CAPITAL GAINS. INTRODUCTION CAPITAL GAINS “Any profit or gains arising from the transfer of capital assets is taxable under the head capital gains in

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  • CAPITAL GAINS
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  • INTRODUCTION CAPITAL GAINS Any profit or gains arising from the transfer of capital assets is taxable under the head capital gains in the previous year in which the transfer has taken place.
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  • Conditions for Gains to be charged under Capital Gains There should be a capital asset. The capital asset should be transferred by the assessee. Such transfer should take place during the previous year. The profits or gains should arise as a result of this transfer. Such profit or gain should not be exempted from tax under sections 54, 54B, 54D, 54EC, 54F and 54G & 54GA.
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  • DEFINITION OF CAPITAL ASSETS Capital asset is defined to include property of any kind, whether fixed or circulating, movable or immovable, tangible or intangible.
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  • EXCEPTIONS TO CAPITAL ASSETS a) Any stock-in-trade, consumable stores or raw material held for the purposes of business or profession. b) Movable property of the Assessee including wearing apparel and furniture held for his personal use or for the use of any member of his family dependent on him. The exception to this condition is jewellery, which is treated as a capital asset, even though it is meant for personal use.
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  • CONTD. c)Agricultural land in India provided it is not situated in urban area. d)6 % Gold Bonds, 7% Gold Bonds or National Defence Gold Bonds, issued by the central government. e)Special Bearer Bonds, and f)Gold Deposit bonds issued under Gold Deposit Scheme of 1999.
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  • SHORT TERM AND LONG TERM CAPITAL ASSETS Short term capital assets means a capital asset held by the assessee for not more than 36 months, immediately prior to its date of transfer. However, the following assets are treated as short term assets if they are held for not more than 12 months, they are: Equity or preference shares in a company Securities like debentures, government securities listed in a recognized stock exchange in India. Units of UTI and Units of mutual funds. An asset other than a short-term capital asset is regarded as a long term capital asset.
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  • METHOD OF DETERMINING PERIOD OF HOLDING In case when the assessee acquires an asset as a gift or by a will, the period for which the previous owner holds the asset is also included.
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  • TRANSFER OF CAPITAL ASSET [Sec2(47)] Any transaction involving the allowing of the possession of any movable property to be taken or retained in part of performance of contract of the nature referred to in the sec53a of the transfer of property act,1982 Any transaction (whether by way of becoming a member of, or acquiring shares in a co-operative society, company association of person or by way of agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring or enabling the enjoyment of any immovable property
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  • WHAT IS INCLUDED IN TRANSFER Transfer Includes Sale Exchange Relinquishment Extinguishment Compulsory Acquisition Conversion of Capital Asset Into Stock in Trade[sec(47)(iv)]
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  • WHAT IS NOT INCLUDED IN TRANSFER Distribution of Assets to Its Shareholder on Its Liquidation [Sec46(1)] Distribution of Capital Assets in HUF to Its Member at the Time of Total or Partial Partition [Sec 47(1)] Transfer of a Capital Asset Under a Will or an Irrevocable Trust or a Gift [Sec 47(iii)] Transfer of a Capital Asset by a Company to Its Wholly Owned Indian Subsidiary Company [Sec 47(iv)] Transfer of a Capital Asset by a Wholly Owned Subsidiary Company to Its Indian Holding Company [Sec 47(v)]
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  • CONTD. Transfer in Case of Amalgamation Sec[47(vi)] Transfer in Case of Demerger Sec[47(vi B)] Transfer of Agricultural Land in India Effected Before March 1, 1970 [Sec 47(viii)] Transfer of a Capital Asset, Being Any Work of Art,Scientific or Art Collection, Book, Drawing, painting, photograph Etc [Sec47(ix)] Transfer by Way of Conversion of Bonds or Debenture of a Company Into Shares or Debenture of That Company [ Sec 47(x)]
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  • SHORT TERM CAPITAL GAIN 1)Find full value of consideration 2)Deduct the followings. a) Expenditure incurred wholly and exclusively in connection with such transfer. b) Cost of acquisition. c) Cost of improvement 3) From resulting sum deduct exemption provided by u/s54 B, 54 D, 54 G, 54GA 4) The balancing amount is Short Term Capital Gain.
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  • LONG TERM CAPITAL GAIN 1) Find full value of consideration 2) Deduct the followings a) Expenditure incurred wholly and exclusively in connection with such transfer. b) Indexed Cost of acquisition. c) Indexed Cost of improvement. 3) From resulting sum deduct the exemption provided by section 54, 54 B, 54 D, 54 EC, 54 F, 54 G, 54 GA The balancing amount is Long Term Capital Gain/Loss.
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  • FULL VALUE OF CONSIDERATION Full value means whole price without any deduction and consideration in which transferor receives in lieu of asset he parts with.
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  • EXPENDITURE ON TRANSFER Expenditure incurred wholly and exclusively in connection with transfer of capital asset is deductible from full value of consideration. This means expenditure incurred which is necessary to effect the transfer like brokerage commission, cost of stamp, registration fees and all
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  • COST OF ACQUISITION Cost of acquisition of an asset is the value for which it is acquired by the Assessee, expenses of capital nature for acquiring the title are include in cost of acquisition.
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  • NOTIONAL COST OF ACQUISITION Cost to previous owner is considered as cost of acquisition to the assessee if that capital asset become property in cases like. a) Distribution of asset on partial or total partition of Hindu Undivided Family. b) Acquisition of property under gift and will. c) Acquisition of property by a HUF where one of its member has converted his self acquired property into joint family property after Dec 31- 1969.
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  • COST OF IMPROVEMENT - It means all expenses of capital nature incurred in making any addition/ alteration to capital asset by assessee. 1)Expenditure after 31 mar 1981
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  • INDEXED COST OF ACQUISITION OR IMPROVEMENT Cost Inflation Index. Cost inflation Index for any year means such index as the central government may, having regard to 75% of average rise in consumer price index for urban non manual employees of the immediate preceding pervious year to such year, by notifying in official gazette
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  • COMPUTATION OF INDEXED COST. Case1) Capital asset acquired before 1-4-1981 Cost X Cost Inflation Index in the year of Transfer Or FMV on 01.04.1981 Cost Inflation Index for yr 1981-82 (whichever is high) 2) Capital asset acquired after 1-4-1981 Cost X Cost Inflation Index in the year of Transfer Cost Inflation Index for yr of purchase
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  • 3) Capital asset acquired by assesse before 1-4-1981 & originally acquired by previous owner before 1-4-1981. Cost to Previous Owner X Cost Inflation Index in the year of Transfer Or FMV on 01.04.1981 Cost Inflation Index for yr 1981-82 (whichever is high) 4) Capital asset acquired by assesse after 1-4-1981 & originally acquired by previous owner before 1-4-1981. Cost to Previous Owner X Cost Inflation Index in the year of Transfer Or FMV on 01.04.1981 CI Index for yr the asset is first held by assesee (whichever is high) 5) Capital asset acquired by assesse after 1-4-1981 & originally acquired by previous owner after 1-4-1981. Cost to Previous Owner X Cost Inflation Index in the year of Transfer CI Index for yr the asset is first held by assese
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  • Indexed Cost of Improvement 1. Ignore Improvement Before 1.04.1981 Indexed Cost =Cost of Improvement X CI Index in Yr of Transfer CI Index in Yr of Improvement
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  • INTRODUCTION OF A CAPITAL ASSET AS CAPITAL CONTRIBUTION Section 45(3) Taxable in the hands of the partner Consideration: Amount recorded in the books of accounts
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  • DISTRIBUTION OF CAPITAL ASSETS ON A FIRMS DISSOLUTION Section 45(4) Chargeable in the hands of the firm Consideration : fair market value as on the date of transfer
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  • SLUMP SALE SEC 50B Slump sale means transfer of one or more undertakings as a result of sale for lump sum consideration without values being assigned to individual assets and liabilities in such sales Section 2(42C).
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  • SLUMP SALE Cost of acquisition : Net worth No indexation Short term/long term Value of assets : Depreciable/non-depreciable Value in the hands of purchaser.
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  • CAPITAL GAINS ON CONVERSION OF DEBENTURES INTO SHARES [SEC 49(2A)]: 1) Any transfer by way of conversion of debentures, debenture stock, or deposit certificates in any form, of a Co. into shares or debentures of that co. is not regarded as a transfer giving rise to Capital gains. 2) Cost of Acquisition will be the cost of debentures, debentures stock or deposit certificates which has been appropriated towards to shares or debentures in case there is sale of above transferred assets giving rise to capital gains.
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  • CAPITAL GAINS ON CONVERSION OF DEBENTURES INTO SHARES [SEC 49(2A)]: In case of con