2. • CAPITAL GAINS
“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
There should be a capital asset.
under Capital Gains
• The capital asset should be transferred by the
assessee.
• Such transfer should take place during the
previous year.
• 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
• Capital asset is defined to include property of
any kind, whether fixed or circulating,
movable or immovable, tangible or intangible
5. What is not a Capital Asset?
a) Any stock-in-trade, consumable stores or raw
material held for the purposes of business or
profession.
b) 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.
The exception to this condition is jewellery, which is
treated as a capital asset, even though it is meant for
personal use.
6. c) Agricultural land in India provided it is not
situated in urban area.
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.
7. Type of Capital Assets
• Short Term Capital Asset
“Short term capital assets” means a capital asset held by
the assessee for not more than 36 months, immediately
prior to its date of transfer. However, the following
assets are treated as short term assets if they are held
for not more than 12 months, they are:
1. Equity or preference shares in a company
2. Securities like debentures, government securities
listed in a recognized stock exchange in India.
3. Units of UTI and
4. Units of mutual funds.
5. An asset other than a short-term capital asset is
regarded as a “long term capital asset”.
8. • Long Term Capital Asset –
An asset, which is held by an assessee for 36
months or more, immediately before its
transfer, is called Long Term Capital Assets. In
other words, an asset, which is transferred on
or after 36 months of its acquisition by
assessee, is called Long Term Capital Assets.
9. Transfer
• Transfer, in relation to a capital asset, includes sale,
exchange or relinquishment of the asset or
extinguishments of any right therein or the compulsory
acquisition thereof under any law.
• In simple words Transfer includes:
• Sale of asset
• Exchange of asset
• Relinquishment of asset (means surrender of asset)
• Extinguishments of any right on asset (means reducing
any right on asset)
• Compulsory acquisition of asset.
10. FULL VALUE OF CONSIDERATION
• Full value means whole price without any
deduction and consideration in which
transferor receives in lieu of asset he parts
with.
11. 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
and all
12. 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
13. COST OF IMPROVEMENT
It means all expenses of capital nature incurred
in making any addition/ alteration to capital
asset by assessee.
1) Expenditure after 31 mar 1981
14. 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 official gazette
15. COMPUTATION OF INDEXED COST.
1) Capital asset acquired before 1-4-1981
Cost X Cost Inflation Index in the year of Transfer
Or FMV on 01.04.1981 Cost Inflation Index for yr 1981-82
(whichever is high)
2) Capital asset acquired after 1-4-1981
Cost X Cost Inflation Index in the year of Transfer
Cost Inflation Index for yr of purchase
16. 3) Capital asset acquired by assesse before 1-4-1981 & originally acquired
by previous owner before 1-4-1981.
Cost to Previous Owner X Cost Inflation Index in the year of Transfer
Or FMV on 01.04.1981 Cost Inflation Index for yr 1981-82
(whichever is high)
4) Capital asset acquired by assesse after 1-4-1981 & originally acquired
by previous owner before 1-4-1981.
Cost to Previous Owner X Cost Inflation Index in the year of Transfer
Or FMV on 01.04.1981 CI Index for yr the asset is first held by
(whichever is high) assesee
5) Capital asset acquired by assesse after 1-4-1981 & originally acquired
by previous owner after 1-4-1981.
Cost to Previous Owner X Cost Inflation Index in the year of Transfer
CI Index for yr the asset is first held by
assesee
17. Indexed Cost of Improvement
• 1. Ignore Improvement Before 1.04.1981
• Indexed Cost
= Cost of Improvement X CI Index in Yr of
Transfer
CI Index in Yr of Improvement
18. SLUMP SALE
• Slump sale means transfer of one or more
undertakings as a result of sale for lump sum
consideration without values being assigned
to individual assets and liabilities in such sales
19. EXEMPTION U/S 54
• Conditions :
1. Gains are from Transfer of Residential House Property
2. Applicable only to Individual / HUF
3. Asset Sold is a Long Term Capital Asset
4. Assessee should invest in another Residential House Property
within the specified time limit.
5. New asset should not be sold within 3 years of acquisition,
otherwise will be treated as a short term capital gain.
6. Exemption = Amount Invested OR Capital Gains whichever is
Less.
20. EXEMPTION U/S 54B
• Available if agricultural land transferred. The said land
should be used by the individual or his parents for
agricultural purposes during at least 2 years immediately
prior to transfer.
1. Available only to an individual.
2. Asset Sold should be Short term / Long term Capital
Asset.
3. Investment in agricultural land (rural or urban) within 2
years.
4. New Asset should not be sold within 3 years of
acquisition, otherwise will be treated as a short term
capital gain.
5. Exemption = Amount Invested OR Capital Gains
whichever is Less.
21. EXEMPTION U/S 54D
• Available if land or building forming part of an industrial
undertaking is compulsorily acquired by the govt and which is
used during 2 years for industrial purposes prior to
acquisition.
1. Available to any person.
2. Asset Sold should be Short term / Long term Capital Asset.
3. Investment in land or building for industrial purposes within
3 years.
4. New Asset should not be sold within 3 years of acquisition,
otherwise will be treated as a short term capital gain.
5. Exemption = Amount Invested OR Capital Gains
whichever is Less.
22. EXEMPTION U/S 54EC
• Available if any long term capital asset is transferred
after 31.3.2000.
1. Available to any person.
2. The asset should be a Long term capital asset.
3. Investment within 6 months in bonds of NHAI or
RECL which are redeemable after 3 years.
4. New Asset should not be sold within 3 years of
acquisition, otherwise will be treated as a short
term capital gain.
5. Exemption = Amount Invested OR Capital Gains
whichever is Less.
23. EXEMPTION U/S 54F
1. Available if any long term capital asset( other
than a residential house property) is
transferred, Available to an individual / HUF.
2. Investment should be made in a residential
house property within time Limit .
3. New Asset should not be sold within 3 years
of acquisition, otherwise will be treated as a
short term capital gain.
4. Exemption = Amount Invested * Capital gains
Net sale
consideration
24. EXEMPTION U/S 54G
• Available if any land, building, plant or machinery
is transferred in order to shift an industrial
undertaking from urban to rural area.
1. Available to any person.
2. Asset may be short term / long term.
3. Investment should be made in land, building or
plant and machinery to shift the undertaking in a
rural area.
4. New Asset should not be sold within 3 years of
acquisition,
5. Exemption = Amount Invested OR Capital Gains
whichever is Less
25. EXEMPTION U/S 54GA
• Available if any land, building, plant or machinery
is transferred in order to shift an industrial
undertaking from any area to SEZ.
1. Available to any person.
2. Asset may be short term / long term.
3. Investment should be made in land, building or
plant and machinery to shift the undertaking to
SEZ area.
4. New Asset should not be sold within 3 years of
acquisition,
5. Exemption = Amount Invested OR Capital Gains
whichever is Less
26. CAPITAL GAIN ON DEPRECIABLE
ASSESTS
• In Income Tax Act depreciation is provided on only four types of assets:
1. Buildings
2. Furniture
3. Machinery and plant
4. Intangible Assets
• For calculating depreciation different blocks are made based on the name of asset
and then the rate of depreciation, thus a block will contain only that asset which
will have the same name and same depreciation.
• Depreciation = (WDV of the block as on 1st April of PY + Addition to the block –
Selling price of the assets sold) * Depreciation rate.
• If an asset is used for less than 180 days during a P.Y. then only ½ of the
depreciation will be provided on that asset.
