Section 43(1) ACTUAL COST

Section 43(1) ACTUAL COST

Meaning of Actual Cost

Actual cost is the cost for which an asset is acquired by the assessee.


Any part of the cost paid by any other person or any authority directly or indirectly is not to be included.


Mr X has bought a machinery of Rs 10 lakhs. He has received a government grant of Rs 3 lakhs for
acquisition of the said asset and the balance Rs 7 lakhs has been paid by him. In this case, actual cost u/s 43(1) shall be Rs 7 lakhs only.

Items to be Included in Actual Cost

Actual cost would include the following:

                        Expenses directly related to the acquisition of the asset;

                        Expenses necessary to bring the asset to site and install it (such as carriage inwards, charges related to loading and unloading of the asset, installation charges, etc);

                        Expenses incurred to put the asset in use (such as cost of making a support structure for the asset);

                   Interest on capital borrowed for the acquisition of asset commencing from the date of borrowing till the date the asset was first put to use.


A loan was taken for purchase of machinery on April 1, 2017. The asset was purchased on September 1, 2017 and was put to use on November 1, 2017. Interest from April 1, 2017 to October 31, 2017 shall be capitalized whereas interest for the period from November 1, 2017 to March 31, 2018 shall be treated as revenue expenditure.

Assets Initially Used For Personal Purposes Subsequently Used in Business/ Profession

Case (a): Buildings previously used for personal purposes subsequently used for the Lpirpoi ses of business/profession.

In such cases, actual cost shall be the actual cost of the building to the assessee as reduced by an amount equal to the depreciation that would have been allowable had the building been used for the business/profession since the date of its acquisition. In other words, :cri-ional depreciation would be allowed

Example: Mr A bought a residential building for the purposes of his residence on 01.11.2015 for Rs 20,00,000. The residential building was brought by him for his professional use on 01.12.2017, when its market value was Rs 40,00,000. In this case, the actual cost of the asset u/s 43 (1) shall be computed as under:


Cost of residential building 20,00,000

Amount (Rs)

Less: Notional depreciation k.c 2.5% for PY 2015-16 (Less than 180 days)


WDV as on 01.04.2016


Less: Notional depreciation @ 5% for PY 2016-17


Actual cost of residential building u/s 43(1) = WDV as on 01.04.2017


Depreciation for PY 2017-18 @ 5%


Case (b): Any other asset (such as P&M, furniture. etc) previously used for personal purpose subsequently used for the purpose o business/ profession.

In such cases, the cost of acquisition of the asset shall be treated as actual cost for the purposes of Section 43(1). In other words, no notional depreciation shall be allowed.

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Section 43(1) ACTUAL COST

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