Tax Implications
CAPITAL GAINS
By C.Venkata Krishna
For Community: Graduates
studying Income Tax
Computation Of Total Income
 Income from Salaries
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 Income from House Property
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 Profits & Gains of Business/Profess. $$$$
 Capital Gains (Sec 45)
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 Income from Other Sources
$$$$
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.
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
Judicial points on what is taxable and what is not taxable.
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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.
TYPES OF CAPITAL ASSETS
 SHORT TERM
If the asset is held for Less
than 36 Months then they are
Short 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.
 LONG TERM
If the asset is held for
More than 36 Months
then they are Long Term
Capital Assets.
TAX LIABILITY
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SHORT TERM CAPITAL GAINS
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LONG TERM CAPITAL GAINS
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To determine the Value of
Consideration
To deduct expenditure incurred for
the transfer
To deduct the cost of acquisition.
To deduct cost of improvement.
To avail exemption u/s 54 B, 54 D,
54 G, and 54 GA.
The balance amount is Short Term
Capital Gains.
Short Term Capital Gains are
chargeable to Tax based on SLAB
RATES.
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To determine the Value of
Consideration
To deduct expenditure incurred for
the transfer.
To deduct indexed cost of
acquisition
To deduct indexed cost of
improvement.
To avail exemption u/s 54, 54 B,54
D, 54 EC, 54F, 54 G, 54 GA,
The balance amount is Long Term
Capital Gains.
Long Term Capital Gains are
chargeable to Tax on Flat Rate i.e
20%
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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 200708 based on cost inflation index.
Therefore the assessee gets additional benefit by
deducting 551 instead of 100.
EXEMPTED CAPITAL GAINS
 Section
54
 Section
54 B
 Section
54 D
 Transfer of a Long Term Residential
House Property and
Purchasing/Constructing a New
Residential House Property.
 Transfer of Agricultural Land and
acquires a new land for agricultural
purpose.
 Compulsory acquisition of land and
buildings forming part of industrial
undertaking and again invested.
EXEMPTED CAPITAL GAINS
 Section
54 EC
 Section
54 F
 Transfer of Long Term Capital Asset
and investing in Long Term Bonds.
 Transfer of a Long Term Capital Asset
other than a House Property and
investing in Long Term Residential
House Property.
 Section
54 G
 Transfer of Assets in shifting of
industrial undertakings from urban area
to rural area.
EXEMPTED CAPITAL GAINS
 Section
54 GA
 Capital Gains from Transfer of assets
in cases of Shifting of industrial
undertaking from urban area to any
special economic zone
 Thanks