Definition
Cost of Acquisition (Gift/Inheritance)
When an asset is received as a gift or inheritance and later sold, its cost of acquisition for capital gains is generally taken as the previous owner's cost, with the holding period also carried over.
For capital-gains tax, an asset received by gift or inheritance is not taxed at receipt for the recipient (subject to gift-tax rules for non-relatives), but on later sale, the cost of acquisition is generally the cost to the previous owner, and the holding period includes the previous owner's period.
This 'carry-over' basis means the recipient may inherit a large built-in gain. For assets held before a notified base date, a fair-market-value option as on that date can apply to compute cost.
Understanding this matters when selling inherited shares, property or gold, since it determines both the quantum of gain and whether it is long- or short-term. Records of the original purchase help compute it correctly.
Related terms
- Sovereign Gold Bond (SGB)A Sovereign Gold Bond is a government security denominated in grams of gold, issued by the RBI, that tracks gold prices and pays a fixed rate of interest on the invested amount.
- Capital Gains (Equity)Capital gains on equity arise when listed shares or equity funds are sold for profit, taxed as short-term or long-term depending on the holding period, with specific Indian rates.
- Demat AccountA demat account holds your shares and securities in electronic form, eliminating physical certificates and enabling seamless trading and settlement on stock exchanges.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.