Section 72, Income-tax Act 2025: Mode of computation of capital gains

What changed when Section 48 became Section 72?

The formula did not move a comma; the tax around it moved a great deal. Section 72 of the Income-tax Act 2025 carries the capital-gains computation everyone knew as Section 48 of the 1961 Act. You still start from the full value of consideration (the sale price) and subtract three things: the expenditure incurred wholly and exclusively on the transfer, the cost of acquisition, and the cost of improvement. The two definitions that feed it, cost of acquisition and cost of improvement, sit in the renumbered Section 90 (old Section 55), and the rule for inherited or gifted assets is Section 73 (old Section 49).

The real change happened before the renaming. From 23 July 2024 the Finance (No. 2) Act 2024 removed indexation from the capital-gains computation for almost every asset and dropped the long-term rate to a flat 12.5%. The 2025 Act inherits that position. Indexation and the Cost Inflation Index have not vanished from the statute book, but they now bite in a single, narrow case, which the rest of this page is mostly about.

Section numbers 72, 73 and 90 are cross-checked against published copies of the enacted Act.†

The four figures that make up every capital gain

Every capital gains calculation is built from four inputs. Get each one right and the arithmetic is simple subtraction.

• Full value of consideration: normally the price you actually received. In some cases the law substitutes a higher figure. For land or a building sold below the stamp-duty value, Section 78 (old Section 50C)† deems the stamp-duty value to be your sale price, unless it is within 110% of what you actually got.
• Expenditure on transfer: brokerage, legal fees, and stamp costs you bore to sell, or advertising to find a buyer. It must be spent wholly and exclusively on the transfer, it is deducted in full, and it is never indexed.
• Cost of acquisition: what you paid to acquire the asset, defined by Section 90. For assets bought before 1 April 2001 you may instead use the fair market value on that date. For a self-generated asset such as goodwill, the cost is taken as nil.
• Cost of improvement: capital spending that added to or altered the asset, again per Section 90. Only improvements made on or after 1 April 2001 count; anything spent before that date is ignored, and routine repairs and running costs are not improvement.

Depreciable business assets follow their own track: Section 74 (old Section 50) computes the gain on a block of assets and always treats it as short-term, with no indexation.†

How Section 90 defines cost of acquisition and improvement (old Section 55)

Section 90 is the dictionary the computation reads from. It carries three rules that settle most disputes.

• The 1 April 2001 step-up: for any asset acquired before that date, you may take its fair market value as on 1 April 2001 instead of the actual cost. For land or a building, that fair market value cannot exceed the stamp-duty value on 1 April 2001 where one is available, a cap added in 2020 and carried forward.†
• Pre-2001 improvements are wiped: the cost of improvement counts only capital additions made on or after 1 April 2001. A wing you added in 1998 adds nothing to your cost.
• Self-generated intangibles cost nil: goodwill of a business, a brand or trademark, a right to manufacture, tenancy rights, route permits and the like are taken at nil cost of acquisition and nil cost of improvement unless you actually purchased them.

The word adjusted in the section title matters for slump sales and depreciable blocks, where the cost is reduced by items such as depreciation already allowed. For an ordinary sale of property or shares, the plain cost of acquisition is what you use.

What the Cost Inflation Index does, and what still gets indexed

Indexation raises your cost for inflation so you are taxed only on the real gain. The tool is the Cost Inflation Index (CII), a number the CBDT notifies each year against a base of 100 for 2001-02. Indexed cost of acquisition is your cost multiplied by the CII of the year you sell, divided by the CII of the year you bought (or 2001-02 if you are using the fair-market-value option). A higher indexed cost means a smaller gain.

Here is the catch that trips people up in 2026. After 23 July 2024 the CII is used in exactly one situation: a resident individual or a Hindu Undivided Family selling land or a building that was acquired before 23 July 2024. Only that seller, only that asset, and only as an option. They may compute the tax the new way (12.5% on the plain gain) or the old way (20% on the indexed gain) and pay whichever is lower. The rate provision that grants this choice is Section 197 (old Section 112).†

For everything else, including shares, mutual funds, gold, bonds and business assets, and for every non-resident, indexation is gone. The gain is sale price minus plain cost, taxed at the flat long-term rate.

CII figures are CBDT notifications: 376 for 2025-26 (Notification No. 70/2025) and 384 for 2026-27 (Notification No. 85/2026). The full series runs back to 2001-02.

Who can still use 20% with indexation?

The indexation option is deliberately narrow. All four of these must hold at once.

• The asset is land or a building, or both: a plot, a flat, a shop, an office. Not shares, not gold, not a mutual fund.
• It was acquired before 23 July 2024. Anything bought on or after that date is on the flat 12.5% track with no indexation, whatever it is.
• The seller is a resident individual or a Hindu Undivided Family. Companies, firms, LLPs and non-residents do not get the option; they pay the flat 12.5%.
• The gain is long-term. Land and buildings are long-term after 24 months of holding; sell sooner and it is a short-term gain taxed at your slab rate, with no indexation in either case.

Inherited property counts the previous owner's holding period, so a house in the family for decades is comfortably long-term even if you received it last year (Section 73).

How to calculate a capital gain, step by step

Six steps take you from a sale to a tax figure:

• Fix the full value of consideration. Use the actual price, but check the stamp-duty value for land or a building (Section 78); the higher figure may apply.
• Subtract the expenditure on transfer: brokerage, legal and registration costs you paid to sell.
• Subtract the cost of acquisition. For pre-1 April 2001 assets, decide whether the fair market value on that date is higher and use it if so.
• Subtract the cost of improvement (post-1 April 2001 capital additions only). The result is your plain capital gain.
• Test the holding period. More than 24 months (12 months for listed securities) makes it long-term; otherwise it is short-term and taxed at slab rates.
• If, and only if, the asset is pre-23 July 2024 land or a building and you are a resident individual or HUF, also compute the indexed gain and 20% of it, then pay the lower of that and 12.5% of the plain gain. Add 4% health and education cess to the tax either way.

The income tax calculator linked below runs the slab tax on your total income once the gain is worked out.

Traps that change the number

• Securities transaction tax is never deductible. The STT you paid on buying or selling listed shares does not reduce your gain (Section 72(3)). It is a cost you simply bear.
• Transfer expenses are not indexed. Even on the 20% route, only cost of acquisition and improvement are lifted by the CII; brokerage and legal fees on the sale come off at face value.
• The 12.5% route uses your plain cost. If you choose it you get no inflation adjustment at all, so it suits assets that rose fast over a short hold.
• Non-residents follow a separate computation for shares and debentures of an Indian company: the cost, expenses and sale price are converted into the original foreign currency and the gain reconverted to rupees (Section 72(6)). This protects against rupee depreciation and comes instead of, not on top of, indexation.
• The fair-market-value-on-1-April-2001 figure for land or a building is capped at that day's stamp-duty value where records exist. A valuer's report alone will not lift it above the cap.†
• Improvements before 1 April 2001 are lost. Money spent decades ago adds nothing to your cost; only the 1 April 2001 fair market value captures that earlier history.

Reporting the gain and paying the tax

Capital gains are reported in Schedule CG of your income tax return, asset by asset, with the dates and amounts that produced each figure. The gain is added to your total income but taxed at its own rate (12.5%, or 20% on the option), not your slab rate. You cannot use the short ITR-1 or ITR-4 once you have capital gains beyond the small exceptions; most people with a property or share sale file ITR-2 or ITR-3.

Tax on a gain is due as advance tax in the quarter you sell, not at year-end. A large sale in, say, December pulls its tax into the 15 December and 15 March installments, and paying late runs interest under the advance-tax rules. Keep the purchase deed, improvement bills, the broker's note and any 1 April 2001 valuation, because both the option and the cost have to be justified if the return is examined.

Return forms for the first Income-tax Act 2025 filings (tax year 2026-27) are yet to be notified; the ITR form finder linked below stays current as they land.

Should you take the 20% route or the flat 12.5%?

For a pre-23 July 2024 plot or flat, always compute both routes, because the winner flips with how far the price ran ahead of inflation. The flat 12.5% wins when the asset multiplied quickly; the 20%-with-indexation wins when it merely kept pace with the index. The crossover depends on your index factor, which is the CII of the sale year divided by the CII of the purchase year.

Made concrete: a plot bought in 2010-11 (CII 167) and sold in tax year 2026-27 (CII 384) has an index factor of 2.30. On that plot the 20% route is cheaper as long as the sale price stays under about 4.5 times the cost. Sell for 4 times cost and indexation wins; sell for 6 times and the flat 12.5% is cheaper. The longer the hold and the gentler the appreciation, the more indexation is worth.

Two more planning points. First, the option belongs to resident individuals and HUFs only, so holding old property in a company or selling as a non-resident throws the indexation away, and that alone can decide how a family holds a legacy plot. Second, nothing bought on or after 23 July 2024 will ever get indexation, so for new purchases the holding structure, not the index, is where the tax is won or lost.

Worked examples

Section 72 FAQs

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