# Actual Cost [Section 43(1)]
The actual cost of an asset is the base on which depreciation is computed. Section 43(1) defines it and the Explanations to it deal with special situations.
## Core rule
- Actual cost = the actual cost of the asset to the assessee (purchase price + expenses to bring it to working condition).
- Cash payment disallowance: If any payment exceeding ₹10,000 in a single day for acquiring the asset is made otherwise than by approved modes, that part of the cost is treated as NIL (no depreciation on it).
- Approved modes: Account-payee cheque, account-payee bank draft, or electronic clearing systems — UPI / IMPS / NEFT / RTGS / BHIM / Aadhaar Pay.
## Actual cost in special situations (Explanations to Sec. 43(1))
| Expl. | Situation | Amount added to the block |
|---|---|---|
| 1 | Asset used for business/profession after it ceases to be used for scientific research | Actual cost minus deduction allowed u/s 35 (often NIL) |
| 1A | Conversion of inventory (stock-in-trade) into capital asset | FMV on date of conversion |
| 2 | Asset acquired by gift or inheritance | Actual cost to previous owner minus notional depreciation + installation & freight incurred |
| 3 | Second-hand asset where AO feels purpose is to avoid tax | Cost determined by AO with prior approval of JCIT |
| 4 | Asset used for B/P, sold, and reacquired by the assessee | Lower of: (a) original actual cost minus notional depreciation till date of sale, OR (b) actual reacquisition price |
| 4A | Second-hand asset given on lease/hire to the previous owner (overrides Expl. 3) | WDV to the previous owner at the time of acquisition from him |
| 5 | Personal building brought into B/P use; other personal assets brought into B/P | Actual cost minus notional depreciation |
| 8 | Interest on loan borrowed to acquire an asset | Interest up to the date the asset is first put to use is capitalised |
| 9 | Refundable taxes under customs and GST law | Shall NOT be included in actual cost |
| 10 | Subsidies/grants — a portion of cost met by another person (CG/SG/any other) | That portion is excluded from cost |
| 11 | Asset bought outside India by a non-resident, then brought into India for B/P | Actual cost minus notional depreciation |
| 13 | Asset used for specified business (35AD) by assessee/previous owner and brought into normal B/P | Actual cost minus 35AD deduction = NIL; (proviso, where 35AD(7B) applies → actual cost minus notional depreciation) |
## Key principles to remember
1. Notional depreciation = depreciation that would have been allowed (whether or not actually claimed). It is deducted in Explanations 2, 4, 5, 11, and the proviso to 13 — the law assumes the asset has aged.
2. No double benefit: Where a deduction was already taken under another section (Sec. 35 for research, Sec. 35AD for specified business), the asset enters the block at NIL — depreciation cannot be claimed again (Explanations 1 and 13).
3. Refundable taxes (GST/customs) and subsidies reduce/exclude from cost — you cannot depreciate amounts you recover or did not bear.