2. Any Income derived from a Capital asset
movable or immovable is taxable under
the head Capital Gains under Income Tax
Act 1961.
3. Short Term Capital Gain Long Term Capital Gain
If any taxpayer has sold a Capital
asset within 36 months and
Shares or securities within 12
months of its purchase then the
gain arising out of its sales after
deducting there from the
expenses of sale(Commission etc)
and the cost of acquisition and
improvement is treated as short
term capital gain and is included
in the income of the taxpayer.
A Capital Asset held for more than
36 months and 12 months in case
of shares or securities is a long
term capital asset and the gain
arising there from is a long term
capital gain. Long term capital
gains are arrived at after
deducting from the net sale
consideration of the long term
capital asset the indexed cost of
acquisition and the indexed cost
of improvement of the asset.
Income Tax is charged @15%
covered U/S 111A of the act
Income Tax is charged @ 20%.
Long term capital gain
Exemptions- Rebate can be
received U/S 54B ,54D, 54G and
54 GA.
Rebate can be received U/S 54,
54B ,54D, 54EC, 54F , 54G and
54GA.
Types of capital Gain :
4. Profits included in taxable capital gains :
• Profit on transfer of capital Asset [ Sec 45 (1) ].
•Capital gain Related to insurance [Sec 45(1A)].
•Profit on conversion of capital Asset into Stock in Trade[Sec 45(2)].
• Capital Gain on Transfer of capital Asset to a firm, compan ,etc.,[Sec 45(3)].
• Capital Gain on Distribution of Assets in case of Dissolution of firm[Sec45(4)].
• Capital gain on Compensation received in case of compulsory Acquisition
[Sec 45 (5)].
• Capital gain on Repurchase of units of Mutual Fund or Unit trust of India
[Sec 45(6)] –
Capital Gain = Repurchase price – Amount invested in units.
5. •Capital gain on Compensation received in case of compulsory
Acquisition [Sec 45 (5)].
• Capital gain on Repurchase of units of Mutual Fund or Unit trust of
India[Sec 45(6)] –
Capital Gain = Repurchase price – Amount invested in units.
•Capital Gain on purchase of its own shares or other specified Securities
by company itself (Section 46A).
- To have capital Assets.
- There assets should be transferred.
- There should be profit by transfer of these assets.
- This profit should not be exempted
Cont..
6. Capital Assets:-
According to section 2(14) of
Income Tax act any type of
Assets such as Fixed ,movable,
Physical ,non-Physical , tangible,
non-tangible, intangible etc,
Not included-
Personal assets , Stock-in-trade, gold bond,
special bearer bonds1991,Gold deposits bonds,
agricultural land situated in India.
7. Transfer of Capital Assets
Capital gain arises out of transfer of capital assets.
‘Transfer’means sale of assets or handing over of assets
to another person with all its rights.
It includes [According to sec 2(47)] –
Sale or exchange of assets.
Surrender of asses.
Reducing any right of assets.
Compulsory acquisition of assets.
Right to get possession of assets.
Maturity or redemption of Zero Coupon Bonds issued by
public sector co. or on after 1.06.2005 is considered as
transfer.
8. Zero Coupon Bonds [sec2(48)]
Notified By the Central Govt. for this purpose.
Issued by Public sector company.
No benefit is received before the maturity date.
9. Computation of short term Capital Gains:
Sales consideration ………………….
Less: Selling expenses or transfer expenses (………………..)
Net sale Proceeds *********
Less: Cost of Acquisition ……………….
Cost of Improvement ………………. (………………)
Short term Capital Gains *********
Less: Exemptions U/s 54B , 54D , 54G, 54GA (………………)
Taxable Short Term Capital Gains *********
10. Ques..
1) Mrs. Veena purchased a house on 1st June , 2009 for Rs.90,000 and sold it on
01.02.2012 for Rs. 1,00,000.
Sol-
Computation of capital gain of Mrs. Veena
(for the assessment year 2012-13)
Sales consideration 1,00,000
Less: cost of Acquisition (90,000)
Short term Capital Gains 10,000
Less: Exemptions U/s Nil
54B , 54D , 54G , 54GA
Taxable Short-Term Capital Gains 10,000
11. Computation of Long Term Capital gains:
Sales consideration ………
Less: sellin exp. Or Transfer exp. (…..)
Net sales ***
Indexed cost of Assets:
Less: cost of acquisition
--------------------------------------------------- *cost inflation index (……)
cost inflation index of year of acquisition which the assets is transferred
Index cost of improvement of assets:
Less: cost of acquisition
---------------------------------------- * cost acquisition index (….…)
cost inflation index of year of acquisition of years of transf.
Long term capital gains ***
Less: Deductions
U/s 54 , 54B , 54D , 54EC , 54F , 54G & 54GA (…….)
(if any)
Taxable long term Capital Gains *****
13. • Mrs. Rekha has a house been let out on rent. She purchased this house in 1985-86
for Rs. 66,500. The house was sold on 1st July 2011 For Rs. 4,00,000. She purchased
some Ornaments in 1987-88 For Rs. 90,000. These Ornaments were sold on 10th
January, 2012 for Rs. 5,00,000. For the assessment year 2012-13 calculate Mn.rs. Renu’s
Capital gain.
Sol-
Computation of capital gains of Mrs. Renu
(for the assessment year 2011-12)
House:
Sale Proceeds 4,00,000
Less: Indexed cost- 66500 × 785
-------- ( 3,92,500)
133
Long -tem Capital gains 7,500
Jewellery:
Sale proceeds 5,00,000
Less: Indexed cost- 90,000×785 (4,71,000) 29,000
150
36,500
14. Capital gain on conversion of Capital assets into Stock-in-trade [Sec45(2)].
Ques. Km Kanak acquired 200 shares of a company for Rs. 20,000 on 1.08.2010 .
When she started her own business on 01.02.2011 of sale purchase of shares she
converted those shares into Stock-in-trade. The fair market value of Shares is Rs.
50,000. These shares were sold on 01.09.2011 for Rs. 45,000.
For the assessment year 2012- 13 Calculate taxable capital gains.
Computation of Taxable Income of Mr. Rahul
(For the assessment year 2012-13)
Fair market value 50,000
Less: Cost of Acquisition 20,000
Short Term Capital gains 30,000
Selling price of stock 45,000
Less: Fair Market value 50,000
Trading Loss (-)5,000
15. Capital gains arising on Transfer of depreciable assets (sec 50).
Ques. Mr. Rajeev is owner of a block assets. Written down value of the machines P,Q
and R at a beginning of previous year was Rs. 3,00,000. He acquired new machines A
and B for Rs. 90,000 in the previous year 2011-12. In the previous year he said
machines P and Q for Rs. 1,75,000 and Rs. 25,000 respectively . Selling Expenses were
Rs. 5,000. Calculate Mr. Rajeev’s short term capital gain for the assessment year 2012-
13.
Sol..
computation of capital gains
(for the assessment year 2012-13)
W.D.V of P,Q,R Machine at beginning of previous year 1 April 2011 3,00,000
Add: Purchase during the year 2011-12 of machine A&B 90,000
3,90,000
Less: Sale Proceeds of Machine P&Q
(1,75,000+2,50,000) 4,25,000
Less: expenses 5,000 4,20,000
Short term capital gains 30,000
16. Cost of Acquisition
•Cost of acquisition of an asset is the sum total of amount
spent for acquiring the asset.
•Where the asset was purchased, the cost of acquisition is
the price paid. Where the asset was acquired by way of
exchange for another asset, the cost of acquisition is the Fair
Market Value of that other asset as on the date of exchange.
•Any expenditure incurred in connection with such
purchase, exchange or other transaction eg. brokerage paid,
registration charges and legal expenses etc.., also forms part
of cost of acquisition.
•If advance is received against agreement to transfer a
particular asset and it is retained by the tax payer or forfeited
for other party’s failure to complete the transaction, such
advance is to be deducted from the cost of acquisition.
17. Ques. Mr. Sanjeev purchased 500 shares of XYZ
co. on 1st dec 1989 @ Rs. 20 per share and paid 5%
brokerage. On 1st aug 1990 he was issued 200
bonus share. On 5th june 2011 another 400 bonus
shares were received. On 1st Nov 2011 he sold all
the shares @ Rs. 160 per share and paid 5%
brokerage. Compute Capital gains for the
assessment year 2012-13.
18. Ques.
Mr. Rakesh purchased a house on 15th July, 1957 for Rs. 55,000 Following expenses
were incurred on the house:
Construction of 1st floor in 1972-73 20,000
Construction of 2nd floor in 1983-84 23,200
Renovation in 1991-92 19,900
Fair Market Value of the house on 1.4.1981 90,000
Sold the house on 15th September, 2011 9,00,000
Transfer expenses 20,000
Valuation according to the stamp valuation officer 10,00,000
Compute Mr. Rakesh’s capital gain for the assessment year 2012-13.
