# Actual Cost of Asset [Section 43(1)]

## Normal Computation

```

Purchase Price XX

(+) Installation, transportation, trial run & other expenses

(up to put-to-use date) XX

(+) Taxes & duties (only if Input Tax Credit is NOT available) XX

(+) Interest on loan taken for purchase of asset (upto put-to-use) XX

(-) Subsidy / government grant received for purchase of asset (XX)

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Actual Cost of Asset XX

```

## Cash Payment Restriction

If payment/expenditure for an asset, to a single person on a single day, exceeds ₹ 10,000 in cash / bearer cheque / crossed cheque, such amount shall NOT form part of actual cost of asset [it is ignored].

(Acceptable modes: account payee cheque, account payee bank draft, electronic clearing system, prescribed electronic modes.)

## Special Cases — Actual Cost

Situation	Actual Cost
(i) Asset previously used for scientific research	Nil
(ii) Asset on which Section 35AD deduction was claimed	Nil
(iii) Stock-in-trade converted into capital asset and used in B&P	FMV on date of conversion
(iv) Asset acquired by gift / will	WDV of previous owner
(v) Reacquisition of an asset earlier sold	Lower of (Reacquisition price OR WDV at the time of original sale)
(vi) Asset earlier used for personal purpose, now brought into business	Building: Original cost − notional depreciation upto date<br>Other assets: Original cost

Worked example

### Example 1

Example — Cash payment restriction:

Mr. A purchases a machine costing ₹ 5,00,000. He pays:

₹ 4,50,000 via account payee cheque
₹ 50,000 in cash on a single day to the same vendor

Since ₹ 50,000 paid in cash > ₹ 10,000, that amount is IGNORED.

Actual Cost = ₹ 4,50,000 (depreciation will be charged only on this).

### Example 2

Example — Gift of asset:

Father (proprietor) gifts a machine to his son for use in the son's new manufacturing business. WDV in father's books = ₹ 2,00,000; FMV = ₹ 3,00,000.

Actual cost to son = WDV of previous owner = ₹ 2,00,000.

⚠️ Common exam mistakes

Including interest paid AFTER asset is put to use in actual cost — only pre-put-to-use interest is capitalised. Post-put-to-use interest is deductible under Section 36(1)(iii).
Including GST in cost when ITC is available — only blocked / non-creditable taxes are capitalised.
Not deducting subsidy received specifically for purchase of the asset.
Forgetting the ₹ 10,000 cash payment rule — even legitimate cash payments above this threshold get fully ignored for cost purposes.
Using FMV instead of WDV of previous owner in case of gift/will.

Bare-Act text Section 43(1) · 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 or part thereof in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed, exceeds ten thousand rupees, such expenditure shall be ignored for the purposes of determination of actual cost.

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Actual Cost of Asset under Section 43(1)

Worked example

⚠️ Common exam mistakes