Defining the cost of acquisition in case of certain assets for computing capital gains – Budget 2023 The existing provisions of the section 55 of the Act, inter alia, defines the ‘cost of any improvement’ and ‘cost of acquisition’ for the purposes of computing capital gains.

1. Budget 2023: Cost of improvement/acquisition of intangible asset shall be Nil

2. Defining the cost of acquisition in case of certain assets for computing capital gains – Budget 2023
The existing provisions of the section 55 of the Act, inter alia, defines the ‘cost of any improvement’ and ‘cost
of acquisition’ for the purposes of computing capital gains. However, there are certain assets like
intangible assets or any sort of right for which no consideration has been paid for acquisition. The cost of
acquisition of such assets is not clearly defined as ‘nil’ in the present provision. This has led to many legal
disputes and the courts have held that for taxability under capital gains there has to be a definite cost of
acquisition or it should be deemed to be nil under the Act. Since there is no specific provision which states
that the cost of such assets is nil, the chargeability of capital gains from transfer of such assets has not
found favour with the Courts.

3. 2. Therefore, to define the term ‘cost of acquisition’ and ‘cost of improvement’ of such assets, it is proposed to
amend the provisions of sub-clause (1) of the Clause (b) of the subsection (1) and clause (a) of sub-section
(2) of section 55 so as to provide that the ‘cost of improvement’ or ‘cost of acquisition’ of a capital asset
being any intangible asset or any other right ( other than those mentioned in the said sub-clause or clause,
as the case may be) shall be ‘Nil’. 3. This amendment is will take effect from the 1st day of April, 2024 and
shall accordingly, apply in relation to the assessment year 2024-25 and subsequent assessment years.
[Clause 31]
Extract of relevant clause of Finance Bill 2023

4. Clause 31 of the Bill seeks to amend section 55 of the Income-tax Act relating to meaning of “adjusted”, “cost of improvement” and “cost of
acquisition”. The provisions of the said section, inter alia, defines the expressions ‘cost of any improvement’ and ‘cost of acquisition’ for
the purposes of computing capital gains. However, there are certain assets like intangible assets or any other right for which no
consideration has been paid for acquisition, and the transfer of which may result in generation of any income or could be converted
into any profit or gain, but the cost of acquisition for such assets is not clearly defined as ‘nil’ in the present provision. It is proposed to
amend the said section to insert expression “or intangible asset or any other right” in the definitions of “cost of any improvement” and
“cost of acquisition”. This amendment will take effect from 1st April, 2024 and will, accordingly, apply in relation to the assessment year
2024-2025 and subsequent assessment years. Extract of Relevant Amendment Proposed by Finance Bill, 2023 31.
Amendment of section 55. In section 55 of the Income-tax Act, with effect from the 1st day of April, 2024,– (a) in sub-section (1), in clause (b),
in sub-clause (1),– (i) after the word “goodwill”, the words “or any other intangible asset” shall be inserted;

5. (ii) after the word “profession”, the words “or any other right” shall be inserted;
(b) in sub-section (2), in clause (a),– (i) for the words “profession, or a right”, the words “profession, or any other intangible asset
or a right” shall be substituted; (ii) for the word “hour,”, the words “hour, or any other right” shall be substituted. *****
Source : Finance Bill 2023 / Union Budget 2023
Tags: Budget, Budget 2023, Capital Gain
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