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.CAPITAL

GAINSUNDER INDIAN

INCOME TAX ACT 1961(Amended - Finance Act. 13)

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CHARGEABILITY U/S 45

Any profit or gain arising from the sale or transfer of a Capital Asset is chargeable to tax under the head “capital gains”. It is deemed to be income of the previous year in which transfer of capital asset takes place.

Besides above, Capital Gain also arise under certain specified circumstances viz

(i) Conversion of Asset in to Stock in Trade(ii) Transfer of an Asset by a person into a firm/AOP/BOI in which he is

partner.(iii) Distribution of Asset on dissolution of Firm.(iv) Compulsory Acquisition of an Asset.(v) Assets received on liquidation of company by shareholder.(vi) Receipt of money or asset from an insurer on account of damage of

Capital asset.

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“CAPITAL ASSET”

“Capital Asset” is defined to include property of any kind, whether fixed or circulating, movable or immovable, tangible or intangible. The following assets are however, excluded from the definition of “Capital Assets”

Any Stock-In-Trade, Consumable stores or raw material held for the purpose of business or profession.

Personal effects of the Assessee, movable property including wearing apparel and furniture held for his personal use or for the use of any member of his family dependent upon him( Jewellery, archeological collections, drawings, paintings, sculptures, or any work of art are treated as capital asset even though it is meant for personal use of the Assessee)

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“CAPITAL ASSET”

Agricultural land in India provided it is not situated:-a) in any area within the jurisdiction of a municipality or a cantonment board having population of 10,000 or more or;b) within specified distance from local limits of municipality or containment board (called urban Areas)

Specified Distance measured Aerially shall be (Applicable w.e.f A.Y 2014-15)(i) In case of municipalities having population more than 10000 and upto 1

lac 2km(ii) In case of municipalities having population more than 1 lac and upto 10

lac 6 km(iii) Municipalities having population more than 10 lac

8 kmUpto A.Y 2013-14 the specified distance as notified in Notification No. 9447 dt.

06.01.94 but not more than 8 km from muncipal limits. 6 ½ per cent Gold Bonds, 1977 or 7 Percent Gold Bonds, 1980 or National

Defence Gold Bonds, 1980 issued by Central Government. Special Bearer Bonds, 1991 and Gold Deposit Bonds Issued under Gold Deposit Scheme, 1999.

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TRANSFER OF CAPITAL ASSET

Transfer, in relation to a Capital Asset, includes Sale, Exchange or Relinquishment of the asset or the Extinguishment of any rights therein or the compulsory acquisition thereof under any law.

Reduction of Share Capital by reducing face value amounts to extinguishment of rights.

Maturity of Zero Coupon Bonds.Redemption of Preference Share amounts to

Relinquishment of rights.Conversion of Capital Asset into Stock-In-Trade of a

business carried on by the Assessee amounts to transfer of Capital Asset.

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EXEMPT - TRANSFERS

Distribution of assets in kind by company to its shareholders on its liquidation

Any distribution of capital asset in kind by a Hindu Undivided family to its members at the time of total or partial partition.

Any distribution of capital asset under a gift or will or an irrevocable trusts

Any transfer of capital asset by holding wholly owned subsidiary to Holding company or vice versa.

Any transfer under scheme of Amalgamation, demerger, Transfer of Capital Assets under Reverse Mortgage

Scheme.

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Year of taxability in case of Immovable Property.

Where the transfer is by way of allowing possession of an immovable property in part performance of an agreement to sell, capital gain shall be deemed to be arisen in the year in which such possession is handed over. If the transferee already holds the property under sale, before entering into agreement to sell , the year of taxability of capital gain is the year in which the agreement is entered into.

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TYPES OF CAPITAL ASSET

Short-Term capital asset means a capital asset held by an Assessee for not more than 36 months immediately prior to its date of transfer. However, in the following cases, an asset, held for not more than 12 months, is treated as short-term capital asset:-

Equity Shares & Preference SharesSecurities (Debentures, Government Securities) if listed in a

recognized stock exchangeUnits of UTI or Mutual FundZero coupon bonds

An asset other than short term capital asset is regarded as long term capital asset

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FORMULAE-CAPITAL GAIN

Short term Capital Gain Long Term Capital GainFind Full Value of Consideration Find full Value of ConsiderationDeduct: Deduct:1. Expenditure incurred wholly and exclusively in connection with such transfer

1. Expenditure incurred wholly and exclusively in connection with such transfer

2. Cost of Acquisition 2. Indexed Cost of Acquisition3. Cost of Improvement 3. Indexed Cost of ImprovementLess: Exemptions:- Less: Exemptions:-U/s 54B, 54D, 54G U/s 54,54B,54D,54EC,54ED, 54F

and 54GBalance amount is Short-Term Capital Gain

Balance amount is Long-Term Capital Gain

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Full value of consideration

This is the amount for which a capital asset is transferred .It may be in money or money’s worth or combination of both.

In case of transfer of any land or building or both, held as a capital asset is less than the value adopted or assessed by the stamp valuation authority for the purpose of payment of stamp duty, the value so adopted or assessed shall deemed to be full value of consideration

Where the assessee claims that the value adopted or assessed for stamp duty purposes exceed the fair market value, and he has not disputed the same in any appeal or revision ,the assessing officer may refer the valuation of the relevant asset to the valuation officer and then the assessing officer shall take the value determined by the valuation officer or the value adopted for stamp duty purposes ,which ever is less (Section 50C)

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W.E.F 01.04.2014 A.Y 14-1543CA Similar to Sec. 50C

Where consideration received or accruing as a result of the transfer by an assessee of an asset(other than Capital Asset) being land and building or both is less than the value adopted or assessed by any authority of a State Government for the purpose of payment of stump duty, the value so adopted or assessed shall be deemed to be the full value of consideration received or accruing as a result of such transfer for computing profits and gains from transfer of such asset.(section 43CA) .

Further, where the date of agreement fixing value of consideration for transfer of asset and date of registration of such transfer of asset are not the same, the value of stamp valuation as on date of agreement to be considered. Further, it applies only where the amount of consideration or a part thereof has been receive d by any mode other than cash on or before the date of agreement for transfer of asset.

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Cost of Acquisition

Where capital asset became property of the assessee before 1.4.1981, he has the option to adopt the fair market value of the asset as on 1.4.1981 as its cost of acquisition

Where the asset was not originally purchased by the assessee but passed on to him under partially partition of HUF, transfer under gift or will or by succession, inheritance, distribution of asset on dissolution of a Firm, AOP, BOI , or liquidation of company ,transfer to a revocable or irrevocable trust the cost of acquisition in the hands of assessee shall be the cost for which the previous owner acquired that asset.

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New Sec. 50D w.e.f 1.4.13

Where the consideration received or accruing as a result of the transfer of a capital asset by the assessee is not ascertainable or cannot be determined then fair market value of the said asset on the date of transfer shall be deemed to be full value of consideration.

Forfeiture of Advance money Received in In fructuous Negotiations for Transfer14

Where there were any negotiations for transfer of an asset, and any advance or other money was received by the vendor and same was retained and forfeited by him on the negotiation becoming in fructuous ,for any reason the amount so forfeited shall be deducted from the ‘cost of acquisition ’of that asset in commuting the capital gains arising on the effective transfer of that asset.

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INDEXATION

SITUATION – 1If Capital Asset is acquired by the Assessee before 1st April 1981

Fair Market Value on 1st April 1981 or Cost of Acquisition Which ever is more x C.I.I .of year of Transfer C.I.I . of Financial Year of Purchase

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INDEXATION

SITUATION – 2If Capital Asset is acquired by the Assessee on or after 1st April 1981

Fair Market Value on 1st April 1981 or Cost of Acquisition Which ever is more x C.I.I . of year of Transfer C.I.I . of 1981-1982 (100)

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C.I.I.- COST INFLATION INDEX

Financial Year

C.I.I. Financial Year

C.I.I. Financial Year

C.I.I.

1981-82 100 1992-93 223 2003-04 4631982-83 109 1993-94 244 2004-05 4801983-84 116 1994-95 259 2005-06 4971984-85 125 1995-96 281 2006-07 5191985-86 133 1996-97 305 2007-08 5511986-87 140 1997-98 331 2008-09 5821987-88 150 1998-99 351 2009-10 6321988-89 161 1999-

2000389 2010-11 711

1989-90 172 2000-2001

406 2011-12 785

1990-91 182 2001-02 426 2012-13 8521991-92 199 2002-03 447

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Rates of Tax on Capital

Short –term Capital Gains are included in the gross total income of the assessee and after allowing permissible deductions ,the total income is subject to tax at the slab rates applicable to Assessee ,however short term capital gains from transfer of equity shares/units of an equity –oriented mutual fund ,subjected to security transaction tax ,shall be taxable at a flat rate of 15% and deductions shall not be allowable against such short term capital gains (Section 111A)

Long term Capital Gains are subject to a flat rate of tax@20% however ,in respect of long term capital gains arising from transfer of listed securities ,units of mutual fund/uti or zero coupon bonds ,tax shall be payable @20% of the capital gain computed after allowing indexation benefit or @10% of the capital gain computed without giving the benefit of indexation ,which ever is less.

Capital Gains Exempt u/s 10

Capital Gain on Compulsory Acquisition of Urban Agriculture Land u/s 10(37) provided following conditions are satisfied:-1. The Assessee is an Individual or a HUF.2. He or it owns an agriculture land situated in urban area mentioned in section 2(14)(iii)(a)/(b)3. There is transfer of the agriculture land by way of compulsory acquisition or the consideration for transfer is approved or determined by the Central Government or RBI4. The Agriculture land was used by the Assessee (and/or his parents if the land was owned by an individual) for agricultural purposes during 2 years immediately prior to the date of transfer

Capital Gains Exempt u/s 10

Long Term Capital gain on Transfer of Securities not Chargeable to tax in cases covered by Transaction Tax U/s 10(38) provided following conditions are satisfied:-1. Taxpayer is an Individual, HUF, Firm or Company or Any other taxpayer.2. The asset which is transferred is a long-term capital asset.3. Such asset is equity share in a company or units of equity oriented mutual fund.4. At the time of transfer, the transaction is chargeable to Securities Transaction Tax.5. Else Short Term Capital Gain is Taxable u/s 111A @ 15% plus Surcharge plus Education Cess

Exemptions U/s 54U/s 54 U/s 54B U/s

54ECu/s 54F U/s 54GB

Who can Claim

Individual/HUF

Individual Any Person

Individual/HUF Individual/HUF

Eligible assets sold

A residential House property (minimum holding period 3 year)

Agriculture land which  has been   used   by  Assessee himself or by his parents for agriculture purposes during last 2 yrs of transfer

Any   long-term capital assets (minimum holding period 3 years) 

Any long term asset (other  than  a residential  house  property ) provided on the date of transfer the taxpayer does not own more than one residential house property from  the assessment year 2001-02 (except the new house)

A residential Property effected upto 31.3.2017

Exemptions U/s 54Assets to be acquired for exemption

Residential house property

Another agriculture land (urban or rural)

Bond of NHAI or REC

Residential house property

Equity of new SME company in Manufacturing sector

Time limit for acquiring the new assets

Purchase :1 year back or 2    y e a r   f o r w a r d , Construction:   3   year forward

2 yrs forward 6 months forward

Purchase :1 year back or 2 year forward, Construction:3 year forward

Before due date for furnishing return of income u/s 139(1)

Exemption Amount

Investment in the new assets or capital gain, which ever is lower

Investment in the agriculture land or capital gain, which ever is lower

Investment   in   the new assets or capital gain,  which  ever  is lower (Max. Rs.50 Lacs in FY)

Investment in the new assets / Net Sale consideration X capital gain

Investment in the new assets / Net Sale consideration X capital gain

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"Capital gain deposit account  scheme" applicable

Yes Yes Not Applicable

Yes YesExemptions U/s 54

Condition for exemption

Not to be transfer the new House within a period of 3 years

Not to be transfer the new Land within a period of 3 years

Not to be transfer or otherwise converted into money or taken any loan or advances within a period of 3 years

Not to be transfer the new House within a period of 3 years

Not to be transfer red for a period of five years

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Capital Gains Accounts scheme ,1988

The scheme is open to all tax –payers who wish to claim exemption u/s 54,54B,54D,54F,54GB.The deposit should be made before the due date for furnishing of return for the relevant previous year and proof of deposit furnished alongwith the return . Depositor has to open a separate account under each section if he intends to avail the benefit under more than one section.

If the amount so deposited under the scheme is not utilized within specific period then the unutilized amount shall be taxable in hands of the assessee for that previous year in which specified period expires.

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Capital Gains arising to NRIs

Capital gains arising to Non-residents from the transfer of shares or debentures of an Indian company ,shall be computed by converting the cost of acquisition ,expenditure on transfer and value of consideration ,into the same foreign currency (used for purchase of shares/debentures) . Then the capital gain so computed shall be reconverted into the Indian currency at prescribed rate of exchange. However, the provisions of Indexation shall not be available to NR on LTCG of shares/debentures of Indian Co.

Exemption is available on long term capital gains arising from transfer of foreign exchange assets, if the net consideration is, wholly or party ,invested within 6 months in any of the specified securities.

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Set Off and Carry Forward of Capital Loss

Any short term capital loss can be set off against any capital gain (both long term and short term ) and against no other income.

Any short term capital loss can be set off only against long term capital gain and against no other income.

Any short term capital loss can be carried forward to the next eight assessment years and set off against ‘capital gains’( short term or long term )in those years.

Any long term capital loss can be carried forward to the next eight assessment years and set off only against long –term capital gains in those years.

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With Thanks..

Compiled by:CA Varun Chadha