Section 72 of the Income-tax Act, 2025 computes capital gains by deducting from the full value of consideration the expenditure incurred wholly and exclusively on the transfer, and the cost of acquisition and improvement. Securities transaction tax and interest already claimed elsewhere are not deductible.
What section 72 does
Section 72 is the capital gains computation machinery — the successor to section 48 of the Income-tax Act, 1961. The basic formula is unchanged: full value of consideration, less transfer expenditure, less cost of acquisition and cost of improvement.
Indexation is not built into sub-section (1). It arrives through sub-section (2), which substitutes 'indexed cost of acquisition' and 'indexed cost of any improvement' only for the purposes of item B of the formula in section 197(3). So whether you get indexation depends on which charging provision applies to your gain, not on section 72 alone.
Two deductions are expressly barred by sub-section (3): interest already claimed under section 22(1)(b) (house property interest) or under Chapter VIII, and securities transaction tax. Both are common errors in self-prepared computations.
The Income-tax Act, 2025 takes effect from 1 April 2026 and applies from tax year 2026-27. The Income-tax Act, 1961 continues to govern every year up to 31 March 2026, including assessments, appeals and penalties for those years, because of the repeal and savings provision in section 536. Figures quoted here are the amounts written into the Act as enacted (with the Gazette corrigenda of 3 September 2025); the annual Finance Act can change rates and thresholds.
Old Act and new Act, side by side
The table below shows what the Income-tax Act, 1961 did and where the same ground is covered in the Income-tax Act, 2025.
| Income-tax Act, 1961 | What it did | Income-tax Act, 2025 |
|---|---|---|
| 48 | Mode of computation of capital gains | 72(1) |
| 48, second proviso | Indexed cost of acquisition and improvement | 72(2) with 72(8)(b) and (c) |
| 48, Explanation (v) | Cost Inflation Index definition | 72(8)(a) |
| 48, first proviso | Foreign currency computation for non-residents | 72(6) |
| 48, fifth proviso | STT not deductible | 72(3)(b) |
| 50C | Stamp duty value as full value of consideration | 78 |
Section 72 sub-section by sub-section
Read this alongside the bare text — each heading below is a sub-section of the section as enacted.
Sub-section (1) — the basic formula
Capital gains are computed by deducting from the full value of the consideration received or accruing on transfer: (a) expenditure incurred wholly and exclusively in connection with the transfer, and (b) the cost of acquisition and the cost of any improvement. Brokerage, stamp duty borne by the seller and legal fees on the sale fall in clause (a); the cost side is governed by section 90 and, for inherited or gifted assets, section 73.
Sub-section (2) — where indexation actually comes from
For the purposes of item B of the formula in section 197(3), sub-section (1) applies as if the words 'cost of acquisition' and 'cost of any improvement' read 'indexed cost of acquisition' and 'indexed cost of any improvement'. Indexation is therefore not a general entitlement under section 72 — it is switched on by the long-term capital gains charging provision in section 197.
Sub-section (3) — two things you cannot deduct
In computing capital gains, no deduction is allowed for (a) interest claimed as a deduction under section 22(1)(b) or under Chapter VIII, and (b) any sum paid as securities transaction tax under Chapter VII of the Finance (No.2) Act, 2004. Home loan interest already claimed against house property income cannot be added back into the cost of the property on sale.
Sub-section (4) — business trust unit distributions
Where a unit holder receives an amount from a business trust in respect of a unit that is not income under Schedule V (Table serial 3 or 4) and is not chargeable under section 92(2)(k) or 223(2), that amount is reduced from the cost of acquisition of the unit. Where the transfer of the unit is not regarded as a transfer under section 70 and cost is determined under section 73, amounts received both before and after that transaction are reduced from cost.
Sub-section (5) — specified person and specified entity
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 gets an additional prescribed deduction, beyond sub-section (1), attributable to the transfer of that capital asset. This is the partner-firm reconstitution mechanism.
Sub-sections (6) and (7) — non-residents
A non-resident transferring shares or debentures of an Indian company (other than equity shares referred to in section 198) computes gains by converting cost, transfer expenditure and consideration into the same foreign currency originally used for the purchase, and reconverting the resulting gain into rupees — and this method continues for every reinvestment and sale thereafter. Sub-section (7) provides that rupee appreciation gains on redemption of a rupee denominated bond of an Indian company are ignored for a non-resident.
Sub-section (8) — the definitions, including the Cost Inflation Index
Cost Inflation Index is the index notified by the Central Government having regard to 75% of the average rise in the Consumer Price Index (urban) for the immediately preceding tax year. Indexed cost of acquisition bears to cost the same proportion as the CII for the year of transfer bears to the CII for the first year the asset was held or the year beginning 1 April 2001, whichever is later. Indexed cost of improvement uses the CII of the year the improvement took place.
Worked example
An individual sells a commercial building in tax year 2026-27 for ₹2,10,00,000. It was bought in 2012-13 for ₹70,00,000, improved in 2016-17 for ₹15,00,000, and ₹4,20,000 of brokerage was paid on sale. Assume the relevant CII figures produce the indexed amounts shown.
| Step | Working | Amount |
|---|---|---|
| Full value of consideration | Sale price; compare with stamp duty value under section 78 | ₹2,10,00,000 |
| Less: transfer expenditure | Brokerage — section 72(1)(a) | (₹4,20,000) |
| Less: indexed cost of acquisition | Section 72(8)(b), where indexation is available under section 197(3) | (₹1,26,00,000) |
| Less: indexed cost of improvement | Section 72(8)(c), indexed from 2016-17 | (₹22,50,000) |
| Long-term capital gains | ₹57,30,000 |
Two items were not deducted. The seller had claimed ₹18,00,000 of home loan interest on this property under section 22(1)(b) over the years — sub-section (3)(a) bars adding it to cost. And had this been a listed share sale, the securities transaction tax paid would have been barred by sub-section (3)(b). Note also that if the stamp duty value exceeded ₹2,31,00,000 — that is, 110% of the consideration — section 78 would substitute the stamp duty value as the full value of consideration.
Compliance checklist and due dates
- Compare the sale consideration with the stamp duty value under section 78 before adopting it as full value of consideration.
- Confirm whether indexation is available for your gain by reading section 197(3) — section 72(2) only operates through item B of that formula.
- Use 1 April 2001 as the earliest indexation base under sub-section (8)(b).
- Exclude securities transaction tax and any interest already claimed under section 22(1)(b) or Chapter VIII.
- Keep evidence of transfer expenditure — brokerage bills, legal fees, seller-borne stamp duty.
- For inherited or gifted assets, take cost from section 73 and hold period from the previous owner.
- Non-residents holding Indian company shares must apply the foreign currency method in sub-section (6) — it is mandatory, not optional.
Common mistakes
- Adding home loan interest to the cost of the property on sale after claiming it as a house property deduction.
- Deducting securities transaction tax from the sale value of listed shares.
- Assuming indexation applies to every long-term gain. It is routed through section 197(3), not granted by section 72 generally.
- Indexing from a year earlier than 2001-02 for an asset held before 1 April 2001.
- Indexing the cost of improvement from the year of acquisition instead of the year the improvement was made.
- Ignoring section 78 where the stamp duty value exceeds 110% of the consideration.
This is an explanatory guide, not tax advice, and it does not reproduce the section in full. Read the bare text of the section before you rely on it, and check for later amendments, the Income-tax Rules made under the new Act, and CBDT circulars and notifications.