s.48 — Mode of computation of capital gains
Capital gains are computed by deducting transfer expenses, the cost of acquisition and the cost of improvement from the full value of consideration, with indexed cost only for a transfer that takes place before 23 July 2024.
The second proviso, which substitutes indexed cost, was confined to a transfer that takes place before 23 July 2024 by the Finance (No. 2) Act, 2024 (Act No. 15 of 2024) with retrospective effect from 23 July 2024. The counterpart in the Income-tax Act, 2025 is section 72, under which indexed cost survives only for the comparison in section 197(3).
Income-tax Act, 1961
s.48
Income-tax Act, 2025
s.72
In force from 1 April 2026, but s.536(2)(c) preserves the 1961 Act for tax years beginning before that date.
In short
Section 48 of the Income-tax Act, 1961 provides that capital gains "shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset" the expenditure incurred wholly and exclusively in connection with the transfer and "the cost of acquisition of the asset and the cost of any improvement thereto". The second proviso substitutes indexed cost of acquisition and indexed cost of improvement where a long-term capital gain arises from a transfer "(which takes place before the 23rd day of July, 2024)"; those words were inserted by the Finance (No. 2) Act, 2024 with retrospective effect from that date. Indexed cost bears to cost the proportion that the Cost Inflation Index of the year of transfer bears to the index of the first year the asset was held or of 2001-02, whichever is later. Section 55 supplies the cost of improvement and, for land held before 1 April 2001, the option of its fair market value on that date, capped from assessment year 2021-22 at the stamp duty value on that date. The section does not itself value consideration in kind. For an individual or a Hindu undivided family under a registered joint development agreement, section 45(5A) deems the stamp duty value of the owner's share on the date of the completion certificate, increased by the money consideration, to be the full value "for the purposes of section 48"; for every other landowner the actual consideration is taken, subject to section 50C where land is transferred below its stamp duty value and section 50D where the consideration cannot be determined. The counterpart in the Income-tax Act, 2025 is section 72. Its sub-section (1) carries the computation, and indexed cost appears only in sub-section (2), for item B of the formula in section 197(3), with the definition in section 72(8)(b) keeping 1 April 2001 as the earliest base.
What the provision does
Fixes the arithmetic of every capital gain: full value of consideration less transfer expenses, cost of acquisition and cost of improvement, indexed only where the transfer takes place before 23 July 2024. It does not say what the consideration is when a landowner is paid in constructed area, and it does not say on which date a transfer under a joint development agreement taxed in the completion certificate year takes place for the indexation cut-off.
Threshold questions
- What is the full value of the consideration received or accruing, and does section 45(5A), 50C or 50D replace it
- Did the transfer take place before 23 July 2024, which alone opens indexed cost under the second proviso
- Was the land held before 1 April 2001, so that its fair market value on that date, capped from assessment year 2021-22 at the stamp duty value on that date, may be taken as cost
- Is each item claimed as cost of improvement capital expenditure on the land borne by the assessee, and incurred after 1 April 2001 where the 2001 value is adopted
- Was the expenditure claimed as a transfer expense incurred wholly and exclusively in connection with the transfer
In practice
The recurring disputes.
Full value of consideration in an area-sharing agreement outside section 45(5A)
A company, firm or trust, or an individual whose agreement is unregistered, receives built-up area and no statutory figure. The Revenue's measure is the developer's cost of constructing the owner's share: it is a real and audited figure, it is what the owner's bargain actually costs, and guidance value is only an administrative rate for stamp duty. The Hyderabad Tribunal in P. Prathima Reddy (14 September 2012, assessment year 2007-08, paragraphs 29 and 30) remitted the valuation to the Assessing Officer to work it out on a construction-cost base adjusted for price inflation, as an earlier Hyderabad Bench had directed, but not above the Rs 925 a sq ft cost the builder had admitted in his return. The owner's answer is the Karnataka High Court in Ved Prakash Rakhra (28 August 2012, paragraph 9): a joint development "is one of exchange", the value stated in the agreement represents market value on the date of the agreement, and the developer's figure "need not necessarily represent only a cost of construction". The same Court in Sarojini M. Kushe (1 December 2021, paragraph 15) said guidance value is the appropriate mode where consideration is not determinable, though it dismissed the appeal as raising no substantial question of law (paragraph 17), and the Bangalore Tribunal in L.K. Trust (9 June 2026, paragraph 8.10), computing the business income of a trust that had converted its land into stock-in-trade, relied on Sarojini M. Kushe and the same Court's CPC Logistics to hold that the developer's cost "cannot be held as consideration". No Gujarat High Court or Ahmedabad Bench decision choosing between the measures was found, so the Karnataka line is the assessee's best authority and the Hyderabad line the Revenue's.
Indexation where the agreement precedes and the completion certificate follows 23 July 2024
Under section 45(5A) the gain is charged in the year of the completion certificate, but the second proviso turns on when the transfer "takes place". The owner can say that a registered agreement with possession is a transfer on its own date under section 2(47)(v) and that section 45(5A) postpones only the charge, so indexation survives. The Revenue's argument is that section 45(5A) values the share on the certificate date "for the purposes of section 48", that a gain cannot be computed at one date's value and another date's index, and that the whole of section 48 must therefore be applied at the certificate date; the Department's taxpayer explainer on joint development agreements, which is not a circular, treats the asset as transferred in the certificate year. No decision on the point was found. For a resident individual or Hindu undivided family the certificate-year reading is never the dearer one, because the comparison in the second proviso to section 112(1)(a) applies the higher index of that year to the same deemed full value; the dispute bites in money for a non-resident individual, who has no comparison.
Premiums and conversion charges as cost of improvement
The Gujarat High Court in Mathurdas Mangaldas Parekh (5 August 1980) held betterment charges paid under a Town Planning Scheme to be capital expenditure that goes "to improve the value of the land", and the Ahmedabad Tribunal in Vithalbhai Kalidas Patel HUF (14 October 2019, paragraphs 4 and 17) followed it to allow, as each selling HUF's cost of improvement, non-agricultural conversion charges that the agreement required the purchaser to bear. The Revenue's best point is the one the Commissioner (Appeals) took there and the Tribunal did not answer: a charge the buyer pays is an advance against the price, not expenditure the owner incurred. On the premium for converting new tenure land to old tenure no decided case was found; the owner says it buys an enduring advantage in the land, and the Revenue that it removes a restriction on transfer and is at most a transfer expense, which unlike an improvement is not indexed. Betterment charges paid by the owner stand covered by binding High Court authority; a developer-paid conversion charge has one Ahmedabad order for the owner that does not engage the Revenue's point, the new tenure premium is open, and an owner who claims a premium the developer paid should also show it as consideration in kind.
Cost of the flats received and later sold
Within section 45(5A), section 49(7) makes the deemed full value the cost of the share. Outside it, the Bangalore Tribunal in K.S. Akhilesh Babu (28 November 2025, paragraph 9) dealt with villas received under a 2007 agreement whose exchange had been taxed in assessment year 2007-08: the Assessing Officer himself allowed, as one element of cost, the Rs 760 a sq ft at which the owners' built-up area had been taxed (paragraph 3.3), and the Tribunal added the original cost of the undivided land retained, at Rs 95.26 a sq ft of saleable area, holding that confining that element to the rate allowed at the agreement stage was "completely incorrect". The case therefore does not meet the Revenue's argument, which is that an exchange value is a cost only where the exchange was taxed, so an owner who returned nothing on the land has only the original land cost, and that from assessment year 2024-25 section 55(2)(a) gives a nil cost to a right not acquired by purchase. The Tribunal orders found adopt the exchange cost where the exchange was taxed; no order on an owner who returned nothing was found, and no High Court has decided it.