Income Tax Law | Capital Gains | Updated October 2026
Section 48 of Income Tax Act: How to Compute Capital Gains
Section 48 of the Income-tax Act, 1961 explains how taxable capital gains are calculated after deducting qualifying transfer expenses, acquisition costs and improvement costs. Its treatment of indexation changed significantly for transfers on or after 23 July 2024.
1. Section 48: Mode of computation
The main rule is that capital gains equal the full value of consideration arising from a transfer, less expenses incurred wholly and exclusively in connection with the transfer and the allowable cost of acquisition and improvement. The amount used as consideration may be modified by deeming provisions such as Sections 50C, 50CA and 50D, where applicable.
The resulting amount is considered with the relevant holding-period, rate, exemption and set-off rules. Section 48 is a computation provision; it does not itself set every capital-gains tax rate.
2. Which deductions are allowed?
- Transfer expenses: Costs wholly and exclusively connected with the transfer, such as eligible brokerage or legal charges incurred to complete the sale.
- Cost of acquisition: The amount legally recognised as the acquisition cost, subject to special rules in Sections 49 and 55 and other relevant provisions.
- Cost of improvement: Qualifying capital expenditure on improving the asset, where recognised under the Act; ordinary repairs or personal expenses do not automatically qualify.
Interest already claimed as a deduction under Section 24(b) or Chapter VI-A cannot generally be included again in acquisition or improvement cost. This prevents double deduction. Securities transaction tax is also not deductible when computing capital gains under Section 48.
3. Indexation after 23 July 2024
Indexation adjusts eligible historical cost using the government-notified Cost Inflation Index (CII). The Finance (No. 2) Act, 2024 generally removed indexation for long-term capital assets transferred on or after 23 July 2024.
| Transaction | General computation treatment |
|---|---|
| Short-term capital asset | No indexation. |
| Long-term capital asset transferred before 23 July 2024 | Indexation may apply where permitted under the rules then in force. |
| Long-term capital asset transferred on or after 23 July 2024 | Generally no indexation in computing the gain. |
| Land or building acquired before 23 July 2024 and sold by a resident individual or HUF | Special grandfathering relief under the tax-rate provision can restrict the tax payable by reference to the earlier 20% indexed-cost method, if more beneficial. This is not a universal restoration of indexation under Section 48. |
For historical calculations where indexation applies, the usual formula is:
Indexed improvement cost uses the CII for the improvement year in the denominator. The reference year and eligible cost depend on the relevant statutory rules. Consult the official Cost Inflation Index table before using a figure; the table includes FY 2025-26 (376) and FY 2026-27 (384).
4. Other important provisos and adjustments
Non-residents holding Indian company shares or debentures
Where the specified statutory conditions apply, a non-resident's capital gain on shares in, or debentures of, an Indian company is computed by converting consideration, acquisition cost and transfer expenditure into the foreign currency originally used to purchase the asset, and reconverting the gain into Indian rupees at prescribed exchange rates. The special rule must be read with its statutory exclusions and the applicable law for the tax year.
Equity shares, equity-oriented funds and business trusts
Gains within the special regime of Section 112A are subject to that regime's rules, including the applicable grandfathering provisions for qualifying holdings. Indexation does not apply merely because a security was held long term.
Bonds, debentures and rupee-denominated bonds
The Act contains specific restrictions and exceptions for indexation of bonds and debentures, including historically relevant rules for capital indexed bonds and Sovereign Gold Bonds. It also addresses specified foreign-exchange appreciation on redemption of rupee-denominated bonds held by non-residents.
Partnership reconstitution and business trusts
Where applicable, Section 48 provides an adjustment for amounts attributed to remaining capital assets following tax charged under Section 45(4). It also contains specific rules for certain receipts relating to units of business trusts. These calculations require the applicable statutory formula and records.
5. Examples of capital gains calculation
Example A: Transfer without indexation
Suppose an eligible capital asset is sold for Rs. 30,00,000. The allowable acquisition cost is Rs. 18,00,000, qualifying improvement cost is Rs. 2,00,000 and eligible sale expenses are Rs. 50,000.
| Full value of consideration | Rs. 30,00,000 |
|---|---|
| Less: acquisition cost | Rs. 18,00,000 |
| Less: improvement cost | Rs. 2,00,000 |
| Less: transfer expenses | Rs. 50,000 |
| Illustrative capital gain | Rs. 9,50,000 |
Illustration assumes the stated amounts are allowable and no special deemed consideration, exemption or other adjustment applies. Tax payable depends on the asset, taxpayer and relevant tax year.
Example B: Historical indexation method
If the eligible original cost is Rs. 10,00,000, the acquisition-year CII is 200 and the transfer-year CII is 348, the indexed acquisition cost is Rs. 17,40,000 (Rs. 10,00,000 x 348 / 200). This demonstrates the formula for a transaction to which indexation legally applies; it should not be applied automatically to transfers after 22 July 2024.
6. Key legal definitions
- Capital asset
- Property falling within Section 2(14) of the 1961 Act, subject to specified exclusions.
- Transfer
- Includes transactions covered by Section 2(47), such as sale, exchange and relinquishment, with statutory exceptions.
- Full value of consideration
- The value taken for computation, which may be the actual consideration or a statutorily deemed amount.
- Cost of acquisition
- Tax-recognised acquisition cost, sometimes determined by special rules for gifts, inheritance, reorganisations or older assets.
- Cost Inflation Index
- The government-notified index used to calculate indexed cost in cases where indexation is permitted.
7. Income-tax Act, 2025: Section 72
Section 72(1) of the Income-tax Act, 2025 retains the central approach of subtracting transfer expenses and allowable acquisition and improvement costs from the full value of consideration. Other subsections address indexation in a specified computation, disallowed deductions and additional adjustments. Read Section 72 together with the Act's relevant capital-gains charging, rate and transitional provisions; do not assume every 1961 Act proviso has the same numbering or wording.
8. Frequently asked questions
Is brokerage deductible when selling a capital asset?
Qualifying brokerage wholly and exclusively connected with the transfer may generally be deductible under Section 48, subject to evidence and statutory restrictions.
Can home-loan interest be added to property cost after claiming a deduction?
Interest amounts already deducted under Section 24(b) or Chapter VI-A generally cannot also be included in acquisition or improvement cost.
Is indexation available for property sold after 23 July 2024?
Indexation is generally removed from the capital-gain computation. However, a resident individual or HUF selling land or building acquired before 23 July 2024 may qualify for a protective tax comparison under the applicable rate provisions.
Which provision replaces Section 48 in the Income-tax Act, 2025?
Section 72 is titled "Mode of computation of capital gains" and applies under the new Act subject to its commencement and transition rules.
9. Official statutory references
- Income Tax Department: Section 48, Income-tax Act, 1961
- Income Tax Department: Section 72, Income-tax Act, 2025
- Income Tax Department: notified Cost Inflation Index
- Income Tax Department: Capital Gain guidance
This article is general legal and tax information. For a particular transaction, check the applicable tax year, the precise asset classification, special computation provisions and current law.