Section 43C of the Income-tax Act, 1961: Cost of Acquisition of Certain Assets
Section 43C prescribes how to determine the cost of acquisition when certain assets received through amalgamation, Hindu undivided family partition, gift, will or irrevocable trust are subsequently sold as stock-in-trade.
Application by tax year: This page explains Section 43C of the Income-tax Act, 1961 for relevant earlier years and proceedings. The Income-tax Act, 2025 generally applies from 1 April 2026; consult the corresponding provisions and transition rules for tax year 2026-27 onward. Section numbering and treatment should be checked against the enacted legislation for the relevant year.
What is Section 43C?
Section 43C is a special rule for computing business profits on the sale of specified assets as trading stock. Instead of treating the asset as having no cost simply because the recipient did not purchase it, the provision generally carries forward the predecessor's cost and permits the specified additions for improvements and transfer-related expenditure.
The rule expressly excludes assets referred to in Section 45(2), which deals with the conversion of a capital asset into stock-in-trade. Section 43C is therefore not a substitute for the separate capital-gains rules applicable to such conversions.
Section 43C(1): Asset received on amalgamation
Where an asset (other than one covered by Section 45(2)) becomes the property of an amalgamated company under a scheme of amalgamation and is sold by that company as stock-in-trade after 29 February 1988, its cost for computing business profits is based on:
- the cost of acquisition to the amalgamating company;
- plus any cost of improvement to the asset; and
- plus expenditure incurred wholly and exclusively in connection with the transfer by the amalgamating company.
An amalgamating company is the company whose undertaking is merged; the amalgamated company is the company receiving the assets under the scheme. The actual statutory conditions of an amalgamation should be read with the relevant definitions and provisions.
Section 43C(2): HUF partition, gift, will or irrevocable trust
When a qualifying asset becomes the assessee's property through a total or partial partition of a Hindu undivided family (HUF), a gift, a will or an irrevocable trust, and is later sold as stock-in-trade after 29 February 1988, its cost is generally:
- the cost of acquisition to the transferor or donor;
- plus the cost of improvements, if any; and
- plus expenditure wholly and exclusively incurred in connection with the relevant transfer, including qualifying partition, gift-acceptance, probate or trust-creation expenses and gift-tax, if any, incurred by the transferor or donor.
HUF: A Hindu undivided family is a family unit recognised under Hindu law and, where applicable, as a separate taxable person. Irrevocable trust: A trust that cannot be revoked in accordance with its governing terms and applicable law.
Practical examples of Section 43C
Example 1: Amalgamation
A company acquires trading land at a cost of Rs. 20 lakh. Under a qualifying amalgamation, the land passes to another company, which sells it as stock-in-trade for Rs. 35 lakh. Assume Rs. 2 lakh of qualifying improvement cost and Rs. 1 lakh of qualifying transfer expenditure.
Cost under Section 43C(1): Rs. 20 lakh + Rs. 2 lakh + Rs. 1 lakh = Rs. 23 lakh. Indicative business profit: Rs. 35 lakh - Rs. 23 lakh = Rs. 12 lakh, before other applicable adjustments.
Example 2: Gift followed by trading sale
A person receives a qualifying asset by gift and later sells it as stock-in-trade for Rs. 18 lakh. The donor's cost was Rs. 10 lakh and qualifying improvements and transfer expenses total Rs. 2 lakh. The Section 43C(2) cost is Rs. 12 lakh and the illustrative profit is Rs. 6 lakh, subject to the facts and other applicable provisions.
Section 43C compared with related provisions
| Provision | Main subject |
|---|---|
| Section 43 | Definitions relevant to business income, including actual cost and written down value. |
| Section 43CA | Special consideration rules for transfer of certain immovable property held otherwise than as a capital asset. |
| Section 45(2) | Capital-gains treatment when a capital asset is converted into stock-in-trade. |
| Section 49 | Cost of acquisition rules for certain modes of acquisition in capital-gains computations. |
Frequently asked questions
Does Section 43C apply to every gifted asset?
No. Its conditions include the specified manner of acquisition, the exclusion of assets covered by Section 45(2), and a subsequent sale as stock-in-trade in the assessee's business.
Is the market value on the date of the gift automatically the cost?
No. Section 43C(2) generally starts with the transferor's or donor's cost, with the specified additions. Market value is not automatically substituted.
Does Section 43C determine the sale consideration?
No. Section 43C addresses cost of acquisition. Other provisions, including Section 43CA where applicable, may affect the amount treated as sale consideration.
Official legal resources
For the authoritative text and amendments, consult the Income Tax Department, the India Code legislative database, and the Income Tax e-Filing portal. The law applicable to a particular assessment or tax year, including relevant amendments and savings provisions, should be confirmed from the official statute.
Original Section 43C text and amendment history
The following is the historical statutory material from the original webpage, retained for reference. It should not be treated as a verified current consolidated version.
Show original statutory extract and legislative note
1(1) Where an asset not being an asset referred to in sub-section (2) of section 45 which becomes the property of an amalgamated company under a scheme of amalgamation, is sold after the 29th day of February, 1988, by the amalgamated company as stock-in-trade of the business carried on by it, the cost of acquisition of the said asset to the amalgamated company in computing the profits and gains from the sale of such asset shall be the cost of acquisition of the said asset to the amalgamating company, as increased by the cost, if any, of any improvement made thereto, and the expenditure, if any, incurred, wholly and exclusively in connection with such transfer by the amalgamating company.
(2) Where an asset not being an asset referred to in sub-section (2) of
section 45 which becomes the property of the assessee on the total or partial
partition of a Hindu undivided family or under a gift or will or an irrevocable
trust, is sold after the 29th day of February, 1988, by the assessee as
stock-in-trade of the business carried on by him, the cost of acquisition of the
said asset to the assessee in computing the profits and gains from the sale of
such asset shall be the cost of acquisition of the said asset to the transferor
or the donor, as the case may be, as increased by the cost, if any, of any
improvement made thereto, and the expenditure, if any, incurred, wholly and
exclusively in connection with such transfer (by way of effecting the partition,
acceptance of the gift, obtaining probate in respect of the will or the creation
of the trust), including the payment of gift-tax, if any, incurred by the
transferor or the donor, as the case may be.
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1. Ins. by Act 26 of 1988, s. 13 (w.e.f. 1-4-1988).