Section 90 of the Income-tax Act, 2025 defines cost of acquisition and cost of improvement. For assets held before 1 April 2001 the assessee may adopt fair market value on that date, capped for land and building by the stamp duty value. Bonus shares and renounced rights carry nil cost.
What section 90 does
Section 90 supplies the cost figures that section 72 deducts. It is the successor to section 55 of the Income-tax Act, 1961, and it is where several of the most valuable capital gains rules actually live.
The rule most taxpayers need is in sub-section (9)(a): for a capital asset that became the assessee's property before 1 April 2001, the cost of acquisition is the actual cost or the fair market value on 1 April 2001, at the option of the assessee. Sub-section (9)(b) extends the same option where the asset came through one of the section 73 modes and the previous owner acquired it before that date.
But there is a ceiling that is easy to miss. Sub-section (10) provides that for land or building, the fair market value on 1 April 2001 cannot exceed the stamp duty value of that asset as on 1 April 2001, wherever available.
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 |
|---|---|---|
| 55(1)(b) | Cost of improvement | 90(1) and 90(2) |
| 55(2)(a) | Cost of goodwill, trademarks, tenancy and other rights | 90(3) |
| 55(2)(a), proviso | Reduction for depreciation obtained on goodwill | 90(4) |
| 55(2)(aa) | Rights and bonus financial assets | 90(5) and 90(6) |
| 55(2)(b) | Fair market value on 1 April 2001 option | 90(9)(a) and (b) |
| 55(2)(b), proviso | Stamp duty value ceiling on 2001 fair market value | 90(10) |
| 55(3) | Previous owner's cost unascertainable | 90(11) |
Section 90 sub-section by sub-section
Read this alongside the bare text — each heading below is a sub-section of the section as enacted.
Sub-sections (1) and (2) — cost of improvement
For goodwill, an intangible asset of a business, a right to manufacture, produce or process, a right to carry on business or profession, or any other right, cost of improvement is nil. For any other asset, it means capital expenditure on additions or alterations — and where the asset was acquired before 1 April 2001, only expenditure incurred on or after that date counts. Sub-section (2) excludes any expenditure deductible under the house property, business or other sources heads.
Sub-sections (3) and (4) — goodwill, brands, tenancy and similar rights
For goodwill, a trade mark or brand name associated with a business, any other intangible asset, a right to manufacture or to carry on business, tenancy rights, stage carriage permits or loom hours, cost of acquisition is the purchase price if purchased from the previous owner, the previous owner's purchase price in a section 73 (Table serial 1) case, and nil in any other case. Sub-section (4) reduces the purchase price of goodwill by depreciation obtained under section 32(1) of the 1961 Act before the tax year commencing 1 April 2020.
Sub-sections (5) and (6) — rights issues and bonus shares
Where holding a financial asset entitles the assessee to subscribe to, or to be allotted, an additional financial asset: the original asset keeps the amount actually paid for it; the right to renounce the entitlement is nil in the renouncer's hands; the asset subscribed to takes the amount actually paid; the asset allotted without payment — that is, bonus shares — is nil; and a person who buys the renounced right takes the total of what they paid the renouncer plus what they paid the company.
Sub-section (9) — the 1 April 2001 option
For any other capital asset: (a) where it became the assessee's property before 1 April 2001, cost is the actual cost or the fair market value on 1 April 2001, at the assessee's option; (b) the same option applies where the asset came through a section 73 (Table serial 1) mode and the previous owner acquired it before that date; (c) on liquidation distribution already taxed under section 68, cost is the fair market value on the date of distribution; and (d) on share consolidation, sub-division, conversion into stock or reconversion, cost is derived from the original shares.
Sub-section (10) — the stamp duty value ceiling
For land or building, or both, the fair market value on 1 April 2001 used under sub-section (9)(a) or (b) shall not exceed the stamp duty value of that asset as on 1 April 2001, wherever available. A valuer's report showing a higher 2001 value is therefore capped by the circle rate of that date.
Sub-sections (11) and (12) — unascertainable cost and demutualisation
Where the previous owner's cost cannot be ascertained, it is the fair market value on the date the asset became the previous owner's property. And on stock exchange demutualisation or corporatisation approved by SEBI, equity shares allotted take the cost of the original membership, while trading or clearing rights are nil.
Worked example
An individual sells inherited land in tax year 2026-27. The father bought it in 1993; the taxpayer inherited it in 2015. A registered valuer certifies the fair market value as on 1 April 2001 at ₹42,00,000, while the stamp duty value on that date was ₹31,00,000.
| Question | Answer under section 90 |
|---|---|
| Whose acquisition date matters? | The previous owner's — sub-section (9)(b) applies because the asset came through a section 73 mode and the father acquired it before 1 April 2001 |
| Can the 2001 fair market value be used? | Yes, at the assessee's option under sub-section (9)(b) |
| Can ₹42,00,000 be adopted? | No. Sub-section (10) caps it at the stamp duty value on 1 April 2001 |
| Cost of acquisition adopted | ₹31,00,000 |
| Cost of improvement | Only capital expenditure incurred on or after 1 April 2001 — sub-section (1)(b)(i) |
The ₹11,00,000 difference between the valuer's figure and the stamp duty value is lost purely because of sub-section (10). Indexation then runs from 2001-02 under section 72(8)(b).
Contrast a share portfolio: bonus shares carry nil cost under sub-section (6)(d), so the entire sale value of a bonus share is gain, while rights shares actually subscribed carry the amount paid.
Compliance checklist and due dates
- For assets held before 1 April 2001, obtain a valuation and the stamp duty value of that date — sub-section (10) caps the former by the latter for land and building.
- Trace the previous owner's acquisition date for inherited or gifted assets; the 2001 option follows their holding under sub-section (9)(b).
- Exclude pre-2001 improvement expenditure — only capital expenditure on or after 1 April 2001 qualifies.
- Record nil cost for bonus shares and for a renounced right in the renouncer's hands.
- For a purchased renunciation, add both the amount paid to the renouncer and the amount paid to the company.
- Reduce goodwill cost by depreciation obtained under section 32(1) of the 1961 Act before the year commencing 1 April 2020.
- Do not claim as cost of improvement anything already deducted under the house property, business or other sources heads.
Common mistakes
- Adopting a valuer's 2001 fair market value for land or building without checking the stamp duty value ceiling in sub-section (10).
- Using your own acquisition date for an inherited asset instead of the previous owner's.
- Claiming pre-2001 improvement costs on an asset acquired before that date.
- Assigning a cost to bonus shares. Sub-section (6)(d) makes it nil.
- Treating tenancy rights, stage carriage permits or loom hours as having a cost when they were not purchased — sub-section (3)(c) makes it nil.
- Double counting improvement expenditure already allowed as a revenue deduction under another head.
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.