Capital Gains2
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Capital Gains2



This presentation is about taxability of capital Gains under the Inidan Income tax Act, 1961.(sec 45-49 only)

This presentation is about taxability of capital Gains under the Inidan Income tax Act, 1961.(sec 45-49 only)



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Capital Gains2 Capital Gains2 Presentation Transcript

  • By: Ankit Bansal Sunir Parikh Nayan Bhatia Deekshant Kumar
  • Conditions for Tax Liability Condition-1 There should be a Capital Asset. Condition-2 The Capital Asset is Transferred by the assessee. Condition-3 Such Transfer takes place during the previous year. Condition-4 Any Profit or gain arises as a result of transfer Condition-5 Such Profit or gain is not exempt from tax.
  • Meaning of Capital Asset
    • Capital Asset means Any property held by assessee whether or not connected with his business or profession.
  • Types of Capital Assets
  • Period Of Holding Situations How to Calculate Period of holding Capital Asset Acquired by way of gift, will, inheritance, etc. The period of holding of previous owner should be included Right Shares It should be counted from the date of allotment of right shares Allotment of shares of amalgamated Indian Company against shares of amalgamating company It should be counted from the date of acquisition of shares in the amalgamating company Purchase of shares and security through broker It should be counted from date of purchase by broker on behalf of investor Shares purchased in several lots at different point of time FIFO method should be adopted
  • Some Judicial Pronouncements
    • Shares in a company entitling right of occupancy in a flat – Period of holding of 36 months or more should be considered for Long term capital asset – ITO v. Nayana K. Shah (2000) (Mumbai)
    • Transfer of land after construction of building - Separate sales consideration for land and building should be identified – CIT v. Vimal Chand Golecha (1993) (Rajasthan)
    • Sale of depreciable asset - Always treat as short term
    • Conversion of Stock-in-trade into capital asset – Holding period would commence from the date when such stock was purchased and not when it is converted – Kalyani exports & Investments (p) ltd. v CIT (2001) (pune)
  • Transfer of Capital asset
    • Transfer includes:
    • Sale
    • Exchange
    • Relinquishment (e.g. Renouncement of Right shares)
    • Extinguishment
      • Insurance claim received –Vania Silk mills (p) ltd. v. CIT (1991) (SC) – Not taxable as there is no transfer
      • Reduction of share capital – Kartikeya V. Sarabhai v. CIT (1997) (SC) – Taxable in the hands of shareholder.
    • Transfer of immovable property.
  • Some Judicial Pronouncements
    • Tenancy rights – It is treated as transfer – A. Gasper v. CIT (1979) (Calcutta)
    • Forward contract - Not treated as transfer – CIT v. Anglo India Jute mills co. ltd. (1981) (Calcutta)
    • Temporary transfer - Taxable – Rajendra Mining v. CIT (1961) (AP)
    • Cancellation of Agreement - Compensation received by buyer is for relinquishment of his right on property and hence taxable – K.R. Srinath v. CIT(2002)(Madras)
    • Revaluation of Asset – not a transfer –Well Packaging v. CIT (2003) (Madras)
  • Transactions not treated as transfer u/s 47
    • Transfer of capital asset under gift or will or irrevocable trust(except ESOPs).
    • Transfer of capital asset by holding company to its 100% subsidiary Indian Company and vice versa.
    • Distribution of capital asset in total or partial partition of Hindu undivided family (HUF)
    • Allotment of shares in amalgamated shares in lieu of shares held in amalgamating company
  • Transfer when Completed and Effective
    • Immovable property when documents are registered.
    • When documents are not registered following conditions should be satisfied
      • There should contract in writing.
      • Transferee has paid or is willing to pay consideration.
      • Transferee should have taken possession of property.
    • Movable Property –When property is delivered
  • Computation of capital gains
    • Short-term capital gain
      • Find out full value of consideration
      • Deduct the following:
        • Expenditure incurred wholly and exclusively in connection with such transfer.
        • Cost of acquisition
        • Cost of improvement
      • From the following deduct the exemptions
      • The balance amount is the short-term capital gains.
      • It will be taxable at normal slab rate.(except for shares and securities u/s 111A)
    • Long-term capital gains
      • Find out the full value of consideration
      • Deduct the following
        • Expenditure incurred wholly and exclusively in connection with such transfer
        • Indexed cost of acquisition
        • Indexed cost of improvement
      • From the resulting deduct the exemptions
      • Balancing amount is long-term capital gains
      • It is taxable at flat rate of 20% (exempt for shares and securities u/s 10(36))
    Computation of capital gains
  • Full value of consideration
    • In general terms consideration means value received or receivable by the transferor in lieu of assets, which he has transferred.
    • Following are some exceptional situations.
    Situations Full value of considerations Money or assets received from insurance company. Value of money or FMV of Assets Conversion of capital asset into stock in trade Fair market value of capital asset on date of transfer Transfer of capital asset by partner in his firm Amount recorded in the books of accounts of firm Transfer of capital asset by firm to his partners on dissolution FMV on the date of transfer
  • Expenditure on Transfer
    • Such expenditure should be incurred wholly and exclusively in connection with such transfer- Sita Nanda v. CIT (2001) (Delhi ).
    • Expenses after passing of title can be deductible CIT v. P. rajendran (1981) )(Karnataka)
    • Payment to co – operative society to get NOC- Damodar nagalia v. CIT (2007) (Mumbai)
    • Payment to tenant
      • Not deductible -CIT v. T Srinivas Rao (1987) (AP)
      • Deductible - CIT v. A venkataraman (1982) (Madras)
    • Expenditure for enhancement of compensation – CIT v. P.rajendran (1981) (Karnataka).
    • Repayment of loan or discharge of Mortgage.
  • Cost of acquisition
    • Ground rent – CIT v. Mithlesh Kumari (1973) (Delhi)
    • Interest on money borrowed
    • Litigation expenses for registration of shares
    • Estate duty – S. Valliammai v. CIT (1981) (Madras)
    • Mortgage - CIT v. RoshanBabu Mohammed Hussein merchant (2005) (Mumbai)
    • Conversion of agricultural land into non agricultural land. Meccanne Industries Ltd. V. CIT (2002) (Madras)
  • Cost of improvement
    • Expenditure incurred before 1 st April, 1981 not considered.
    • Double deduction not permitted.
    • In case of gift received and later on sold the for cost of acquisition the year for indexation would be the one when seller becomes buyer (sec 48),however for cost of improvement year for indexation would be the year of improvement (sec 49)