2. Any profit and gain arising from transfer of a capital
asset effected in the previous year shall be
chargeable to income tax under section 45 of the
Income Tax Act under the head "capital Gains".
Capital Gains tax liability arises only when the
following conditions are satisfied:
1. There should be a capital asset
2. The capital asset is transferred by the assessee
3. Such transfer should have taken place during the
previous year
3. 3. Such transfer should have taken place during the
previous year
4. Profit or gain should have arisen as a result of the
transfer
Capital asset means property of any kind held by an
assessee whether or not connected with business or
profession. Such assets may be movable or
immovable, tangible or intangible. Thus profit derived
from the transfer of land and building, shares and
securities, vehicles, jewellery. etc., are chargeable to
tax under this head.
4. The following assets have been excluded from the
term capital assets.
1. Any stock- in- trade held for the purpose of
business or profession.
2. Personal effects i.e., movable property including
wearing apparel and furniture but excluding
Jewellery held for personal use of the assessee.
3. Agricultural land in India which is situated in
rural areas.
5. Kinds of Capital Assets
For the purpose of taxation, capital assets have
been divided into
two. They are:
1. Short term Capital Gains
2. Long term Capital Gains
6. Capital gain arising from the transfer of short
term capital asset is called short term capital
gain. Short term capital asset means a capital
asset held by an assesse for not more than 36
months immediately preceding the date of the
transfer.
7. Long term capital asset means a capital asset
which is not a short term capital asset. Capital
gain arising from the transfer of long term
capital asset is called long term capital gain.
The distinction between short term capital asset
and long term capital asset is very much
important for taxation purpose.
8. • The long term capital gain qualify for special
tax treatment under the Income Tax Act. The
Long Term Capital Gain is taxable at a flat rate
of 20 percent and the Short Term Capital Gain
is taxable at a flat rate of 15 percent for the
for the assessment year 2015- 2016.
9. What is transfer of Capital Asset
Any profit or gain derived on a transfer of capital
asset is chargeable to income tax under the
head "Capital Gain" By virtue of section 2 (47) of
the Act, transfer, in relation to a capital asset,
includes -
i)sale, exchange or relinquishment of a capital
asset; or
(ii) extinguishment of any rights therein; or
10. (iii) compulsory acquisition of a capital asset
under any law; or
(iv) conversion or treatment of a capital asset
into stock - in - trade; or
(v) any transaction involving the allowing of the
possession of an immovable property to be
taken or retained in part performance of a
contract of the nature referred to in section
53A of the Transfer of Property Act
11. (vi) any transaction whether by way of acquiring
shares in or by way of becoming a member
of a co-operative society, company or other
association of persons or by way of any
arrangement or agreement which has the
effect of transferring or enabling the
enjoyment of property.
12. Computation of Capital Income
The income chargeable under the head capital gains
shall be computed by deducting from the full value
of consideration received as a result of transfer of
capital asset the following amounts.
1. Expenditure incurred wholly and exclusively in
connection with the transfer.
2. The cost of acquisition of capital asset and the
cost of any improvement of asset.
13. Capital gain = Full value consideration (Cost of
acquisition + cost of improvement + selling
expenses)
14. Capital Gains Exempt from Tax
The following capital gains are exempt from tax.
a) Capital Gain arising on sale of a residential house
property is exempt from tax if the following
conditions are satisfied:
i)The property transferred was a long term
capital asset
(ii) The assesse has purchased within one year
before or two years after sale a residential
house or constructed within three years
after sale a residential house.
15. (iii) The property so purchased / constructed is not
sold within 3 years.
(b) Capital Gain arising on sale of agricultural land is
exempt from tax it the following conditions are
satisfied:
(i) The agricultural land was being used by the
assesse or his parents for agricultural purposes
for a period of 2 years or more
(ii) He purchased another agricultural land within 2
years from the date of transfer.
16. (c) Capital Gains on compulsory acquisition of land
and building forming part of industrial undertaking
is exempt from tax if the following conditions are
satisfied:
(i) The land and building was used by the assesse
for the purpose of industrial undertaking for at
least 2 years preceding the date of compulsory
acquisition.
(ii) The assesse purchased another land or building
or constructed a building within a period of
three years from the date of acquisition.
