Topic : Capital Gains

CAPITAL GAIN A capital gain is a profit that results from a disposition of a capital asset, such

as stock, bond or real estate, where the amount realized on the disposition exceeds the purchase price.

The gain is the difference between a higher selling price and a lower purchase price.

Conversely, a capital loss arises if the proceeds from the sale of a capital asset are less than the purchase price.

Capital gains may refer to "investment income" that arises in relation to real assets such as property; financial assets such as shares/stocks or bonds; and intangible assets.

COMPUTATION OF SHORT TERM CAPITAL GAINS

NAME AMOUNT(RS.)

Full Value of Consideration Xxx

(Less) Expenditure Incurred wholly exclusively in connection with such transfer/Sale

Xxx

(less) Cost of Acquisition Xxx

(less) Cost of improvement Xxx

Gross Short Term Capital Gain Xxx

(less) Exemption u/s 54B/54D/54G/54GA

Xxx

Net Short Term Capital Gain Xxx

COMPUTATION OF LONG TERM CAPITAL GAINS

NAME AMOUNT(RS.)

Full Value of Consideration Xxx

(less) Expenditure Incurred wholly exclusively in connection with such transfer/Sale.

Xxx

(less) Indexed Cost of Acquisition Xxx

(less) Indexed Cost of Improvement Xxx

Gross Long Term Capital Gains Xxx

(less) Exemption u/s 54/54B/54D/54EC/54ED/54F/54G

Xxx

Net Long Term Capital Gains Xxx

1) MR. Kantilal , A manager of public limited company receiving remuneration had a personal car which he bought for Rs.70,000/- in 1993. He sold it during the previous year for Rs. 65,000 and claim the difference as allowance loss

Soln:

Personal effects are excluded from the definition of capital assets under section 2(14). Personal car owned by Mr. Kantilal falls within the category of personal effects.

Ie. Personal car is not a capital asset and since there is no transfer of capital asset so there is no chargeability to capital gains.

2) Mrs. Aishwarya a lady afficient means purchase a diamond necklace in 1990 for Rs. 1,00,000 which she sold for Rs. 4,50,000 during the previous year. She claimed the surplus are not taxable

Soln:

Personal effects are excluded from the definition of capital assets under section 2(14).

However jewellery has been specifically excluded from the meaning of personal asset.

Therefore any item of jewellery will rank as a capital asset. Section 45(1) is applicable and surplus arising on sale of diamond necklace is chargeable to tax as capital gains.

The provision of capital gains The following criteria has to be followed

1) The existence of capital asset

2) The transfer of such asset

3) Profit and gains from transfer of such asset.

Question 3: Mr. Ram had purchased a house property in Dadar on 31/1/10.He sold the House property to Mr. Shyam on 23/1/13.

Sums:

Solution : Mr. Ram purchased a House property on 31/1/10. He sold the house property on 23/1/13 thus he sold the capital asset for a total period of 35 months & 23 days. If a capital asset other than shares of the company is held by the assessee for the period not more than 36 months such an asset is called short term capital asset & gain arising out of such sale is termed as short term capital gain.

Cont..

Question 4 : Mr. Vinit purchased shares of M/S Reliance Industries on 10/1/11. He sold the share on 9/7/12.

Cont..

Solution : Mr. Vinit purchased the shares on 10/1/11 & sold the shares on 9/7/12. Thus he held the capital asset for 18 months if a capital asset being shares in Indian company held assessee for the period of more than 12 months such an asset is called as long term capital asset & any gain out of such sale is termed as long term capital gain.

Cont..

5. Mrs. Sarita purchased house property for Rs.200000 in the year 1969-70. Following expenses were incurred for the house property:

1.Cost of construction in the year 1977-78 Rs.150000.

2.Cost of construction of first floor in 1984-85 Rs.350000.

3.Alteration to house property in 1993-94 Rs.300000.

4. Fair market value of the property on 1/4/81 i.e Rs.500000.the house property is sold to Mr.Ashok in the PY 2012-13 for Rs.9500000.

5.Expenses incurred on transfer during PY is Rs.5000.

Compute capital gain for AY 2013-14.

CII (1981-82) 100

(1984-85) 125

(1993-94) 244

(2012-13) 852

Solution:

COMPUTATION OF CAPITAL GAINS

Sale consideration 9500000

(-) indexed cost of acquisition

[500000 x 852/100] 4260000

(-) indexed cost of improvement

[350000 x 852/125] 2385600

[300000 x 852/244] 1047541

(-) transfer expenses 5000

LTCG 1801859

6. Mr.Kasad purchased one bungalow for Rs.51000 in 1963-64. He constructed to two additional rooms in the year 1972-73 by spending Rs.100000. He dies on 1st October ,1979 and as per his will the house was transferred to his son Mr.Firdosh. Mr.Firdosh spends Rs.35000 for repairs in the year 1980-81 and constructs an additional room in the year 1985-86 for Rs.40000. Mr.Firdosh sells the above house property for Rs.2500000 on 30/3/13. brokerage being paid Rs.11001. The fair market value of property as on 1/4/81 is Rs.200000. Find out the amount of capital gain taxable in the hands of Mr.Firdosh for AY 13-14.

CII (1981-82) 100

(1985-86) 133

(2012-13) 852

Solution: