Interpretations of key terms related to capital gains "adjusted," "cost of improvement," and "cost of acquisition" in Clause 90 of Income Tax bill 2025 vs. Section 55 of Income Tax Act, 1961

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....re critical in determining the taxable amount on capital gains, affecting both individual and corporate taxpayers. Understanding these provisions is essential for legal practitioners, tax professionals, and taxpayers alike, as they directly influence the computation of capital gains and, consequently, tax liabilities. This commentary aims to provide a detailed analysis of Clause 90, compare it with Section 55, and discuss the implications of potential changes introduced by the Income Tax Bill, 2025. Objective and Purpose The primary objective of Clause 90 in the Income Tax Bill, 2025, is to update and clarify the definitions of "cost of improvement" and "cost of acquisition" concerning capital assets, thereby aligning them with contempora....

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....hich also bases the cost of acquisition on the purchase price. Notably, both provisions state that if the cost cannot be determined, it is deemed to be nil, ensuring clarity in cases where historical cost data is unavailable. Special Considerations for Financial Assets Both Clause 90(5) and Section 55(2)(aa) address scenarios involving financial assets, such as shares and securities. They provide specific rules for determining the cost of acquisition when additional financial assets are allotted or subscribed to, ensuring that taxpayers are not unfairly taxed on gains that do not reflect real economic gains. These provisions highlight the complexity of modern financial instruments and the need for precise legal frameworks to address them.....