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Tax planning with regard to capital gains
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Tax planning with regard to capital gains

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  • 1. BM-012055( Geeta) BM-012060 (Harshita Singh) BM-012066 (Joyti Singh) BM-012071( Karmaan Quadri) BM-012075 (Keshav Aggarwal) BM-012083 (Mani Tiwari)
  • 2. CAPITAL ASSET :- As per income tax act 1961, U/s 2(14) are means of any kind held by the assesses whether or not connected with his business, but not included : 1. Any stock-in-trade 2. Agriculture land in India and situate area in population less than 10000 as per the last published census and not included urban agriculture land. 3. 6.5% Gold Bond, 1977; National Defense Gold Bond ; Special Bearer Bonds ,1991, issued by the central Government. 4. Gold Deposited Bonds issued under the Gold Deposited Scheme 1999.
  • 3. 5. Jewellery is a capital assets but utensils and other item of precious metal may be personal effect. Such as bars, sovereign, bullion and coins are not personal effect.
  • 4. PERSON KNOW THE TYPE OF CAPITAL GAIN :-  Short Term capital Gain :- U/s 2(42) is capital asset held by the assessee for not more than 36 months immediately preceding the date of its transfer . And in case of the share , security listed , UTI & Mutual fund U/s 10(23D) and Zero coupon bond are held by the assessee for not more than 12 months immediately preceding the date of its transfer .  Long Term capital Gain :- U/s 2(29A) is capital asset which held by the assessee for more than 36 months or 12 months immediately preceding the date of its transfer.
  • 5. Mode of acquisition of capital Asset Cost of acquisition to the assesses 1. Distribution of assets on total or partial partition of HUF. 2. Gift or will. 3. Conversion of self acquired individual property with HUF property. 4. Succession by the company of a firm or a sole propriety firm. 5. Conversion of the company into limited liability partnership . 6. Distribution of assets on liquidation of the company. 7. Transfer to a revocable or irrevocable trust. Cost of acquisition to the previous owner 1. Allotment of shares in the amalgamated company in the scheme of amalgamation Cost of acquisition in the amalgamating company. 1. Cost of acquisition of specified security or sweat equity shares. FMV which has been taken into account for valuation of such perquisite. 1. Cost of acquisition of property received without consideration or of inadequate consideration . The value which has been taken into account for taxation of income under the head income from other sources as per section 56(2). 1. Transfer by holding company to its subsidiary or vice-versa and conversion of capital assets by transferee company as stock in trade . Cost to the transferee company shall be the cost for which such asset was acquired by it.
  • 6. Section Case Deemed Value of Consideration 45(1A) Insurance claim received on damage or destruction of capital asset. Compensation received in cash or fair market value . 45(2) Conversation of capital assets into stock-in- trade. Fair market value of the asset as on date of such conversation. 45(3) Transfer of capital assets by a partner to firm/AOP/BOI as capital contribution The amt. recorded in books of the account of the firm/AOP/BOI, as value of such asset. 50C Transfer in case of land or building or both Value determined for payment of stamp duty(if consideration declared by the assesses is less)
  • 7. CAPITAL GAIN V/s BUSINESS INCOME :-  When a particular asset is stock-in-trade or capital asset does not depend upon the nature of the article, but the manner in which it is held. An assesses deal with asset is treated as business income but in cases of the assesses uses as per investment as hold or earning income treated as capital gain.
  • 8. Cases :-  Sushila Devi Jain (2003) acquired the land on the basis of a will on the death of her husband. She sold the same in parcels because the huge land area could not be sold in one transaction. Such an activity could not amount to trade or business within the meaning of the act.  A share broker( Rewa Kothari, 2006) purchased certain assets and had been showing the same in his wealth-tax return, it was held that the profit on such shares `should be taxable as capital gain and not as business income as theses shares were capital assets.
  • 9. What transactions are not regarded as transfers?  Distribution of assets in kind by a company to its shareholders on its liquidation. Any distribution of capital assets in kind by a Hindu undivided family to its members at the time of total or partial partition.  Any transfer of a capital asset under a gift or will or an irrevocable trust. Nevertheless, this clause is not applicable to a transfer under a gift or will or an irrevocable trust of capital asset, being shares, debentures, or warrants, allotted by a company (directly/indirectly) to its employees under an Employees Stock Option Plan or Scheme of the company, in accordance with the guidelines issued by the Central Government  Any transfer of a capital asset by a company to its subsidiary, provided the Company wholly owns such subsidiary company and the subsidiary company is an Indian company
  • 10.  Any transfer of a capital asset by a subsidiary company to the holding company, provided such holding company wholly owns the share capital of the subsidiary company and the holding company is an Indian Company.  Any transfer of shares in an Indian Company, held by a foreign company to another foreign company in pursuance of a scheme of amalgamation between the 2 foreign companies, provided at least 25% of the shareholders of the amalgamating foreign company continue to remain shareholders of the amalgamated foreign company and such transfer does not attract tax on capital gains in the country.
  • 11. In what circumstances are capital gains that arise from the transfer of house property exempt?  Under S 54, capital gains, arising from transfer of house property, are exempt from tax provided the following conditions are satisfied 1. The house is a residential house whose income is taxable under the head "income form house property" and transferred by an individual or a Hindu Undivided Family. 2. The house property, which may be self-occupied or let out, is a long term capital asset (i.e. held for a period of more than 36 months before sale or transfer.) 3. The assessee has purchased a residential house within a period of 1 year before the transfer (or within 2 years after the date of transfer) or has constructed a residential house property within a period of 3 years after the date of transfer. In case of compulsory acquisition, the above time limit of 1-year, 2 years and 3-years is applicable from the date of receipt of compensation (whether original or additional). 4. The house property, so purchased or constructed, has not been transferred within a period of 3 years from the date of purchase or construction.
  • 12. CAPITAL GAIN IN DTAA :-  India has signed DTAA with many countries. The aim is to avoid double taxation of same income. The treaty can be bilateral, that is, apply to only the two countries in question, or multilateral. These treaties benefit institutions and individuals who earn in countries other than their country of residence, provided such an arrangement exists between their country of residence and the country/countries where their income sources are. The benefits of DTAA are lower withholding tax (tax deducted at source or TDS), exemption from tax, and credits for taxes paid on the doubly-taxed income that can be enchased at a later date. India has DTAA with over 80 countries; it plans to sign such treaties with more countries. The major countries with which it has signed the DTAA are the US, the United Kingdom, the UAE, Canada, Australia, Saudi Arabia, Singapore and New Zealand. Double taxation can be avoided in two ways. One, the resident country exempts income earned in the foreign country. Or, it grants credits for the tax paid in the other country. The rules vary from treaty to treaty. For example, the tax treaty with Mauritius has zero tax for capital gains on equities, but that with the US taxes capital gains.
  • 13. NRIs selling property have to pay capital gains tax :-  LTCG is taken as a separate block and charged to tax at a flat rate of 20%. No deductions are allowed under Chapter-VIA like u/s 80C, 80D etc, for LTCG. STCG is treated as normal income and taxed at the rates applicable to the normal income. Deductions under Chapter-VIA can be claimed. On sale of an immovable property by an NRI/PIO, the foreign currency equivalent as on the date of payments towards purchase of the property can be repatriated in case the amount has been received from inward remittance or debit to NRE/FCNR/NRO account for acquiring the property. Repatriation of sale proceeds of a residential property is restricted to not more than two such properties. There is no restriction on repatriation of number of commercial properties. If you have purchased the property out of your Indian assets, then also the sale proceeds net of tax, up to US$1 million per year may be remitted abroad. The remittance can be effected upon the uploading of an undertaking (Form 15CA) by the remitter and submission of a certificate by a Chartered Accountant (Form 15CB) to the banker.
  • 14.  The amount of long term capital gains together with the cost to the previous owner (i.e. the person from whom the property is inherited) would be considered as the cost of purchase. NRIs are subject to a Tax Deducted at Source (TDS) of 20 percent on the long term capital gains. But there are certain instances when NRI can get a waiver of the TDS.  One such case would be if the NRI is planning to re-invest the capital gains of the property in another property or in tax exempt bonds. In such cases, the NRI will be exempt from tax in India, and no TDS will be deducted either.  If the NRI sells the property before three years have elapsed since the date of purchase, short term capital gains tax at his or her tax slab is incurred. Short term capital gain is calculated as the difference between the sale value and the cost of purchase (without the indexation benefit). The NRI will be subject to a TDS of 30 percent irrespective of his or her tax slab.  NRI selling their properties can apply to the income tax authorities for a tax exemption certificate under section 195 of the Income Tax Act. They must make this application in the same jurisdiction that their PAN belongs to and will be required to show proof of reinvestment o provide documentary evidence with regard f capital gains.  NRIs must to their inheritance of the property, and a certificate from a chartered accountant in the specified format.
  • 15. Save Tax :-  The benefit is that the tax on a longterm capital gain is taxed only at a 20 percent rate after indexation. This brings down the amount of tax payable considerably as compared to the short-term capital gain tax. Apart from this, you might be able to avoid paying tax on the sale of the house, and you also have options for reducing the tax burden following the sale of real estate."In India, a common procedure that is followed is to sell the property at an under-valued rate to a friend or relative or in pieces to save on the tax component, making such transactions sources of black money“.  The Income Tax Act exempts the capital gains from the sale of a house if the taxpayer invests the gains in a residential property within two years from the date of sale or constructs another house within three years from the date of sale. This means, you cannot invest in a commercial property or land to save tax - you have to necessarily buy residential property only. If the property is under construction, the two-year period is further enhanced to three years. However, you should not own more than one house, besides the house you are investing in.
  • 16. Treatment of Assets Acquired Before 1/04/1981  If an asset is acquired before 1/4/1981 then its cost of acquisition will be higher of the following :- A.) Actual cost of acquisition B.) Fair market of the asset as on 1/4/1981( U/s 55)
  • 17. Cases where Indexation benefit is not available even on transfer of long term capital asset :-  Debenture or Bonds (U/s 48)  Slump Sale (U/s 50B)  Certain transaction by a non-resident (U/s 115AB, 115AC, 115AD, 115D)  Transfer of Global Depository Receipt (U/s 115ACA)
  • 18. Deduction on sale of Residential House Property(section 54) :  Condition :- 1. Capital asset must be LTCG. 2. Property must be a residential house. 3. Income of such property must be taxable U/s 22.  Time limit for acquisition of new asset :- For Purchase :- Within a period of 1 year before or 2 year after, the date of transfer. For Ex. If property is transferred on 17/8/2006, then the new house property may be purchased at any time between 17/08/2005 to 17/08/2008. For Construction :- Within a period of 3 years after the date of transfer. Scheme of deposit :- Applicable of capital Gain Account Scheme.
  • 19. Deduction from capital gain on transfer of land used for agro- purpose(Section 54B)  Condition :-1. Assesses must have transfer a capital asset being an agriculture land.(Not the rural agriculture land). 2. Agriculture land must have been used by the individual or his parent for agricluture purposes for a at least 2 years , prior to its transfer.  Time limit for acquisition of new assets :- 1. Within 3 years after the date of transfer . 2. Scheme of deposit of capital gain account scheme.  Case :- Assesses sold an urban agriculture land and invest the capital gain in rural agriculture land(to claim deduction under this section )
  • 20. compulsory acquisition of land and building forming part of industrial undertaking (section 54D)  Condition :- 1. Assesses must have transfer a capital assets being a land or building or any right , forming part of an industrial undertaking. 2. Capital asset has been compulsory acquired under taken by law. 3. Capital asset must used for industrial purposes at least for 2 years prior to its transfer.  Time –limit for acquired assets :-1. Within 3 years after the date of receipt of compensation . 2. Scheme of deposit for capital gain account scheme.  Case :- If the newly acquire land or building is transfer within 3 years from the date of acquisition of new assets, then the benefit availed earlier shall be revoked. Such revoked income shall be reduced from cost of acquisition of new asset.
  • 21. Deduction from capital gain on acquisition of certain bond :-  Condition :- 1. Assesses must have transfer may long- term capital asset. 2. Assesses acquire issued on or after – (a) 1/4/2006 by National Highways Authority of India. (B) 1/4/2006 by the Rural Electrification corporation Ltd.  Time-limit for acquisition of new assets :- Within 6 months after the date of transfer. And max. amt. limit is on bonds Rs 50 Lakh in any financial year.
  • 22. Deduction from capital gain on transfer of capital asset other than residential house property (Section 54F)  Condition :- Assesses must have transfer a long term capital asset other than a residential house property. 2. Assesses must acquire one residential house within prescribed time limit , income of which is taxable U/s 22.  Time-limit for acquisition of new asset:- 1. Within a period of 1 year before or 2 years after , the date of transfer.(For Purchases) 2. Within a period of 3 years after the transfer. Construction may start at may time but must be completed within stipulated time. 3. Scheme of deposit are capital gain account scheme .  Case:- If the newly acquired residential house is transferred within 3 years after date of acquisition , benefit available earlier shall be revoked.
  • 23. Deduction from capital gain on transfer of capital asset in case of shifting of industrial undertaking from urban areas (section 54G)  Condition :- 1. Assesses trust have trabsfer a capital asset :- (a) A machinery or plant or building or land. (b) Any right in building or land. (c) used for the purposes of the `business of an individual undertaking situated in an urban area. 2. Such transfer is effect in the course of shifting of such industrial undertaking to any area other than an urban area. 3. Assesses has within a period of 1 years before or 3 years after , the date of transfer- (a) purchased new machinery or plant for the purposes of business of the industrial undertaking in the area. (b) incurred expenses on such other purposes as may be specified in a scheme framed by the central government for the purposes of this section.  Time –limit for acquired new asset:- 1. Within 1 year before or 3 years after , the date of transfer. 2. Scheme of deposit are capital gain account scheme .  Case :- If the newly acquired asset are transferred within 3 years from its date of acquisition , then the benefit availed earlier shall be revoked .
  • 24. Deduction from capital gain on transfer of capital asset in case of shifting of industrial undertaking from urban areas to Special economic Zone (section 54GA)  Condition :- 1. Assesses trust have trabsfer a capital asset :- (a) A machinery or plant or building or land. (b) Any right in building or land. (c) used for the purposes of the `business of an individual undertaking situated in an urban area. 2. Such transfer is effect in the course of shifting of such industrial undertaking to Special economic Zone. 3. Assesses has within a period of 1 years before or 3 years after , the date of transfer- (a) purchased new machinery or plant for the purposes of business of the Special economic Zone . (b) incurred expenses on such other purposes as may be specified in a scheme framed by the central government for the purposes of this section.  Time –limit for acquired new asset:- 1. Within 1 year before or 3 years after , the date of transfer. 2. Scheme of deposit are capital gain account scheme .  Case :- If the newly acquired asset are transferred within 3 years from its date of acquisition , then the benefit availed earlier shall be revoked .
  • 25. THANK YOU

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