Profit arising on account of transfer of movable or immovable property is known as capital gains. Such gains may be short –term or long term. SEC.44 TO 55 OF IT ACT DEALS WITH CAPITAL GAIN
The term transfer of ‘capital assets’ include sale, exchange , relinquishment of assets or extinguishment of any right or the compulsory acquisition thereof under any law.
Types Of Capital Assets
Capital Assets Short term Capital Asset Long Term Capital asset It means a capital assets , which has been transferred by assesses before the expiry of 36 months from the date of its acquisition. It means a capital asset , which has been transferred by assessee after the expiry of 36 months from the date of its acquisition.
From the assessment year 1997-98 , in the following cases on asset held not for more than 12 months is treated as short term capital asset
Equity or preference shares in a company (whether shares are quoted or not )
Securities like debentures , government securities ) listed in a recognized stock exchanges in India.
Unit of UTI (whether quoted or not).
Unit of mutual fund specified under section 10 (23D) (whether quoted or not ) .
Zero coupon bond ( quoted or not quoted). Assets other than a short term capital asset is regarded as a long term capital asset.
Capital Gain Exempted From Tax
1. Any distribution of capital assets in kind by a H.U.F to its members at the time of total or partial partition.
2. distribution of assets in kind by a company to its shareholders at the time of its liquidation.
3. any transfer of a capital asset under a gift or a will or an irrevocable trust.
4. Any transfer of a capital by a wholly owned subsidiary company to its indian holding company.
6. Any transfer in a scheme of amalgamation of a capital asset by amalgamating company to the amalgamated company.
7. Any transfer by a shareholder, in a scheme of amalgamation , of shares held by him in amalgamating company.
8. Any transfer of agricultural land in India effected before March, 1970.
9. Any transfer of capital asset , being any work of art, archaeological , scientific or art collections, to the govt , university or the museum or national art gallery.
10. Any transfer by way of conversion of bonds or debentures of a company into shares of that company.
11. The transfer of a capital asset by a non-resident of such foreign currency convertible bonds or shares held by him , to another non- resident where the transfer is made outside India.
12. Transfer of land of a sick industrial company under a scheme sanctioned under sick industrial companies (special provision) Act1985 shall be executed where such company is being managed by its workers co-operative.
13. Under demerger scheme subject to fix condition transfer of capital assets.
Capital Gain exempted under section 10 of Income Tax Act
1. if the transfer of unit -64 of unit trust of India has taken place after 1-4-2002 then capital gain arising from it will not be considered capital gain it means it will not be considered long term or short term capital gain.
2. With effect from A.Y. 2005-6 if agricultural land is compulsory acquired then subject to certain condition the capital gain arising from it will be exempt from tax to individual or H.U.F.
3. As per section10(38) of Financial Bill 2004 security transaction Tax will be levied on long term capital gain arising from transfer of equity shares and such long term capital gain will be completely exempt from tax. The condition with respect to it is as under : 1. The benefit shall be available to each assessee. 2. The long term capital gain arises from equity share of equity mutual fund units. 3. The transfer has taken place on 1-10-2004 or thereafter. 4. Transection tax has been paid for the transfer. 5. It short term capital gain arises then income tax @ 10% would be levied .
Computation Of Capital Gain (short term capital gain)
According to section 48 of income tax act 1961 , the short term capital gain are computed as under : Out of the transfer price or consideration received on transfer of short term capital asset the following amount are deductible : 1. Cost of capital asset. 2. Cost of improvement of capital asset. 3. The expenses in relation to transfer of capital assets. Eg. Stamp registration fee , brokerage , advocate fee etc.
Computation Of Capital Gain (Long- term capital gain)
With effect from assessment year 1996-97 the computation of long term capital gain is done as under as per section -48(2). The following amount shall be deductible from the transfer price or consideration received on transfer of long term capital asset : The fair market value of the asset on April 1 st . 1981 or cost of acquit ion , whichever is more X Cost inflation index for the year in which the asset is transferred Cost inflation index for the year in which acquisition 1. 2. X Cost of inflation index for the year in which the asset is transferred X Inflationary cost of improvement Cost of improvement