CAPITAL GAINS
CAPITAL ASSET U/S 2(14)
• Property of any kind held by the assessee whether or not
connected with the business or profession. and includes:
I. Plant and machinery
II. Building – whether business premises or residential
III. All assets of a business
IV. Goodwill, patent rights etc
Capital asset doesnot include:
I. Stock in trade
II. Personal effects- household goods except jewellary
III. Agricultural land situated in rural areas
IV. Gold bonds
V. Special bearer bonds
TRANSFER OF ASSETS
• Transfer of assets includes sale, exchange,
relinquishment of any rights therein or the
compulsory acquisition under any law.
• The transfer must be effected during the
current previous year.
TRANSFER NOT REGARDED AS TRANSFER
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Transfer of assets on partition of HUF
Transfer of assets to the shareholders on liquidation of a company
Transfer of assets under a gift, will or irrevocable trust
Transfer of assets by a subsidiary company to a parent company and by a
parent company to the subsidiary company
Transfer of assets on amalgamation of companies
Transfer of shares on amalgamation of companies
Transfer of agricultural land before 1.3.1970
Transfer of assets of historical importance to a museum, achieves or
National Gallery of Art
Conversion of bonds and debentures into shares or debentures.
TYPES OF CAPITAL GAIN
• Short term capital gain
Gain on asset held by the assessee for a period upto 36 months(
in case of shares, debentures, units, securities etc, this period
is 12 months)
• Long term capital gain
Gain on assets held by an assessee for a period exceeding 36
months. For shares etc this period is 12 months.
COST OF ACQUISITION
• In case asset is acquired without paying any price( partition of HUF, gift,
inheritance etc), the cost of acquisition will be the price paid by the
previous owner plus the cost of improvements , if any
• The cost of shares of amalgamated company will be the cost of acquisition
of shares of amalgamating company
• In case , cost of acquisition is unascertainable, the FMV on the date of
acquisition will be taken as the cost of acquisition.
• In case of assets acquired before 1.4.1981, the assessee has the option to
adopt the FMV on 1.4.1981 as the cost of acquisition
• Cost of bonus shares and on renunciation of right shares is to be taken as
nil
• Advance money is to be adjusted against the cost of acquisition
COMPUTATION OF CAPITAL GAIN
– Capital Gain= sale price
Minus
I.
Indexed cost of acquisition
II. Indexed cost of improvement
III. Expenses on transfer
Indexed cost of acquisition=
Cost of acquisition x CII of the year of sale/ CII of
the year of acquisition
Indexed cost of improvement=
Cost of improvement x CII of the year of sale/CII of
the year of improvement
NO INDEXING
No indexing is required in the following
situations:
• Short term capital assets
• Depreciating capital assets
• Bonds and debentures
EXEMPTED CAPITAL GAINS
• SEC 10(36)- income from sale of shares in
certain cases:
Any income arising from the transfer of a long term capital asset,
being an eligible equity share in a company ,purchased on or
after the 1st day of March2003 and the 1st day of march 2004
and held for a period of twelve months or more, will be
exempted from tax.
SEC 10(37)
• In the case of an assessee being an individual
or Hindu Undivided Family,capital gains arising
from the compulsory acquisition of self
cultivated urban agricultural land shall be fully
exempted from tax.
SEC 10(38)
• Any income arising from the transfer of a
capital asset being shares and the transfer of
sale of such securities being entered into in a
recognised stock exchange in India on or after
1.10.2004 shall be fully exempted.
SEC 10(40)
• Income from transfer of capital asset of an
undertaking engaged in the business of
generation, transmission or distribution of
power where such transfer takes place on or
before 311.3.2006 and transfer is made to an
indian company is fully exempted from tax.
SECTION 54( sale of residential house property)
• In case of an individual and HUF that part of capital gain from
sale of such house property which is long term capital asset is
exempted which is invested in:
I. Purchase of another house one year before or two years
after the sale
II. Construction of another house within 3 years after the sale
such exempted gain will be added to the new capital gain if the
new house purchased or constructed is sold or transferred
within 3 years from the date of purchase or construction.
SEC 54B( sale of self cultivated urban
agricultural land)
• That part of capital gain from the sale of self
cultivated urban agricultural land is tax free which is
reinvested in purchase of another piece of land
within 2 years after the sale.
SEC 54 D( compulsory acquisition of capital
assets)
• That part of capital gain arising from the compulsory
acquisition of land, building or right in such asset used by the
Assessee for 2 years for his own business, shall be tax free
which is reinvested in the purchase of another land or
building or right in land or building within 3 years from the
acquisition.
• The new asset so acquired cannot be sold or transferred for a
period of 3 years otherwise the old exempted gain will
become taxable.
SEC 54 EC( sale of any long term capital asset)
• Investment of long term capital gain, within 6 months from
the date of sale in Bonds issued by the National Highway
authority of India or by National Rural Electrification
Corporation Ltd, shall be exempted
• The new bonds so acquired cannot be sold, transferred or
plegded for 3 years. Exemption u/s 54EC shall be restricted
upto Rs 50 lakhs on investments made on or after 1.4.2007.
54F( Sale of any long term capital asset)
• Where a long term capital asset is sold or transferred and the
sale price is invested in construction of a residential house
within 3 years or purchase of another house within one year
before sale or 2 years after sale, so much of capital gains shall
be exempted as is in proportion of amount received to net
consideration.
• No exemption if the assessee owns another house or acquires
another house in one year before or 2 years after the sale or
constructs another house within 3 years.
SEC 54 G
• In case the assessee has to transfer his assets due to the
shifting of his factory from urban to n on urban areas and he
purchases new machinery or plant or acquires land or building
or incurs expenses on shifting , within one year before or 2
years after the sale, the capital gain shall be treated as
follows:
• Difference between capital gain and the cost of the new asset
is taxable
• If capital gain is less than cost of new asset , then the total
amount of capital gain is exempted.
SEC 54 GA
• In case an individual undertaking transfers its
assets with the intention of shifting its
premises from urban areas to special
economic zone, capital gain arising from such
transfer if invested within specified time frame
to set up an industrial unit in a special
economic zone, shall be fully exempted.
SEC 54 H
• In case compensation on compulsory
acquisition is received after the date of
transfer, the period available for investment
will be counted from the date of receipt of
such compensation.