c) and (d), as the case may be, are satisfied | Same as it would have been had the transferor continued to hold the asset for its own business |
| 7 | Asset previously belonging to the assessee, used for his business, and reacquired | The lower of (a) the actual cost when first acquired, reduced by depreciation as in serial number 4, or (b) the actual price for which it is reacquired |
| 8 | Asset acquired from the previous owner and given back to the previous owner by lease, hire or otherwise, where it was used in the previous owner's business and he claimed depreciation | The written down value in the previous owner's hands at the time of transfer |
| 9 | Asset used in business after it ceases to be used for scientific research related to that business, and a deduction is allowable under section 33(3) | Actual cost reduced by the deduction allowed under section 45(1)(a)(i) (or under section 35(1)(iv) of the Income-tax Act, 1961, as printed) |
| 10 | Asset acquired outside India by the assessee as a non-resident and brought to India and put to use in business | Actual cost reduced by the depreciation that would have been allowable had it been used in India since acquisition, at the rate in force |
| 11 | Capital asset acquired under the scheme of corporatisation of a recognised stock exchange approved by the Securities and Exchange Board of India | Actual cost as if there was no corporatisation |
| 12(a) | Deduction under section 46 was allowed or allowable on the asset to the assessee, or to a person from whom the assessee acquires it through special modes of acquisition | Actual cost deemed to be nil |
| 12(b) | Deduction allowed under section 46 becomes deemed income as per section 46(9)(b) | Actual cost reduced by the depreciation that would have been allowable since acquisition, at the rate in force |
| 13 | Any amount paid or payable as interest in connection with the acquisition of an asset | Actual cost does not include the part relatable to any period after the asset is first put to use |
The Table has thirteen rows; row 12 has two limbs, (a) and (b). The rate of depreciation is not in section 39; see section 33. The Table reads "Sl. No." as its column head; this article calls the rows "serial numbers".
Section 39(5) and (6): transfers made to reduce tax
Irrespective of sub-section (4), other than serial number 8 of the Table, where the asset is acquired by the assessee, its actual cost is such amount as the Assessing Officer determines having regard to all the circumstances, where (a) the asset was used by any other person for the purposes of his business before the acquisition, and (b) the Assessing Officer is satisfied that the main purpose of the transfer, directly or indirectly, was to reduce tax liability by claiming depreciation on enhanced actual cost. The determination must have the prior approval of the Joint Commissioner (sub-section (6)).
Section 39(7): special modes of acquisition
"Special modes of acquisition" means acquisition (a) by way of a gift, will or irrevocable trust; (b) upon distribution on the liquidation of a company; or (c) by such mode of transfer as is referred to in section 70(1)(a), (c), (d), (e), (j), (zd), (ze) and (zf). They are used in serial number 12(a). Section 70 lists transfers not regarded as transfers.
Need help with asset cost and depreciation?
Capital cost, subsidies and mode of payment decide the depreciation base for years to come, and the special cases in the Table are easy to miss on a merger or a gift. For an asset register and depreciation workings, see our books of accounts compliance service.
Key takeaways
- Actual cost is the cost to the assessee less cost met by others, GST and excise credits claimed and allowed, and subsidies.
- Payments above Rs. 10,000 in a day to a person, other than by specified banking or online mode, are excluded from actual cost.
- A general subsidy is apportioned by the formula A x B / C.
- The 13-row Table covers amalgamation, demerger, gift, re-acquisition, imported assets and more; serial number 12(a) fixes the actual cost at nil where a section 46 deduction was allowed or allowable.
- The Assessing Officer, with the Joint Commissioner's prior approval, may fix the cost where the main purpose of a transfer was to reduce tax.
- Later amendments, rules and notifications should be checked.
Read next
- Sections 40, 42 and 43: cost of acquisition of certain assets and foreign exchange fluctuation
- Section 36: payments to specified persons and other expenses not deductible
- Section 33: depreciation
- Section 41: written down value
Disclaimer: Based on the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026, as consulted on 2 October 2026. It explains the words of the Act only; the Income-tax Rules, 2026, notifications, circulars, later amendments and the way the tax authorities and courts apply these provisions should be checked. This article is general information, not legal advice; check the official text before acting.