s.49 — Cost with reference to certain modes of acquisition
The cost of a capital asset received by gift, will, inheritance, partition and similar modes is the previous owner's cost, and the cost of an owner's share under section 45(5A) is the value taxed under it.
Sub-section (7), on the owner's share under a joint development agreement, was inserted by the Finance Act, 2017 with effect from 1 April 2018, so from assessment year 2018-19, alongside section 45(5A). The counterpart in the Income-tax Act, 2025 is section 73, which sets the rules out as a Table in sub-section (1).
Income-tax Act, 1961
s.49
Income-tax Act, 2025
s.73
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 49(1) of the Income-tax Act, 1961 provides that where a capital asset became the property of the assessee on a total or partial partition of a Hindu undivided family, under a gift or will, by succession, inheritance or devolution, on a distribution on the dissolution of a firm or association before 1 April 1987, on the liquidation of a company, under a transfer to a revocable or irrevocable trust, under any of the section 47 transfers listed in clause (iii)(e), or to a Hindu undivided family by the mode in section 64(2), its cost is the cost for which the previous owner acquired it, increased by the cost of any improvement borne by the previous owner or the assessee. The Explanation makes the previous owner the last owner who acquired the asset by some other mode. Section 2(42A), Explanation 1(i)(b), adds the previous owner's period of holding, and the Bombay High Court held in Manjula J. Shah (October 2011), a gift case reasoned on all the modes in section 49(1), that indexation also runs from the year the previous owner first held the asset. Sub-section (4) takes as cost the value already taxed under section 56(2)(vii), (viia) or (x). Sub-section (7) makes the cost of a share in the project, being land or building, received under a specified agreement within section 45(5A) the amount deemed to be the full value of consideration under that sub-section, but not where the owner transfers the share on or before the completion certificate. The counterpart in the Income-tax Act, 2025 is section 73, with serial 1 of the Table in sub-section (1) for the previous owner, serial 17 for property taxed under section 92(2)(m), serial 20 for the share under section 67(14), and the definitions in sub-section (2).
What the provision does
Carries the previous owner's cost into the hands of an heir, donee, coparcener or other successor by the listed modes, steps up the cost of property already taxed under section 56(2), and gives the owner's share under a joint development agreement a cost equal to the value taxed under section 45(5A). It has no clause for a flat received in exchange for an old one in a redevelopment outside section 45(5A), so it does not carry the old flat's cost or date into the new flat.
Threshold questions
- Did the asset come to the assessee by one of the modes in section 49(1), or by purchase or exchange, which section 49(1) does not cover
- Who is the previous owner, being the last owner who acquired the asset otherwise than by a listed mode
- Was the value of the property taxed under section 56(2)(vii), (viia) or (x) when it was received
- Was the share in the project received under a registered specified agreement within section 45(5A), and was it transferred before the completion certificate
- Was the asset acquired by the previous owner before 1 April 2001, which opens the fair market value option in section 55(2)(b)
- For a sale on or after 1 April 2026, which serial of the Table in section 73(1) of the 2025 Act applies
In practice
The recurring disputes.
The cost of a redeveloped flat outside section 45(5A)
Section 49 has no clause for a flat received in a redevelopment where section 45(5A) does not apply, which is the usual case for a society member, a company or a tenant. On the continuation view in Rajesh Shamji Furia (July 2026) the member holds the same asset, so the old flat's cost, with any price paid for extra area, should carry forward; Furia itself did not decide cost, and the nearest support is Kushal K. Bangia (January 2012), where the Bench gave as its "considered opinion", with counsel for the assessee agreeing, that the compensation received ends up reducing the cost of acquisition of the flat; the point was not argued and no provision was identified for it. On the exchange view the cost is the value of what was given up: the Mumbai Tribunal in Sarjit Ghanshyam Desai (May 2026) and Murtuza Kothari (January 2026) held that a tenant who received ownership premises for a surrendered tenancy acquired them at the fair market value of what he surrendered, rejecting the Revenue's nil cost. Against an owner member the Revenue has two further arguments: from assessment year 2024-25, that his entitlement is "any other right" with a nil cost under section 55(2)(a); and that compensation received reduces the old cost, as Rajnikant D. Shroff (September 2016) directed in terms of section 51 for a sum received on signing a development agreement. No decision fixes the cost of an owner-member's new flat, and the two lines give different holding periods as well as different costs.
Whether a member's new flat can take the section 49(7) cost
Section 49(7) is generous: the new flat's cost is its stamp duty value on the date of the completion certificate plus any cash. It is available only if the member's agreement is a specified agreement within section 45(5A). The member's argument is that a registered permanent alternate accommodation agreement, by which an individual owning a flat lets the developer rebuild in return for a new flat in the project, fits the definition. The contrary argument is that the society, not the member, owns the land and agrees to allow development, and that the Explanatory Memorandum to the Finance Bill, 2017 framed the relief around the hardship of the owner of land. No decision on whether a member's agreement is a specified agreement was traced, and a member who relies on section 49(7) must also accept that section 45(5A) taxed the transfer in the certificate year.
Indexation and the 23 July 2024 date in an heir's hands
In Manjula J. Shah, a gift case, the Bombay High Court rejected the Revenue's argument that Explanation (iii) to section 48 counts indexation from the year the assessee first held the asset, holding that the words take their meaning from section 2(42A), so the previous owner's first year governs. Indexation now matters only through the second proviso to section 112(1)(a), section 197(3) of the 2025 Act, which caps the tax of a resident individual or Hindu undivided family at the old twenty per cent with indexation for land or building acquired before 23 July 2024. Whether an heir who inherits after that date holds an asset acquired before it, by looking through to the previous owner as Manjula J. Shah did for indexation, has not been decided. The reasoning supports the heir; the Revenue will say that "acquired" is a different word from "held".
Property taxed under the 1961 Act and sold after 1 April 2026
Section 49(4) gives a cost equal to the value taxed under section 56(2)(vii), (viia) or (x), which matters in a redevelopment where purchased extra area was taxed under section 56(2)(x) on its stamp duty value. Serial 17 of the Table in section 73(1) of the 2025 Act refers only to property whose value has been subject to tax under section 92(2)(m). Property taxed under the 1961 provisions and sold after 1 April 2026 is not literally within those words. The taxpayer's arguments are section 536(2)(b), which preserves rights accrued under the repealed Act, and a purposive reading that avoids taxing the same value twice; the Revenue can point to the words, and no order has yet chosen between them.