Definition: All expenditure of a capital nature incurred on improvement of the capital asset by the assessee or the previous owner.
### Key Rules
Only capital expenditure qualifies (not revenue expenditure like routine repairs / maintenance).
Expenditure incurred on or after 1.4.2001 is considered.
Expenditure incurred before 1.4.2001 is ignored entirely.
Improvement by the previous owner (in cases where COA itself is taken as previous owner's cost) is also includible.
Goodwill, brand name, trademark, etc. — COI is taken as Nil (no improvement cost recognised for these intangibles).
### Revenue vs Capital Distinction
Capital (allowed): Additional floor construction, extension of building, major structural alteration.
Revenue (not allowed): Whitewashing, repainting, minor repairs, watchman charges.
Worked example
### Example 1
Example: Building purchased in 1995. First floor added in 1998 for ₹2,00,000; second floor added in 2010 for ₹5,00,000; whitewashing in 2020 ₹50,000.
COI = ₹5,00,000 (only 2010 addition — 1998 is pre-2001, whitewashing is revenue).
⚠️ Common exam mistakes
Including pre-1.4.2001 improvement costs.
Including routine repair/maintenance expenses as COI.
Claiming COI on self-generated goodwill/intangibles — it is always Nil for these.
Bare-Act text Section 55(1)(b) · Income-tax Act, 1961 · click to expand
In relation to a capital asset being goodwill of a business, or a right to manufacture, produce or process any article or thing, or right to carry on any business or profession, the cost of improvement shall be taken to be nil. In relation to any other capital asset, where the capital asset became the property of the previous owner or the assessee before the 1st day of April, 2001, means all expenditure of a capital nature incurred in making any additions or alterations to the capital asset on or after the said date by the previous owner or the assessee.