Income Under The Head Capital Gains
Income Under The Head Capital Gains
Income Under The Head Capital Gains
If outside municipal
limits at least 8km. away
from municipal limits
Notes:a) In case of following assets the period of 36 months is reduced by 12 months: Equity or preference shares
Any other security on recognized stock exchange
Units of UTI or mutual fund
Zero coupon bonds3
b) For calculating period of 36 months or 12 months, the date of transfer should be
excluded.
4. TYPES OF CAPITAL GAIN: -
The need for such distinction arises because STCG is taxable at normal rates and
added to gross total income whereas LTCG is taxable at concessional rate of 20%.
5. TRANSFER (section 2(47)): - The capital asset must have been transferred, here tranfer
means:a) Sale, exchange or relinquinshment of asset
b) Extinguishment of right over asset
c) Compulsory acquisition under any law
d) Personal effects converted into Stock-in-trade
e) Maturity of zero coupon bonds
f) Allowing possession under transfer of property act,1882
g) Allowing enjoyment of immovable property
6. COMPUTATION OF CAPITAL GAIN: -
10. COA OF RIGHT SHARES: Cost at which such shares are purchased
If right is sold, whole amount is capital gain and COA is NIL
Sale of shares by such person acquiring right:COA= COST TO PURCHASE RIGHT + PAYMENT TO COMPANY FOR PURCHASE OF
SHARES
11. COA OF BONUS SHARES: Here COA is NIL
But if such shares acquired on or before 1-4-1981, cost on 1-4-1981 can be
taken as COA
12. TREATMENT OF ADVANCE MONEY FORFIETED: - If assessee has received any advance
money for sale of asset but later on such sale could not completed and as a r4esult
some advance money was forfeited by assessee such advance money would be
treated as follows: It would be deducted from cost of asset
If such amount is received by previous owner, it would not be deducted
Such amount would be deducted before indexation.
If advance money is more than COA, such advance money received would be a
capital receipt and hence not taxable however capital gain on sale would be
taxable.
13. COST OF IMPROVEMENT: - Cost incurred to add value to the asset is called its cost of
improvement. It is calculated as follows: If asset acquired before 1-4-1981 it is always NIL
In relation to Goodwill or right to manufacture any product or right to carry on
business it would always be NIL
In all other cases it is expenditure actually incurred by assessee or the previous
owner
It does not include routine expenditure on repairs, etc. which are allowed in
PGBP, other sources, house property.
14. INDEXED COST OF ACQUISITION: In case of long term capital gain, COA is indexed using cost inflation index(CII)
For assets acquired before 1-4-1981, indexation is done from 1-4-1981.
Indexed cost of acquisition is computed as follows: -
15. INDEXED COST OF IMPROVEMENT: - In case of long term capital gains, COI is also
indexed. It is done in following manner: -
16. CERTAIN CASES WHERE INDEXATION IS NOT ALLOWED: Transfer of bonds other than capital index bonds
Transfer of shares or debentures of an Indian company acquired by nonresident in foreign currency
Slump sale
Transfer of UTI funds purchased in foreign currency by non-resident
Transfer of GDRs purchased in foreign currency by non-residents or bonds of
Indian company or public company
Transfer of GDRs purchased in foreign currency by resident or employee of
Indian company
Transfer of securities of foreign institutional investors
Transfer of foreign exchange asset by Non-resident Indian
17. CAPITAL GAIN ON ZERO-COUPON BONDS: - Meaning of zero-coupon bonds:-
21. FIRM /AOP TRANSFERS CAPITAL ASSET TO MEMBERS ON DISSOLUTION: Capital gain is chargeable to firm
FULL VALUE OF CONSIDERATION: - FMV on date of transfer instead value at
which it is given to partner
There can be LTCG/STCG
But cost of acquisition by partner is the amount at which it is given to the
partner not the deemed value for taxation.
22. DISTRIBUTION OF STOCK IN TRADE TO PARTNERS ON DISSOLUTION: - Such income of
the firm is taxed as business income.
23. COMPUTATION OF CAPITAL GAIN ON COMPULSARY ACQUISITION OF ASSET: This section deals with compulsory acquisition of an asset
It does not include compulsory acquisition of urban agricultural land
Period of holding till date of acquisition
Capital gain taxable in year when either whole or part of amount is
actually received.
ENHANCED COMPENSATION: Capital gain in nature of original capital gain
COA is NIL
Expenses of realization allowed
If the amount of compensation is in dispute then also taxable at original
value first. And if amount of compensation is subsequently reduced, the
capital gain would be recomputed by A.O. and necessary relief would
be provided.
24. CONVERSION OF DEBENTURES INTO SHARES: It would not be regarded as transfer
On sale of such shares, COA of these shares would be deemed to
be that part of cost of debentures as surrendered by the
assessee.
Period of holding of shares: - DATE OF ALLOTMENT OF SHARES
TO DATE OF SALE OF SUCH SHARES.
25. CONVERSION OF PREFERENCE SHARES INTO EQUITY SHARES: This transaction is regarded as a transfer
Capital gain on date of allotment of shares
SALE CONSIDERATION: - FMV OF EQUITY ON DATE OF TRANSFER
26. TRANSFER OF GOODWILL, TRADEMARKS, RIGHT TO CARRY ON BUSINESS ETC.: The following assets are covered under this section: Goodwill of business, not of profession(there is no capital gain on sale of selfgenerated goodwill of profession)
assumed to be NIL
COST OF IMPROVEMENT: -
ALLOWED FOR:-Trademark,
tenancy rights, loom hours, route
permits.
27. CAPITAL GAIN ON DEPRICIABLE ASSETS ON BLOCK OF ASSETS SYSTEM: Capital gain in case of block of assets is always short term capital gain
COA: - WDV of the block
Short term capital loss: - In this case, it is possible only when whole or part of
block is transferred for a value exceeding WDV of the block at the end of the
year.
28. CAPITAL IN CASE O DEPRICIABLE ASSETS OF ELECTRICITY COMPANIES: Such capital gain can be long term capital gain or short term capital gain
COA:- Actual cost
Rest is same as explained in profits and gains from business and profession
29. SLUMP SALE: When whole of undertaking or part of undertaking is sold, it is called as slump
sale
Part of undertaking means any division or unit of undertaking
Undertaking when owned and held for more than 36 months, it is Long term
capital gain otherwise short term capital gain
COA: - COA in this case is net worth of the unit or undertaking. Net worth is
value of assets of organization less value of liabilities of the organization; in
valuation any change in value on account of revaluation is ignored.
Every assessee in case of slump sale has to furnish a report by Chartered
accountant in the relevant form indicating that net worth has been correctly
arrived at.
Capital gain in year in which sale is effected
Arriving at value of assets:-
In case of depreciable
assets: - what would have
been value if this would
have been only asset in the
block. However aggregate
of the value computed
cant exceed WDV of the
block.
30. CAPITAL GAIN IN CASE OF REAL ESTATE BUSINESS: This include capital gain taxation for both land and buildings
FULL CONSIDERATION VALUE: - it is the value at which asset is sold, however
where assessee declares value less than the stamp duty value, the deemed
consideration price is the stamp duty value. Therefore, we can conclude that
consideration value cannot be adopted to be less than stamp duty value
APPOINTMENT OF VALUATION OFFICER: - Following are the conditions for
appointment of valuation officer: Assessee claims that FMV is less than stamp duty value and
Value so adopted by stamp duty authority has not been
disputed before any authority or court.
CONSEQUENCES OF VALUATION BY VALUATION OFFICER: If value of valuation officer is less than stamp duty value than
that value of V.O. would be full value of consideration
If FMV of V.O. is greater than stamp duty value, stamp duty
value would be consideration.
He (the NRI) has invested the whole or any part of net consideration in any
new foreign exchange asset within a period of six months from date of transfer
of original asset.
QUANTAM OF EXEMPTION: - the exemption in this case shall be computed in
the following manner: If amount invested is more than net consideration, whole of capital gain
is exempt
Otherwise, exemption is calculated in the following manner:-
SHORT TERM
Securities mentioned
in 111A sold through
RSE and STT paid:taxable @ 15%
LONG TERM
NON-LISTED
Taxable at normal
rates of LTCG i.e.
@ 20%
NOT SOLD
THROUGH RSE
Taxable @
minimum of 2
limits of 10% or
20% as mentioned
in Para 34
SOLD THROUGH
RSE
EXEMPT u/s
10(38)
Securities of Non-Residents
SHORT TERM
Securities mentioned
in 111A sold through
RSE and STT paid:taxable @ 15%.
However calculation
of capital gain has to
be made as per first
provision in section
48 in case of an
Indian co. as
mentioned in Para 31
Rest of securities: -
LONG TERM
NON-LISTED
Taxable at normal
rates of STCG
However calculation
of capital gain has to
be made as per first
provision in section
48 in case of an
Indian co. as
mentioned in Para 31
Taxable at normal
rates of LTCG i.e.
@ 20%. However
Due care in
calculation as per
first provision of
section 48 has to
be taken as per
Para 31
NOT SOLD
THROUGH RSE
SOLD THROUGH
RSE
Taxable @ of 10%
and Due care in
calculation as per
first provision of
section 48 has to
be taken as per
Para 31
EXEMPT u/s
10(38)
Note: - In case Of NRI certain benefit of exemption as per section 115F in case of long term
foreign exchange asset has been given. This has to be taken care of as per Para 32.
39. Exemptions of capital gains available only to individual and/or HUF assessees:
Section 54, 54B and 54F
Capital gain on sale of
LTCA not to be
charged in case of
investment in
residential house:
Section 54F
Individual/HUF
Any capital asset not
being residential house
property. Exemption is
not available if assessee
owns more than 2
residential
houses
including a new house.
LTCA
Residential
house
property i.e. buildings
or lands appurtenant
thereto
Purchase: Within 1 year
before or 2 years after
date of transfer; and
Construction: Complete
construction within 3
year from date of
transfer
(a) Assessee
(b) Asset transferred
Individual/HUF
Residential
house
property
being
buildings or lands
appurtenant thereto.
Individual
Agricultural land used
by individual or his
parent for agricultural
purposes during 2 years
preceding date of
transfer
LTCA
Residential
house
property i.e. buildings
or lands appurtenant
thereto
Purchase: Within 1
year before or 2 years
after the date of
transfer.
Construction:
complete construction
within 3 years year
from date of transfer
Applicable
LTCA / STCA
Agricultural land (in
urban or rural area)
Applicable
Applicable
Lower of Capital
gains or investment in
Provisions
40. Exemptions in respect of capital gains available to all assessees: Section 54D, 54EC,
54G and 54GA
c) Nature of
Asset
d) New Asset to
be
purchased/
constructed
Compulsory
acquisition of land
& buildings
Section 54D
Any person
Compulsory
acquisition of land
or building which
was used in the
business
of
industrial
undertaking during
2 years prior to
date of transfer.
Short term/ Long
term
New land or
buildings for the
industrial
undertaking.
e) Time-limit
for purchase/
construction
of new asset.
Provisions
a) Assessee
b) Asset
transferred
Investment in certain
bonds:
Section 54EC
Any person
Any long term capital
asset
Long term
Bonds, redeemable after
3 years issued
(a) by National Highway
Authority of India; or
(b)
by
Rural
Electrification
Corporation, maximum
exemption limit being Rs.
50 lakhs (Amended by
FA, 2007 w.e.f. 1-4-08)
Within 6 months from the
date of transfer of original
asset.
Shifting of
undertaking to rural
area:
Section 54G
Any person
Transfer of plant,
machinery or land or
building for shifting
industrial
undertaking from
urban area to rural
area
Shifting of
undertaking to
SEZ:
Section 54GA
Any person
Transfer of plant,
machinery or land
or building for
shifting industrial
undertaking from
urban area to
Special Economic
Zone