• The actual cost of the asset or its estimated market value as on 1.4.81, if acquired earlier

Where the asset was purchased, the actual cost is the price paid. But, where the asset was acquired by way of exchange for another asset, the actual cost is the fair market value of that other asset as on the date of exchange. Any expenditure incurred in connection with such purchase, exchange or other transaction e.g. brokerage paid, registration charges and legal expenses also forms a part of this cost. Sometimes advance is received against agreement to transfer a particular asset. Later on, if the advance is retained by the tax payer or forfeited for other party's failure to complete the transaction, such advance is to be deducted from the actual cost.

• The cost of improvement, if any, for the asset

The cost of improvement means, all expenditure of a capital nature incurred in making additions or alternations to the capital asset. However, any expenditure which is deductible in computing the income under the heads Income from House Property, Profits and Gains from Business or Profession or Income from Other Sources (Interest on Securities) would not be taken as cost of improvement. Cost of improvement for goodwill of a business, right to manufacture, produce or process any article or thing is NIL.

• Expenses incurred on transfer of the asset.

In case of a long-term capital asset, the costs are increased as per a Cost inflation index for the year.

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