CAPITAL GAINS
• Basic Conditions
– There must be a Capital Asset.
– There must be Transfer of the asset.
– Transfer During the previous year.
– Due to transfer Gain/ Profit arises.
CAPITAL ASSET
• Meaning Section 2 (14)
– Property of any kind
• Tangible or Intangible
– Whether connected to business or not
– Held by Assessee
• Subject to certain exceptions
Exceptions
• Stock in trade, consumables or raw material held
for business.
• Agricultural Land in rural area
• Special bearer bonds 1991
• 6.5 % Gold Bonds 1977, 7% Gold Bonds 1980,
National Defence gold bonds
Contd.
• Personal effects of the assessee i.e.
– Movable property including furniture, wearing
apparel , held for personal use of assessee or his
dependents
– Excluding Gold, Silver, Semi Precious Stone, Real
Stone, Metal Jewellery, Ornaments
TRANSFER 2(47)
•
•
•
•
•
Sale or Exchange or Relinquishment
Extinguishment (like due to fire, theft etc.)
Compulsory Acquisition
Conversion into stock
Transfer of capital asset by a person to a firm in
which he is a partner
• Distribution of capital assets on dissolution of
firm
PREVIOUS YEAR
• To decide the previous year Date of Transfer is
Important except
– In case of receipt of insurance claim – Date of
Receipt
– In case of conversion of Capital asset into stock –
Date of sale of Stock
– In case of Compulsory Acquisition – Date of receipt
of compensation.
TYPES OF ASSETS
• Short term asset
– Asset held for less than
36 months
– Subject to exception
• Long term asset
– Asset held for more than
36 months
– Subject to exception
EXCEPTION
– With respect to
• Equity shares/ Pref. shares any Co.
• Securities such as Deb. & others of Govt. listed on Stock
Exchange
• Units of Unit Trust of India (Quoted or not)
• Units of Mutual Funds specified U/s.10 (23D) (Quoted or
not)
– Held for a period less than 12 months- Short Term
otherwise Long Term
Problems
Computation of Gain
• Short Term Gain
– Full value of
consideration
– Less: Transfer Exp.
– Less: Cost of Acquisition
– Less: Cost of
Improvement
• Long term Gain
– Full value of
consideration
– Less: Transfer Exp.
– Less: Indexed Cost of
Acquisition
– Less: Indexed Cost of
Improvement
Full Consideration
• Full = Gross
• Means Sale consideration / Sale price / Value
received or receivable on transfer.
• Special cases
– Transfer of asset between firm and partners (amount
in firm’s book)
– Conversion of capital asset into stock (F.M.V. on
date of conversion)
– Compulsory acquisition (Amount of compensation)
Cost of Acquisition
• Actual Cost
• Deemed Cost
– Transfer of asset under will/gift/inheritance holding
& subsidiary etc. [49(1)]
– Amalgamation of companies- cost for amalgamated
company
– Conversion of Debentures (Cost of Debentures)
– Assets received by a member on liquidation (F.M.V.)
Cost of Improvement 55(1)(b)
• Intangible Assets
– Nil
• Tangible Asset
– Exp. Which are Capital in
nature
– Incurred to do additions
or alterations to the asset
– Allowed only if incurred
after1st April 1981.
Indexing
• Formula
– Cost of acq.* index no.
of year of transfer/
index no of year of
acquisition
• No indexing possible
– Short term gain
– Transfer of Debentures
or bonds
– Transfer by NRI
Problems
Shares & Capital Gain
• Initial Shares
• Right Shares
• Bonus Share
• Sale of Right to Right Shares
Depreciable Assets (Sec.50)
• Depreciation under Income tax
• Previous year last day , W.D.V. of block zero
[50(1)]
• Block of the assets is empty on last day of
previous year [50(2)]
Problems
Conversion of assets into stock
• Date of sale of Stock = year of taxability of gain
• Full consideration on conversation = Fair
market value as on conversation
• For indexing year of conversation to be
considered
• Actual sale of Stock = Business income