This document discusses capital gains and the taxation of capital assets in India. It defines capital gain as the profit from selling an investment or property at a higher price than its purchase price. It distinguishes between short-term capital assets held for less than 36 months and long-term capital assets held for more than 36 months. The document provides examples of calculating short-term and long-term capital gains, including indexed cost and exemptions. It includes a case study demonstrating how capital gains exemptions work when reinvesting profits into a new residential property.

1. Topic :- Capital Gains
A project submitted
University of Mumbai for partial completion of the degree of
Bachelor of commerce (Accounting and Finance)
Under the faculty of Commerce
By,
Hrushikesh
Under the guidance of respected professor
Changu Kana Thakur arts, Commerce and Science College
Sector -11 New Panvel
2019-20

2. Meaning
 Capital gain is the raise in the value of fixed asset (investment or
real estate) that gives it a higher worth than the purchase price. The
gain is not realized until the asset is sold.
 A profit from the sale of the property or investment

3. Capital Assets
 Capital assets are the intangible assets with a useful life of longer
than a year that is not intended for sale in regular course of the
business operations
 Capital Assets are the property such as cars, investment properties,
stock, bonds.

4. Types of Capital Assets
 Short term capital assets :-
“Short term capital assets” means a capital asset held by the
assesse for not more than 36 months, Here the asset is with the
assesse for a short time period. However the gain is known as
Short Term Capital Gain.
 Long term capital assets :-
“Long term capital assets” means the asset held by the assesse
for more than or equal to 36 months. The asset is usually for a
longer period of time. However the gain is known as the
Long Term Capital Gain.

5. Securities
Listed securities Unlisted Securities
For Short Term For Short Term
Less than 12 months Less than 24 months
For Long Term For Long Term
More than or equal to 12 months More than or equal to 24 months
Ex- Shares, mutual funds, bonds Ex- Others

6. Calculation of Short term Capital Gain
Particulars Amount
Full Value (Sale) xx
(-) Cost of Acquisition xx
(-) Cost of Sales xx
(-) Cost of Improvement xx
(-) Exemption u/s 54 xx
Net short term capital gain xxx

7. Exemption u/s 54
 Sec 54 Residential Property 1/2 yr / 3yr of construction
 Sec 54 B Agricultural Land 2 years
 Sec 54 D Industrial Estate 3 years
 Sec 54 EC NHAI/REC 6 months
 Sec 54 EE Specified funds 6 months
 Sec 54 F Other than house 1/2 yr / 3 yr of construction

8. Calculation of Long Term Capital Gain
Particulars Amount
Full Value (sale) xx
(-) Indexed cost of acquisition xx
(-) Indexed cost of improvement xx
(-) Expense on transfer xx
(-) Exemption xx
Net Long Term Capital Gain xxx

9. What is Indexed…?
 Cost Inflation Index
Cost Inflation Index is a measure of inflation used to calculate
long-term capital gains from sale of capital assets
 According to income tax department the value of asset purchased
in past amounts less than the amount of that asset in present
 Started in 2001 - 2002 100
 Present 2018 - 2019 280

10. Chart of C.I.I

11. Calculation of Indexed Cost
 Indexed Cost = Cost of Acquisition x C I I of selling year
of Acquisition C I I of purchase year
 Indexed Cost
of Improvement = Cost of Improvement x C I I of selling year
C I I of improvement year

12. Case study 1
Mr. Y has sold residential house property in May 2015 and the capital
gains amounted to Rs. 30,00,000/-
In June 2015, Mr. Y purchased a residential house property worth
Rs.18,00,000/-
Mr. Y sells the new residential house property (Purchased in June
2015) in December 2016 for Rs. 35,00,000/-

13. Case Study 2
If the cost of the new asset purchased is greater than the capital gains,
then it is obvious that there will be no capital gains as the entire capital
gains will be exempted.
However, if the new house is sold within 3 years, then cost of the new
house will be computed.

14. Conclusion
 On balance, the evidence supports the economic case for a low rate
of tax on capital gains. Recent actual experience suggests that a low
rate of tax on capital gains increases capital investment and new
business formation