Keep the investor’s tax lots separate
For a capital investment disposed of in tax year 2026–27, section 90(5)–(6) of the Income-tax Act, 2025 distinguishes the original financial asset from additional assets subscribed for, received without payment, or obtained through purchased subscription rights. This article addresses a corporate investor’s tax acquisition-cost register, not EPS, issuer accounting or trading inventory. Sources were checked on 29 October 2026. The rules are subject to the specific historical-cost provisions; the examples use modern acquisitions without grandfathering or pre-April-2001 complications. Income Tax Department: Income-tax Act, 2025, sections 72 and 90(5)–(9). Income Tax Department: Income-tax Act, 2025, sections 72 and 90(5)–(9).
Original investment cost does not automatically spread
Section 90(6)(a) preserves the amount actually paid for the original financial asset. Under clause (c), an asset subscribed for through the holder’s entitlement takes the amount actually paid for that additional asset. A blended book average can therefore be useful for a book reconciliation while failing to identify the statutory cost of the particular lot sold. Maintain allotment documents, paid quantities and bank receipts alongside the original acquisition contract. Income Tax Department: Income-tax Act, 2025, sections 72 and 90(5)–(9).
Renunciation and purchase are opposite sides of a transaction
For the holder who renounces the entitlement, clause (b) sets the cost of the right to renounce at nil. That does not make renunciation proceeds tax-free. For a purchaser of the right who obtains the resulting asset, clause (e) combines the price paid to the renouncing holder with the amount paid to the issuer. Do not omit the first component or claim it twice as both a separate expense and part of the asset’s cost. Income Tax Department: Income-tax Act, 2025, sections 72 and 90(5)–(9).
A free additional asset has its own cost rule
Clause (d) sets nil cost for an additional financial asset allotted without payment on the basis of holding another financial asset. This is the relevant modern bonus-lot assumption in the examples. It does not reset the original investment’s cost to nil. Equally, an accounting reallocation across more shares does not create tax cost for a free allotment where this rule applies. Identify each allotment date and lot before considering a sale. Income Tax Department: Income-tax Act, 2025, sections 72 and 90(5)–(9).
Complete the capital-gain working separately
Section 72 provides the consideration-minus-eligible-transfer-expenditure-and-cost framework. Determine the consideration rule and the identifiable disposal lot before applying it. A share-cost calculation does not establish the tax rate, holding period, exemption or deemed-consideration outcome; each remains a separate review. The examples stipulate actual accepted consideration, separately identified modern lots, no transfer expenditure except where stated, and no indexation or special cost override. They demonstrate the cost bridge before tax, surcharge and cess. Income Tax Department: Income-tax Act, 2025, sections 72 and 90(5)–(9).
Do not move these numbers into an earlier return by renumbering
The 2025 Act applies here to tax year 2026–27. An AY 2026–27 return for FY 2025–26 requires its own earlier enactment and applicable return instructions. For the current investment register, reconcile opening original lots, rights subscribed, rights purchased, free allotments, disposals and closing balances. Preserve the book-versus-tax difference and the evidence for identifying the lot sold; these examples do not prescribe an unverified universal lot-selection rule. Income Tax Department: Income-tax Act, 2025, sections 72 and 90(5)–(9).
Applicable primary references
Income Tax Department: Income-tax Act, 2025, sections 72 and 90(5)–(9)
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: Original and rights lots
A company owns 1,000 original shares bought at ₹200 and subscribes for 500 rights shares at ₹120. Original tax cost remains ₹2,00,000 and rights cost is ₹60,000. Total ₹2,60,000 across 1,500 shares gives a book-style average ₹173.3333, but does not replace the separate tax lots.
Illustrative example 2: Renouncing holder
The investor renounces 300 entitlements for ₹40 each. Proceeds are ₹12,000 and the entitlement’s statutory acquisition cost is nil. With separately eligible transfer expenditure stipulated at ₹1,000, the modelled capital gain is ₹11,000, before any other applicable adjustment.
Illustrative example 3: Purchaser of rights
A corporate investor buys 400 rights at ₹35 each and pays the issuer ₹120 for each resulting share. Acquisition cost is 400 × (35 + 120) = ₹62,000, or ₹155 per resulting share. Using subscription money alone would omit ₹14,000.
Illustrative example 4: Free bonus lot
A company has 1,000 modern original shares costing ₹2,00,000 and receives 500 additional shares without payment on that holding. Original cost stays ₹2,00,000; bonus-lot cost is nil under the stipulated rule. Sale of 200 specifically identified bonus shares at ₹250 yields ₹50,000 proceeds and ₹50,000 gain before any eligible transfer expense or other adjustment.
Illustrative example 5: Dispose of an identified subscribed-rights lot
Of 500 rights shares subscribed at ₹120, a company sells 200 identified shares at ₹180. Proceeds are ₹36,000, cost ₹24,000 and gain ₹12,000. The remaining 300 shares retain ₹36,000 cost. Do not use the original lot’s ₹200 price for this disposal.
Illustrative example 6: Partial disposal after purchasing rights
Of the 400 resulting shares costing ₹155 each in the purchased-rights example, 150 are sold at ₹190. Proceeds are ₹28,500, tax cost ₹23,250 and gain ₹5,250. Closing cost for 250 remaining shares is ₹38,750; sold and closing cost reconcile to ₹62,000.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Fix the disposal period | Record tax year and applicable enactment. |
| 2 | Classify the holding | Separate capital investment from trading stock. |
| 3 | Identify original lots | Retain acquisition contracts, quantities and actual payments. |
| 4 | Trace the entitlement | Link rights offers and the original holding. |
| 5 | Separate renunciations | Record proceeds and the holder’s nil entitlement cost. |
| 6 | Rebuild purchased-rights cost | Combine supported seller and issuer payments once. |
| 7 | Identify free allotments | Retain allotment evidence and applicable cost-rule review. |
| 8 | Identify disposed quantities | Support the actual lot allocation used in the computation. |
| 9 | Reconcile closing tax cost | Match additions and disposals to the investment register. |
| 10 | Close the gain bridge | Review consideration, eligible expenses and rates separately. |
Sixteen practitioner FAQs
1. Is this an EPS guide?
No. It concerns investor capital-gain acquisition cost.
2. Does it cover FY 2025–26 filing automatically?
No. That period requires its own enactment and return analysis.
3. Does a rights issue reduce original cost automatically?
Clause (a) preserves the amount actually paid for the original asset.
4. What is the holder’s subscribed-rights cost?
The amount actually paid for the additional asset under clause (c).
5. What cost applies to the renounced right in the holder’s hands?
Clause (b) sets it at nil.
6. Does nil cost make the renunciation receipt exempt?
No. Consider the separate capital-gain computation.
7. What does a purchaser’s resulting asset cost include?
Both the renunciation purchase price and issuer payment under clause (e).
8. Can the rights purchase payment be counted twice?
No. Reconcile its inclusion once.
9. What is the modern free-allotment assumption here?
Nil cost under clause (d), with the stated exclusions from the examples.
10. Does a bonus allotment erase original cost?
No. Keep the original and free lots distinct.
11. Can book average automatically determine each tax lot?
No. Establish the relevant statutory cost and disposal identification.
12. Does a cost calculation settle the holding period?
No. Review that separately.
13. Does it settle the applicable tax rate?
No. The examples compute gains before tax.
14. Are grandfathered older assets modelled here?
No. Check applicable historical provisions before using the modern examples.
15. Are transfer expenses always nil?
Only as an example assumption; eligible actual expenses need separate support.
16. What should the final register reconcile?
Original, subscribed, purchased-rights and free lots through disposal to closing tax cost.
Conclusion
Section 90 distinguishes original investments, subscribed rights, renounced entitlements and assets acquired through purchased rights. Preserve those tax-cost lots instead of averaging all original, rights and bonus shares into one book-cost figure.