The document discusses the meaning and calculation of capital gains under the Income Tax Act. Some key points: - Capital gains arise from the profit earned on the transfer of a capital asset like property, shares, etc. - It is taxed under a separate head called "capital gains" and is deemed as income of the year in which the transfer took place. - Capital gains are classified as short-term or long-term depending on the period of holding. Assets held for less than 36 months for immovable property and 12 months for others attract short-term capital gains tax. - The capital gain amount is calculated by deducting the indexed cost of acquisition and improvement from the sale consideration. Various

1. MEANING OF CAPITAL GAIN – SEC.45
 Any profits or gains arising from the transfer
of a capital asset effected in the previous year
shall be chargeable to income-tax under the
head ‘’capital gains’’ & shall be deemed to be
the income of the previous year in which the
transfer took place.
 Profit or loss arising from transfer of capital
assets is taxable under the head capital
gains.
 It is the fourth head of income.

2.  There must be a capital asset.
 The capital asset must be transferred.
 The transfer must have been taken place in
the previous year.
 There must be a gain arising from such
transfer.
 Ex:- Mr. X purchased a house for Rs. 2 lac in
2010 & sold it for Rs. 3 lac in 2012. So he
earned Rs. 1 lac, it will be treated as capital
gain from Income Tax point of view.

3.  Capital assets means property
of any kind, whether movable
or immovable, tangible or
intangible like- land, building,
furniture, silver, precious
metal etc.

4. 1. Stock in trade, consumable parts or raw material
held for the purpose of business.
2. Personal effects (air conditioner, apparel etc.) for
personal use by assesse.
3. Agricultural land in rural area (population <10000)
4. In any area within such distance, not being more
than eight kilometers, from the local limits of any
municipality or cantonment board .
5. 6.5 per cent Gold Bonds, 1977, or 7 per cent Gold
Bonds, 1980, or National, Defence Gold Bonds,
1980, issued by the Central Government.
6. Special Bearer Bonds, 1991, issued by the Central
Government;
7. Gold deposit bonds 1999, issued under Gold
Deposit Scheme, 1999 notified by Central Govt.

5.  Land, building, flat, plot (immovable)
 Furniture, machinery (movable)
 Gold, silver, precious metals, jewellery,
precious stones etc.
 Urban agricultural land (population > 10000)
 Shares, securities, bonds as an investment.
 Goodwill, patent.

6. 1. Land, building, gold, silver etc- held by
assessee for a period of less than 36 months
(3yrs); immediately after the date of transfer.
2. Shares & securities- held by assessee for a
period of less than 12 months ( 1 yr)
3. Depreciable assets, irrespective of holding
period
Ex : Mr. X purchased a plot on 1st Aug 2010 for
Rs. 2 lacs, sold it for Rs. 3 lacs on 1st Oct
2012.

7. Sales consideration Xxx
Less- Total of the following
1. Transfer expenses (advertisement, legal, brokerage) xxx
2. Cost of acquisition (purchase Price) xxx
3. Cost of improvement xxx (-)xxx
Taxable Short term capital gain/loss
Positive means gain, negative means loss
Xxx

8.  On Jan 5, 2013; Mr. Mehta sold a house for Rs.
68,000 which was purchased on April 18, 2011 for
Rs. 50,000. He spent 5,000 on renovation in Jan.
2012.
Solu :- House (STCA)
Sales Consideration 68,000
Less- Total of following:
1. Transfer expenses -
2. Cost of acquisition (50,000)
3. Cost of improvement (5,000) (55,000)
Taxable short term capital gain 13,000

9. 1. An assessee purchased an old house for Rs.
3,60,000 on Jan 1 2011.
 Paid Registration charges during purchase =
Rs. 60,000
 Improvement charges = Rs. 80,000
 House sold for Rs. 7,50,000 on Aug. 1,2012
 Brokerage is 30,000 and Other expenses are
20,000 at the time of sale.
A.Y is 2013-14
Ans. Short term capital gain 2,00,000

10.  Shares, securities, bonds, units held by
assessee for more than 12 months.
 Other assets like building, gold, plot, land,
jewellery etc. held by the assessee for more
tan 36 months.

11. Full value of consideration xxx
Less- Total of the following:
1. Transfer expenses xxx
2. `Indexed cost of acquisition xxx
3. Indexed cost of improvement xxx (-)xxx
Taxable Long term capital gain/loss
Positive means gain, negative means loss
xxx

12.  Original Cost: means the purchase price of
asset, cost of construction, registration
charges, any improvement charges &
brokerage .(time of acquiring the asset)
 Cost before 1.4.1981:
Original cost of acquisition
Or
Fair market value
(which ever is more)

13.  Indexed cost of acquisition (asset held prior ro
1981)
original cost index for the yr in
or fair market value * which asset transferred
on 1.4.1981 ex: 2012-13 (852)
cost inflation index for 1981-82
i.e. 100 (base yr)
 If property acquired before 1.4.1981, then index
for 1981-82 is taken for the base yr
 Original cost = purchase price + registration or
installation etc. (current repairs not included)

14.  For assets acquired after 1.4.1981.
cost of acquisition * index for the yr in which
asset is transferred
ex: 2012-13(852)
cost inflation index for the 1st year
in which the asset was acquired

15.  It includes the cost of all alterations or
additions to any capital asset (except
goodwill) on or after 1.4.1981
 Interest on loan, current repairs, insurance
premiums are not considered as cost of
improvements.
 If the property is acquired before 1.4.1981
and cost of improvement incurred before
1.4.1981 will not be considered. Cost of
improvement after 31.3.1981 is considered.

16.  Indexed cost of improvement (after 1.4.81)
Cost of improvement * Index for the yr in which
asset is transferred
cost inflation index for the yr
of improvement

17.  A plot was sold on June15,2012 for Rs.
2,08,000. Brokerage paid Rs. 8,000 on sales.
Plot was purchased on 1st June 1999 for Rs.
45,000.
Solu :- Plot (LTCA)
Full value consideration 2,08,000
Less : total of following
1. Transfer expenses- brokerage (8,000)
2. Indexed cost of acquisition
( 45,000*852)/389 (98,560)
3. Indexed cost of improvement - (1,06,560)
Taxable long term capital gain 1,01,440

18.  Assessee purchased the house for Rs. 60,000
on 1st Aug 1986.
 Improvement done by him for Rs. 40,000 in
Jan 1988
 Sold house on 1st Sep 2012 for Rs. 5,80,000
 Brokerage paid for sale Rs. 10,000
 Inflation index: 1986-87 = 140
1987-88 = 150
2012-13 = 852
Compute LTCG for A.Y. 2013-14

19.  INDEXED COST OF ACQUISITION:
= purchase pr. * index for 2012-13
index for 1st yr in which asset
is acquired i.e. 1986-87
= 60000 * 852
140
= 3,65,143

20.  INDEXED COST OF IMPROVEMENT:
= cost of improvement * index for 2012-13
index for the year of improvement
i.e. 1987-88
= 40,000 * 852
150
= 2,27,200
 final ans. Long term capital loss = 22,343

21.  Long term bonds and securities, mainly
debentures (actual cost taken)
 Shares transferred outside stock exchange
(long term)
 Shares/debentures purchased by non-
residents in foreign exchange (issued by
Indian Company, purchased in foreign
currency)

22.  Mr.X purchased debentures of ABC ltd. 12%
debentures (listed) face value is Rs. 2,50,000
at par in 2003.
 These debentures were sold for Rs.3,62,000
during previous year on 1st July 2012.
 Brokerage was paid Rs.2,000 on sales.
 In 2012 he received interest on debentures of
Rs.30,000

23.  Sales consideration(LTCA) 3,62,000
Less: total of the following:
1. Transfer exp 2,000
2. Cost of acquisition 2,50,000 (-)2,52,000
LTCG 1,10,000

24. Exemptions
Residential property converted into
new residential property within 3
years or before 1 year or after 2
years (Section 54) LTCG
Cost of the new house
or
Capital gain
(whichever is less)
Agricultural land transferred and
agricultural land purchased within
two years(Section 54B) STCG OR
LTGC
Cost of the new land
or
Capital gain
(whichever is less)
Compulsory acquisition of land
and building of industrial
undertaking. (Section 54D)
Within a period of 3 yrs when he
sells
Cost of the new land and building
or
Capital gain
(whichever is less)

25. EXEMPTIONS
Capital Gain (LTCG) is invested in
notified bonds (Section 54EC)
Example :NABARD, Rural
Electrification Corporation Bonds ,
National Highway Authority etc.
• Max limit of investment is
Rs.50lakh.
• Within 6 months of capital gain
the assessee should invest the
amt in such bonds. (wholly or
partly)
(Redeemable after 3 years)
• If invested amt is less than
capital gain; invested amt will
be exempted.
• If any loan taken or bonds
converted into money within 3
yrs, then tax on CG arising from
original asset will be charged
which was earlier exempted.

26. Other capital gain invested
Residential property (Section 54F)
(LTCG)
• Assessee who is an individual or
HUF.
• If purchased 1 yr before or 2 years
after the date of transfer or
constructed within 3 years
• If only a part of net consideration is
so invested
Cost of new asset x long term capital gain
Net Consideration arising
• If full amt. of net consideration is
invested then entire capital gain is
exempted.
• Net consideration = sales
consideration – transfer exp (which
tells the amt. of CG acquired after
comparing it with purchase price)

27. Gain arising from transfer od any
plant or other asset of industrial
undertaking which was situated in
notified urban area; Shifting of
Industrial Undertaking from urban
area to other area (Section 54G)
Exemption limit- Upto the cost of
Industrial asset which can be a
building, plant, machinery etc.

28.  This scheme is applicable for sections 54,
54(b), 54(d), 54(f), 54(g)
 If the assessee can not utilise the capital gain
before the due date of filing of Return of
Income for purchasing or constructing new
asset, like residential house, agricultural land,
machinery etc. then he must deposit the
unutilised money of capital gain in this
scheme in a public sector bank to avail
exemption under aforesaid sections.

29.  Owner of residential house since 1992.
Sold the house in previous yr 2012-13
long term capital gain = Rs. 4 lacs. He wants
to purchase a new residential house but he
could not do so till the due date 31.7.2013-
1. pay tax on long term gain
OR
2. deposit the amount of gain under Capital
Gains Account Scheme 1988 in a bank
before filing of return. (LTCG will be
exempted in assessment yr 2013-14)

30.  Now if he purchases a new house in 2014 for
3,00,000 & withdraws the amount, it will not
be taxable
 Remaining 1 lac if not utilised for specified
purpose and withdrawn then it will be taxable
in the prev. year of withdrawal

31.  FIXED ASSET:
1. Short term capital asset– less than 36
months
2. Long term capital asset- more than 36
months
 SHARES & SCEURITIES:
1. Short term capital asset – less than 1 yr
2. Long term capital asset – more than 1 yr

32. 1. Find out the full value of consideration.
2. Deduct the following:
a. Expenditure incurred in connection with
such transfer.
b. Cost of acquisition.
c. Cost of improvement.
3. From the resulting sum deduct the
exemption provided by section 54B, 54D
and 54G.
4. The balancing amount is the taxable short-
term capital gain.

33. 1. Find out the full value of consideration.
2. Deduct the following:
a. Expenditure incurred in connection with such
transfer
b. Indexed Cost of acquisition
- before 1.4.1981
- after 1.4.1981
c. Indexed Cost of improvement.
3. From the resulting sum deduct the exemption
provided by section 54, 54B, 54D, 54EC, 54F and
54G.
4. The balancing amount is the taxable long-term
capital gain.

34.  Mr. ABC sold a house for Rs.15,00,000 on 1st Dec 2012
which was purchased by him in 1980 for Rs.1,50,000
 On 1st May 2013 he invested Rs. 1,00,000 in NHAI specific
Bonds.
 He spend Rs.14,000 in 2006-07 for improvement of the
house. He also spend Rs.2,000 on normal repairs of the
house.
 He paid 3% brokerage and transfer expenses of Rs.10,000
on selling the house.
 On 1st April 1981 the fair market value of house was
Rs.1,20,000
 Index
Year Index value
1981-82 100
2006-07 519
2012-13 852

35.  Sales consideration (LTCA) 15,00,000
Less:
1. Transfer exp (3% brokerage+
other exp) 45,000+10,000 (-)55,000
2. Indexed cost of acquisition
(before 1.4.81)
Original cost * 2012-13 index
base yr index
= 1,50,000*852 (-)12,78,000
100

36. 3. Indexed cost of improvement
Cost of imprv.* 2012-13 index
2006-07 index
= 14,000* 852 (-)22,983
519
 Total of 1,2,&3 = (-) 13,55,983
LTCG = 1,44,017
LESS: EXEMPTIONS u/s 54EC
Investment in notified bonds
Of NHAI (-)1,00,000
Taxable LTCG 44,017

37.  An assesse holds shares & bonus shares are
allotted to him on the basis of his holding
without any payment.
 CASE I:Original Shares and Bonus Shares
acquired before 1.4.1981 (transferred
during the prev. yr then cost of acquisition
wil be as under)
1. In case of original shares- Actual Cost or market
value on 1.4.1981 (Higher Value)
2. In case of Bonus Shares – Market value on
1.4.1981

38.  Mr. X bought 500 shares of ABC Ltd. @ Rs. 40
on Jan 1978.
 Company allotted bonus share in the ratio 5:2
1st April 1980
 On 1.4.1981 the fair market value of the
share was Rs. 60.
Ans. Cost of acquisition for original & bonus
share would be Rs. 60

39.  CASE II: Original shares acquired before
1.4.1981 and bonus share after 31.3.1981
1. Actual cost or Fair Market Value on 1.4.1981
(Higher Value)
2. Bonus Share :NIL
EX:- Mr. X purchased 1000 shares of ABC Ltd. on
1.4.1975 @ Rs 50. Fair market value of share was Rs.
45 each on 1.4.1981. The company allotted bonus
shares in the ratio 1:1 in 1987.
 Cost of acquisition?

40.  CASE III : Original Shares and bonus shares issued
after 31.3.1981
1. Original shares :Actual Cost
2. Bonus Shares :NIL
EX: Mr. X purchased 2,000 shares of ABC Ltd. On 1.8.1983 @
Rs 48.
Bonus shares allotted on 1st June 1989.
Cost of acquisition for original shares will be Rs. 48 & for bonus
shares = nil

41.  Mr X purchased 1,000 shares of Glaxo Ltd.
@200 per share in 1979. The company
allotted one bonus shares for every two
shares held in March 1988. He sold 300
shares (original) and 400 Bonus Shares @
Rs.950 on 1 June 2012.Fair Market Value on
1.4.1981 was Rs.250 per share.
Compute :
1. When he sold directly.
2. When he sold through exchange (Securities
Transaction Tax, STT paid)

42. 1. Original shares LTCA
Sales consideration (300*950) 2,85,000
Less: Index cost of acquisition
(before 1.4.1981)
Actual cost @ 200 or FMV @ 250
Whichever is high
= 300 * 250 = 75,000
= 75,000 * 852 (-)6,39,000
100
ans. (-) 3,54,000

43. 2. Bonus shares ( without index cost)
Sales consideration (400*950) 3,80,000
Less: cost of acquisition nil
ans. 3,80,000
LTCG = (-) 3,54,000 + 3,80,000 = 26,000
Solu:2 Sale through stock exchange & Securities
Transaction Tax STT paid shall not be taxable

44. Find out the long and short term gains in the
following Cases:
a. Mrs. Mittal purchased a house on 1st May
2011 for Rs.30,000 and sold @Rs.36,000 on
31st Aug 2013
b. Mr. X purchased some residential plots on
1st Jan 2011 for Rs.40,000 and sold
@Rs.60,000 on 1st Feb 2014

45. c. Mr. Y sold office building for Rs.2,40,000 on
24th June 2013 which was purchased in June
2007 @Rs.1,60,000. Its written down value
was Rs. 90,000 on 1st April,2013. (deduct)
He also sold shares for Rs.24,000 through
BSE which was purchased on 1st July 2010
@Rs.9,000. Security Transaction Tax paid is
Rs.25

46. d. Mrs ABC sold a residential house for
Rs.35,70,000 on 1st Aug 2013 and brokerage
paid is Rs.70,000. the house was purchased in
1980 for Rs.2,50,000 and registration charges
paid Rs.30,000.She purchased a new flat for
Rs8,00,000 on 1st Jan 2014 and paid registration
charges Rs.40,000
e. Mr. Ram sold an agricultural land for Rs.17,000
during previous year. The land was owned by him
since last 5 years which was purchased for
Rs.4,000. The land is village where population is
of 8,000.

47. f. Mr. Sham sold his motor car which was for
his personal use for Rs.80,000 on 1st Nov
2013. The car was bought by him on 1st Dec
2010 for Rs.1,48,000.
g. On Sep 2013 Mr. Lal sold a flat for
Rs.5,00,000 which was purchased by him on
1st Jan 1970 for Rs.70,000. Its fair market
value was Rs.40,000 on 1st April 1981

48.  Mr. Mohan Toshniwal transferred the
following assets during the prev. yr 2013-
14—
1. A residential house sold on 10th Sept. 2013
for Rs. 10 lac, spent Rs. 10,000 as transfer
exp. The house was ancestral. On 1st April
1981 the market value was Rs. 1 lac.
2. A building which was used in his own
business was sold on 1st Dec. 2013 for Rs. 4
lac & brokerage paid @ 2% on the amt of
deal. The WDV of the house was Rs.
3,20,000. On 1st April 2013. The house was
occupied by him in 1987.

49.  A residential plot was sold on 1st June 2013
for Rs. 1,65,000. Rs 3,000 on advertisement
& Rs. 2,000 on brokerage were paid. The plot
was purchased by him in 1980 for Rs.
32,000. Rs. 8,000 was paid for colony
development charges and Rs. 5,000 for
registration charges.
 Profit on sale of an agricultural land situated
in village, population = 4,000 was Rs.35,000.
The land was in his occupation for the last
three yrs.

50.  He received Rs. 80,000 from sale of shares of
a Company. He earned profit Rs. 30,000.
These shares were purchased on 1st July 2004
and sold by him on 1.11.13 through National
Stock Exchange and Securities Transaction
Tax, Rs. 100 has been paid. Before the
transfer he received Rs.3,880 dividend on
these shares.
 Compute taxable income from capital gains.

51.  Mr X sells his house in Mangalore on 24 Aug
2013 for Rs. 35,20,000 and incurs
expenditure of Rs.20,000 in transfer
 Cost of Acquisition for him in 1978 was
Rs.1,80,000 and on 1 April 1981 is
Rs.3,00,000 . On Jan 16, 2014 he purchased
a flat in Mangalore for Rs. 5,00,000 and
deposit Rs.1,00,000 in the capital gain
scheme