2. INTRODUCTION
CAPITAL GAINS
SEC 45-CHARGING SECTION
“Any profit or gains arising from the transfer of
capital assets is taxable under the head capital gains
in the previous year in which the transfer has taken
place.”
3. Conditions for Gains to be charged under Capital
Gains
There should be a capitalasset.
The capital asset should be transferred by
theassessee.
Such transfer should take place during the
previousyear.
The profits or gains should arise as a result
of this transfer.
Such profit or gain should not be exempted
from tax under sections 54, 54B, 54D, 54EC,
54F and 54G & 54GA.
4. DEFINITION OF CAPITAL ASSETS
SEC 2(14)
Capital Asset means property of any kind held by an
assessee whether or not connected with his business
or profession ,but does not include the following:-
5. EXCEPTIONS TO CAPITAL ASSETS
a)Any stock-in-trade, consumable stores or
raw material held for the purposes of
business orprofession.
b)Personal Effects ,that is to say, Movable
property of the Assessee including wearing
apparel and furniture held for his personal
use or for the use of any member of his
family dependent on him. But excludes--
(a)Jewellery
(b) Archaelogical collections
6. (c )drawings
(d) paintings
(e)sculptures
(f) any work ofart.
NOTE—Silverutensilsconstitutepersonal effects
and no capital gains willarise.
Gold utensilsare not personal effectsand are
capital assets
7. CONTD…….
c) Agricultural land in India provided it is not
situated in urban area.i.e Rural agricultural
land
d) 6 ½ % Gold Bonds, 7% Gold Bonds or
National Defence Gold Bonds, issued by the
central government.
e) Special Bearer Bonds, and
f) Gold Deposit bonds issued under Gold
Deposit Scheme of 1999.
8. Transfer: Sec. 2(47):
• Transfer in relation to a capital asset includes
sale, Exchange, or relinquishment of the
asset or extinguishment of any rights therein
or the compulsory acquisition thereof under
any law or conversion of the asset by the
owner in stock-in-trade of a business carried
on by him or the maturity or redemption of a
zero coupon bond.
9. CAPITAL ASSETS ARE TWO TYPES LONG TERM & SHORTERM
A. SHORT TERM CAPITAL ASSETS:-
Capital asset held for not more than 36 months immediately prior to the date of
transfer shall be deemed as short-term capital asset. However, following assets
held for not more than 12 months shall be treated as short-term capital assets:
a) Equity or preference shares in a company which are listed in any recognized
stock exchange in India;
b) Other listed securities;
c) Units of UTI;
d) Units of equity oriented funds; or
e) Zero Coupon Bonds.
Note: Unlisted shares held for not more than 24 months immediately prior to the
date of transfer shall be treated as short-term capital asset.
In the case of Immovable Property (land or building or both) hold for more than 24
months then it will be treated as a long-term capital asset.
10. B. LONG TERM CAPITAL ASSETS:-
Capital Asset that held for more than 36 months or 12 months, as the case may be,
immediately preceding the date of transfer is treated as long-term capital asset.
11. SEC 48-Method of Computation of
Capital Gains
Sales Consideration received oraccruing as a resultof
transfer
Less-cost of acquisition of theasset
Less-cost of improvement to theasset
Less-Expenditure incurred wholly and exclusivelyin
connection with suchtransfer
12. SECOND PROVISON TO SEC 48-
INDEXATION
Where thecapital gains arises from the transferof a
Long term capital Asset ,then for the purposes of
computing capitalgains:
(a) “Indexed cost of acquisition” shall be takeninstead
of “Cost Of Acquisition”.
(b) “Indexed cost of improvement” shall betaken
instead of “Cost Of improvement”.
ICOI=COST OF IMPROVEMENT xCost inflationindex
for theyear in which asset is transferred/Cost inflation
index for the first year in which Improvement to the
asset tookplace
13. SHORT TERM CAPITAL GAIN
1)Find full value ofconsideration
2)Deduct thefollowings.
a)Expenditure incurred wholly and exclusivelyin
connection with suchtransfer.
b) Cost of acquisition.
c) Cost of improvement
3)From resulting sum deductexemption provided
by u/s54 B, 54 D, 54 G, 54GA
4)The balancing amount is Short TermCapital
Gain.
14. LONG TERM CAPITAL GAIN
1) Find full value ofconsideration
2) Deduct thefollowings
a)Expenditure incurred whollyand exclusively in
connection with suchtransfer.
b) Indexed Cost of acquisition.
c) Indexed Cost of improvement.
3)From resulting sum deduct theexemption
provided by section 54, 54 B, 54 D,
54 EC, 54 F, 54 G, 54 GA
The balancing amount is Long TermCapital
Gain/Loss.
15. FULL VALUE OF CONSIDERATION
Full value means whole price without any deduction
and consideration in which transferor receives in
lieu of asset he partswith.
16. EXPENDITURE ON TRANSFER
Expenditure incurred wholly and exclusively in
connection with transfer of capital asset is
deductible from full value of consideration. This
means expenditure incurred which is necessary to
effect the transfer like brokerage commission, cost
of stamp, registration fees andall
17. COST OF ACQUISITION
Cost of acquisition of an asset is the value for which
it is acquired by the Assessee, expenses of capital
nature for acquiring the title are include in cost of
acquisition.
18. COST OF IMPROVEMENT
- It means all expenses of capital nature incurred in
making anyaddition/ alteration tocapital asset by
assessee.
1) Expenditureafter 31 mar 1981 will only be
considered.
19. INDEXED COST OF ACQUISITION
OR IMPROVEMENT
Cost Inflation Index.
Cost inflation Index for any year means such
index as the central government may , having
regard to 75% of average rise in consumer price
index for urban non manual employees of the
immediate preceding pervious year to such year,
by notifying in officialgazette
20. COMPUTATION OF INDEXED COST.
Case1) Capital asset acquired before1-4-1981
Cost X Cost Inflation Index in theyearof Transfer
Cost Inflation Index foryr 1981-82Or FMV on01.04.1981
(whichever is high)
2) Capital asset acquired after1-4-1981
Cost X Cost Inflation Index in theyearof Transfer
Cost Inflation Index foryrof purchase
21. 3) Capital assetacquired by assesse before 1-4-1981 & originally acquired by previous
owner before 1-4-1981.
X Cost Inflation Index in the year ofTransfer
Cost Inflation Index for yr1981-82
Cost to Previous Owner
Or FMV on01.04.1981
(whichever is high)
4) Capital asset acquired by assesse after 1-4-1981 & originally acquired by previous
owner before 1-4-1981.
X Cost Inflation Index in the year ofTransfer
CI Index foryr theasset is first held by assesee
Cost to Previous Owner
Or FMV on01.04.1981
(whichever is high)
5
22. Indexed Cost of Improvement
1. Ignore Improvement Before 1.04.1981 in all cases.
Indexed Cost
=Cost ofImprovement
X CI Index in YrofTransfer
CI Index in Yrof Improvement
23. Computation of capital gains: (Sec. 48):
The method of computation depends on the nature of capital asset transferred. It is as
follows:—
Short-term Capital Gains Long-term Capital Gains
A. Find out Full Value of Consideration A. Find out Full Value of Consideration
B. Deduct: B. Deduct:
(i) expenditure incurred wholly and
exclusively in connection with such
Transfer.
(ii) Cost of Acquisition
(iii) Cost of Improvement
(iv) Exemption provided by Ss. 54B, 54D &
54G, 54GA
(i) expenditure incurred wholly and
exclusively in connection with
such Transfer.
(ii) Indexed Cost of Acquisition
(iii) Indexed Cost of Improvement
(iv) Exemption provided by Ss. 54, 54B, 54D,
54EC, 54ED, 54F & 54G, 54GA
C. (A-B) is short-term capital gain C. (A-B) is a long-term capital gain
24. Deductions under section 54
Sale of house property which is long term is exempted if such
amount is invested in-
1)Purchase of another house within one year before or two years
after the sale OR
2)Construction of another house within 3 years after the sale.
Conditions:
1)The above house purchased or constructed is sold or
transferred within 3 years from date of purchase or construction.
25. Deductions under section 54EC
Investment of LTCG Within 6 months from date of sale of bonds
issued by
1)National highway authority of India (NHAI) OR
2)National Rural Electrification Corporation Ltd.
Conditions:
1)The above bonds should be sold or transferred for 3 years
2)Maximum amount of exemption cannot exceed 50 lakh.
