Transaction cost (TnCs) of sharing (FShU), selling (FSeU) and purchasing (FPU) groundwater for irrigation was analyzed in Chitradurga and Tumkuru districts of Karnataka. Transaction cost analysis has shown that FSeU farmers experienced higher TnC of D.16764.25 followed by FPU (D.16308) and FShU farmers (D.12943.75). Element that formed major component of TnC in all the three water user categories was, the opportunity cost of conflict or dispute resolution. Any disputes aroused were solved at farmers' level in the study area without approaching the local legal system. Total irrigation cost of the farm increased by 9.85 per cent, 5.83 per cent and 6.38 per cent respectively in FShU, FSeU and FPU water user categories due to transaction costs. Net return per rupee of irrigation water decreased from D. 5.53 to D. 4.95 in FShU, from D. 1.53 to D. 1.39 in FSeU and from D. 2.57 to D. 2.36 in FPU categories. In spite of including TnC, net returns were high in case of FShU category as compared to other three water user categories. It shows that, groundwater sharing can be a potential system to reduce irrigation costs and realize higher net returns.