A new purchase price does not automatically become tax cost
For tax year 2026–27, section 39(4), Table serial number 7 of the Income-tax Act, 2025 addresses an asset that previously belonged to the assessee, was used in that assessee’s business or profession and is reacquired. It compares the specified historical depreciated amount with the actual reacquisition price and takes the lower amount. This guide checks the Finance Act, 2026 text on 27 October 2026. It does not apply the new Act’s numbering mechanically to an earlier financial-year return. Income-tax Act, 2025: section 39(4), Table row 7 and subsections (5)–(6).
Establish identity and the earlier ownership history
Match asset identification, earlier acquisition, business use, disposal and reacquisition evidence. A similar machine bought from the same vendor is not necessarily the asset that previously belonged to the taxpayer. Retain serial numbers, invoices and movement records. Identify the same assessee rather than treating every group company as a single owner. Income-tax Act, 2025: section 39(4), Table row 7 and subsections (5)–(6).
Reconstruct the statutory historical amount
The first limb starts from actual cost when first acquired. It deducts depreciation actually allowed for the tax year commencing 1 April 1986 or earlier, and depreciation allowable for years commencing on or after 1 April 1987 under the stated Acts, as if the asset were the only asset in the relevant block. A book WDV or a total multi-asset tax block balance is not a substitute for that reconstruction. Income-tax Act, 2025: section 39(4), Table row 7 and subsections (5)–(6).
Compare prices asset by asset
The examples assume that original actual cost and the complete relevant statutory depreciation reduction have independently been established. They do not prescribe rates or determine disputed periods of allowable depreciation. Compare the resulting historical amount with the actual reacquisition price for each asset. A high price on one asset should not wash out a lower-price restriction on another through a pooled shortcut. Income-tax Act, 2025: section 39(4), Table row 7 and subsections (5)–(6).
Bridge the accounts and review other provisions
A book asset recorded at the new purchase price may require a separate tax-cost adjustment. Do not describe the difference as an immediate revenue deduction. Also review the other applicable cost provisions: section 39(5)–(6) addresses the stated anti-avoidance determination for previously used assets, with prior Joint Commissioner approval. The lower-of calculation does not certify every arrangement as acceptable or determine disposal gains, funding deductions or final depreciation. Income-tax Act, 2025: section 39(4), Table row 7 and subsections (5)–(6).
Applicable primary references
Income-tax Act, 2025: section 39(4), Table row 7 and subsections (5)–(6)
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: Historical ceiling below the new price
All amounts are ₹ lakh. Original actual cost is 100 and the established statutory depreciation reduction is 40. The historical limb is 60. Reacquisition price is 80, so the lower-of amount is 60, not 80.
Illustrative example 2: New price below the historical ceiling
Original cost is 100 and the established reduction 40, giving 60. Reacquisition price is 45. The lower amount is 45. The rule does not preserve a 60 basis when the actual price is lower.
Illustrative example 3: Equal amounts
Original cost is 120 and reduction 50, giving 70. Reacquisition price is also 70. The comparison produces 70 without an additional adjustment merely because the asset was previously owned.
Illustrative example 4: Do not replace allowable depreciation with the claimed total
Assume original cost 100, relevant depreciation claimed 30 but the correctly established statutory reduction is 45. The historical limb is 55. At reacquisition price 80, the comparison gives 55. Using only the claimed 30 would wrongly produce a 70 historical limb, overstating the result by 15.
Illustrative example 5: Keep two assets separate
Asset A has original cost 100, reduction 60 and new price 70: lower amount 40. Asset B has original cost 200, reduction 80 and new price 90: lower amount 90. Aggregate result is 130. Pooling historical amounts 160 against prices 160 would incorrectly produce 160, an overstatement of 30.
Illustrative example 6: Prepare the book-to-tax cost bridge
Use original cost 100, statutory reduction 40 and reacquisition price 80. Assume books recognise the asset at that 80 and no other adjustment applies. The tax-cost input under this comparison is 60, a difference of 20. Future book and tax depreciation require separate rates and conditions; this difference is not itself a current cash expense deduction.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Fix the applicable period | 2025 Act tax year or earlier return |
| 2 | Identify the same asset | Serial number and acquisition records |
| 3 | Confirm former ownership and use | Same assessee and business-use evidence |
| 4 | Retrieve first actual cost | Historical tax-cost support |
| 5 | Reconstruct depreciation reductions | Allowed/allowable statutory distinction |
| 6 | Isolate the asset from its block | Single-asset reconstruction |
| 7 | Verify the reacquisition price | Agreement and purchase evidence |
| 8 | Compare each asset separately | Lower-of working |
| 9 | Review other applicable cost rules | Including anti-avoidance conditions |
| 10 | Reconcile books and tax register | Approved cost bridge |
Sixteen practitioner FAQs
1. Does every used-asset purchase fall under this row?
No. The row requires former ownership and business use by the assessee followed by reacquisition.
2. Does a group company’s former ownership automatically suffice?
Do not treat separate assessees as one owner; establish the row’s actual conditions.
3. Why keep asset serial numbers?
They support identity across the disposal and reacquisition history.
4. Is the original cost the current book WDV?
No. Establish original actual cost and the required statutory reductions.
5. What is the older-period depreciation distinction?
The row uses actually allowed depreciation for the stated 1986-or-earlier tax years and allowable depreciation for the stated later years.
6. Can depreciation omitted from a claim be ignored automatically?
No. Apply the row’s allowable-depreciation language for the relevant periods.
7. Can I use the entire old tax block balance?
Not as a substitute for the required asset-specific reconstruction.
8. Why does the row mention a single-asset block assumption?
It provides the basis for calculating the relevant historical depreciation reduction.
9. What happens when the new price is higher?
The lower historical depreciated amount controls this comparison.
10. What happens when the new price is lower?
The actual reacquisition price controls this comparison.
11. Can two assets be pooled first?
Calculate their respective comparisons before aggregation.
12. Does the difference from book cost create an immediate deduction?
No. It is a tax-cost bridge, not an automatic revenue deduction.
13. Does this calculation determine a depreciation rate?
No. Rate, block, use and other conditions need separate verification.
14. Does it determine the earlier disposal tax result?
No. That is a separate computation under the applicable law and period.
15. Can an artificial enhanced-cost arrangement escape all scrutiny?
No. Review section 39(5)–(6) and the other applicable provisions.
16. Which records support the final tax basis?
The historical cost and depreciation reconstruction, new purchase evidence and approved book-to-tax bridge.
Conclusion
Reconstruct tax cost when a former business asset is reacquired, comparing the statutory historical depreciated amount with the actual reacquisition price.