COA & COI

1 Nov 2022

COA (Cost of Acquisition)



  • What is COA ?


COA means any capital expenses incurred for purchasing a new asset or new organization. This also includes the cost incurred by the previous owner as it increases by the cost of improvement incurred or borne by himself or the previous owner in case the asset is transferred.

 

  1. In relation to a capital asset being a intangible assets like

  • goodwill of a B&P 

  • trade mark or brand name associated with a B&P

  • right to manufacture, produce or process any article or thing,

  • right to carry on any business or profession,

  • tenancy rights, 

  • stage carriage permits, 

  • loom hours

 

then COA will be - 

i) If purchased by assessee :  Purchase price of the asset will COA

ii) Distribution of asset on dissolution of AOP/BOI

Gift/Will

Inheritance/Succession

- COA will be cost to the previous owner

iii) in any other case

- COA shall be taken to be nil.

Also in case of goodwill of B&P amount of depreciation shall be reduced from cost if assessee claiming deduction on the same after 1st April, 2021.

 

2. If assessee holds shares or any other security(financial asset (FA)) & the assessee due to this

- Entitled to subscribe any additional FA or

- Allotted any additional FA without making payment 

 

Then COA will be in following cases : 

i) In case of original FA : Amount actually paid will be COA

ii) In case of renouncement of right for such shares : COA will be NIL

iii) In case of FA subscribed : Amount actually paid will be COA

iv) In case of FA allotted without payment ; COA will be NIL

v) For person to whom right renounce : COA will be sum of : 

Amount paid to co. & amount paid to person renouncing such rights

 

3. If shares allotted under demutualisation/corporatisation scheme : COA will amount paid for 

original membership.

If any trading or clearing rights allotted under same scheme : COA will be NIL.

 

4. If there is LTCA acquired before the Jan 31, 2018 being

- an equity shares,

- unit of eq oriented fund

- units of UTI

(subject to some conditions like STT should be paid at time sell (Refer sec 111A for the same))

then COA will be higher of

  • COA of such asset

  • Lower of - FMV of asset

FVOC of asset

 

5. In relation to other capital assets : 

  1. If asset acquired before April 1,2001 : COA will be FMV of the asset as on April 1, 2001  or cost of  asset at the option of assessee.

 

  1. If asset transferred as gift or will & previous owner acq same property before April 1, 2001 :

then COA will be FMV as on April 1,2001 or cost to previous owner at the option of assessee.

In both cases above if the capital asset is land or building or both, FMV shall not be more than SDV if available on such date.

 

  1. If the assessee gets assets on liquidation of co. : COA will be FMV of asset on date of distribution.

 

  1. If capital asset becomes property of assessee, being shares or stock of co., on 

- consolidation or division of co.

- conversion of shares into stock

- re-conversion of stock into shares

- sub-division of shares into small shares

- conversion from equity to preference shares or vice versa

then COA of asset will be the cost of shares or stock from which it is derived.

 

  1. If cost is not determined for the previous owner then COA will be FMV of property as on the date on which the asset becomes the property of the previous owner.




COI (Cost of Improvement)


  • What Is COI ?


COI is the capital expenditure incurred by the assessee for making any structural changes i.e. any addition or improvement in capital asset. It also includes any expenditure incurred in protecting or curing the title of any capital asset. But If any expenditure is already accounted for while calculating PGBP income or Income from other sources then it will not be considered as COI.

In some cases COI of assets is NIL. Some of them are

  • Goodwill

  • Right to mfr,produce any article

  • Right to carry on business



Some FAQs related to COA/COI


  • What will be tax treatment if COI incurred before 31st March 2001 or after 31st March 2001


COI will be ignored if incurred before 31st march 2001 on any capital asset acquired before this date.(In this case FMV of the asset as on 31st MArch 2001 will be considered to be the cost of asset)

If COI incurred after 31st March 2001 then value will be considered and the benefit of indexation will be available accordingly.


Minal Jain