## Actual Cost [Sec. 43(1)] and Written Down Value [Sec. 43(6)]

### Actual Cost — basic rule [Sec. 43(1)]

'Actual cost' = the actual cost of the asset to the assessee.
Cash purchase disallowance: If payment exceeding ₹10,000 in a single day is made to a person otherwise than by approved modes for acquiring the asset, that part of the actual cost is treated as NIL.
Approved modes: account-payee cheque, account-payee bank draft, or ECS / electronic modes (UPI, IMPS, NEFT, RTGS, BHIM, Aadhaar Pay).

### Actual Cost in special situations [Explanations to Sec. 43(1)]

Expl.	Situation	Cost to be added to block
1	Scientific-research asset later used for business	Actual cost minus deduction allowed u/s 35
1A	Conversion of inventory into capital asset	FMV on date of conversion
2	Asset acquired by gift or inheritance	Previous owner's actual cost minus notional depreciation plus installation & freight
3	Second-hand asset bought to avoid tax (AO's view)	Cost determined by AO with prior approval of JCIT
4	Asset used for business, sold, then reacquired	Lower of (i) original actual cost − notional depreciation till sale, or (ii) reacquisition price
4A	Second-hand asset leased back to previous owner (overrides Expl. 3)	WDV to the previous owner at time of acquisition
5	Personal building / other personal asset brought into business	Actual cost minus notional depreciation
8	Interest on borrowing for acquiring the asset	Interest up to the date asset is first put to use
9	Refundable customs/GST taxes	Not included in actual cost
10	Subsidy/grant — part of cost met by CG/SG/others	Such portion excluded from cost
11	Asset bought outside India, brought in by a non-resident	Actual cost minus notional depreciation
13	Asset used for specified business (35AD) brought into normal business	Actual cost − 35AD deduction = NIL (proviso where 35AD(7B) applies: cost − notional dep)

### Written Down Value [Sec. 43(6)]

(a) Assets acquired in the current PY: WDV = Actual Cost.
(b) Assets acquired in earlier years: WDV = Actual Cost − aggregate depreciation actually allowed.
(c) WDV of a block is worked out per Sec. 43(6)(c) — i.e., using the depreciation computation format.

Worked example

### Example 1

Cash purchase disallowance: An asset is bought for ₹4,00,000, of which ₹50,000 is paid in cash on a single day. → That ₹50,000 is treated as nil; actual cost for depreciation = ₹3,50,000.

### Example 2

Subsidy (Expl. 10): Plant costs ₹30,00,000; a state government subsidy of ₹8,00,000 is received towards its cost. → Actual cost = ₹30,00,000 − ₹8,00,000 = ₹22,00,000.

### Example 3

Interest till put to use (Expl. 8): A machine costs ₹10,00,000 financed by a loan; interest of ₹90,000 accrues before it is first put to use and ₹40,000 after. → Capitalised cost = ₹10,90,000; the ₹40,000 post-use interest is a revenue deduction, not capitalised.

⚠️ Common exam mistakes

Capitalising interest incurred AFTER the asset is first put to use — only pre-use interest is added (Expl. 8); later interest is revenue.
Including refundable GST/customs in actual cost — Expl. 9 excludes refundable taxes.
Forgetting to reduce subsidy/grant from cost (Expl. 10).
Ignoring the ₹10,000-per-day cash payment rule, which makes that portion of cost nil.
For WDV, deducting depreciation 'allowable' instead of depreciation 'actually allowed' for earlier-year assets.

Bare-Act text Section 43(1) and Explanations 1–13; Section 43(6) · Income-tax Act, 1961 · click to expand

Section 43(1): "actual cost" means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority. Provided that where the assessee incurs any expenditure for acquisition of any asset in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque/draft or use of electronic clearing system or such other prescribed electronic mode, exceeds ten thousand rupees, such expenditure shall be ignored for the purposes of determination of actual cost.

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Actual Cost & Written Down Value [Sec. 43(1) & 43(6)]

Worked example

⚠️ Common exam mistakes