This document discusses capital gains tax implications under the Indian tax system. It defines capital assets and notes that profits or gains from transferring a capital asset during the previous year are taxed under capital gains. It distinguishes between short-term capital gains from assets held less than 36 months and long-term capital gains from assets held more than 36 months, noting different tax rates and exemptions apply. The document provides details on calculating capital gains tax liability and available exemptions under sections 54, 54B, 54D, 54EC, 54F, 54G, and 54GA.

1. Tax Implications
CAPITAL GAINS
By C.Venkata Krishna
For Community: Graduates
studying Income Tax

2. Computation Of Total Income
 Income from Salaries $$$$
 Income from House Property $$$$
 Profits & Gains of Business/Profess. $$$$
 Capital Gains (Sec 45) $$$$
 Income from Other Sources $$$$

3. CHARGEABILITY
Any profits or Gains arising from the transfer of a Capital Asset during the
previous year is Chargeable to Tax under this head of income.
That is to Say:-
 There Should be a Capital Asset
 Capital Assets should be transferred during
the previous year.
 Profit/Gains should have arisen.
 Such Profit/Gains should be liable for tax.

4. What are Capital Assets
It includes all type of assets Whether movable/immovable, tangible/intangible etc.,
It excludes the following:-
 Stock in trade, consumable stores/raw
materials held for business/profession.
 Personal effects including wearing apparel
and furniture.
 Agricultural Land (Conditions on Situation
applies)
 Certain Specified Gold Bonds
 Special Bearer Bonds
 Gold Deposit Bonds

5. Judicial points on what is taxable and what is not taxable.
 Personal effects should be movable property, it should be held for personal use
and it should not be Jewellary, archaeological collections, drawings, paintings,
sculptures, or any work of art.
 Gold and Silver coins and bars used for pooja of deities as a matter of pride or
ornamentation are not personal effects. Therefore taxable.
 Furniture's are of personal use. Therefore not taxable.
 Foreign Stamp collections not a personal effect. Therefore taxable.
 Car, Scooter etc., are under personal effects. Therefore exempted.
 Securities, Loose diamonds, Goats are not personal effects. Therefore taxable.

6. TYPES OF CAPITAL ASSETS
 SHORT TERM  LONG TERM
If the asset is held for
If the asset is held for Less
than 36 Months then they are More than 36 Months
Short Term capital assets. then they are Long Term
Capital Assets.
In case of Equity/Preference
Shares in a Company,
Securities such as
Debentures/Government
Securities and Units of UTI and
Units of Mutual funds and Zero
Coupon bonds the term is 12
instead of 36 months.

7. TAX LIABILITY
 SHORT TERM CAPITAL GAINS  LONG TERM CAPITAL GAINS
 To determine the Value of  To determine the Value of
Consideration Consideration
 To deduct expenditure incurred for  To deduct expenditure incurred for
the transfer the transfer.
 To deduct the cost of acquisition.  To deduct indexed cost of
 To deduct cost of improvement. acquisition
 To avail exemption u/s 54 B, 54 D,  To deduct indexed cost of
54 G, and 54 GA. improvement.
 The balance amount is Short Term  To avail exemption u/s 54, 54 B,54
Capital Gains. D, 54 EC, 54F, 54 G, 54 GA,
 Short Term Capital Gains are  The balance amount is Long Term
chargeable to Tax based on SLAB Capital Gains.
RATES.  Long Term Capital Gains are
chargeable to Tax on Flat Rate i.e
20%

8. INDEXATION BENEFIT
 What is Indexation:-
Indexation is nothing but working out the value of
asset based on cost inflation index.
Cost inflation index for the year 1981-82 is 100 Cost
inflation index for the year 2007-08 is 551.
If an assessee had purchased an asset during the
year 81-82 for a sum of Rs.100.00. The same asset’s
value will be 551 if purchased during the year 2007-
08 based on cost inflation index.
Therefore the assessee gets additional benefit by
deducting 551 instead of 100.

9. EXEMPTED CAPITAL GAINS
 Section  Transfer of a Long Term Residential
54 House Property and
Purchasing/Constructing a New
Residential House Property.
 Transfer of Agricultural Land and
 Section
54 B acquires a new land for agricultural
purpose.
 Section
 Compulsory acquisition of land and
54 D
buildings forming part of industrial
undertaking and again invested.

10. EXEMPTED CAPITAL GAINS
 Section  Transfer of Long Term Capital Asset
54 EC and investing in Long Term Bonds.
 Section
54 F  Transfer of a Long Term Capital Asset
other than a House Property and
investing in Long Term Residential
House Property.
 Section  Transfer of Assets in shifting of
54 G
industrial undertakings from urban area
to rural area.

11. EXEMPTED CAPITAL GAINS
 Section  Capital Gains from Transfer of assets
54 GA in cases of Shifting of industrial
undertaking from urban area to any
special economic zone

12.  Thanks