CA.CS.CMA.MBA: Naveen.

Rohatgi

TAXATION

CAPITAL GAIN
Capital asset is defined to mean property of any kind, held by the assessee, whether or
not connected with his business or profession. Property may be tangible or intangible.
Land, buildings, vehicles, goodwill, tenancy rights, leaseholds rights, licenses, patents,
trademarks etc. are some examples of capital assets.
EXCLUDES SPECIFIED ASSETS
The following assets are, however, excluded from the definition of capital assets:
1)any stock-in-trade, consumable stores or raw material held for the purpose of business
or profession (whose sale is taxed as profits from business).
2)personal effects of the assessee, i.e. 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; excluding jewellery; ornaments of gold, silver, platinum or any precious metal
(even if worked or sewed into any wearing apparel); precious or semi-precious stones
(even if set in any furniture, utensil or wearing apparel); archaeological collections;
drawings; paintings; sculptures or any work of arts.
3) agricultural land in India, which is not situated in an urban area i.e.
in any area within the jurisdiction of a municipality or a cantonment board having a
population of 10,000 or more; original any notified area, within 8 Kilometers of an area
SHORT TERM CAPITAL ASSET :
Capital assets are divided into two types - short term assets and long term assets.
Normally, 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
1)Equity-or preference shares in a company (whether shares are quoted or not).
2) Securities (like debentures, Government securities) listed in a recognised stock
exchange in India.
3)Units of Unit Trust of India (whether quoted or not).
4)Units of mutual funds specified under section 10(23D) (whether quoted or not).
5)Zero Coupon Bond.
LONG TERM CAPITAL ASSET
An asset other than a short-term capital asset is regarded as a long-term capital asset.
Thus, shares/securities/units held for 12 months (or more) or any other asset held for 36
months (or more) are long term assets. Gains from transfer of long term capital assets
give rise to long term capital gains

CA.CS.CMA.MBA: Naveen. Rohatgi

TAXATION

Illustration 1
Determine the amount of taxable capital gains in respect of the following transaction :
M sells a residential house property in Pune for Rs. 26.30,000 on April 20, 2013 which
was purchased by him on April 20, 2009 for Rs. 2,90,000.
Illustration 2
On November 2, 2013, M sells gold for Rs. 9,02,000 (cost of acquisition on March 10,
1997: Rs. 1,04,000). Expenses on purchase and transfer are Rs. 1,100 and 2,000
respectively. Find out the amount of capital gains if any.
Illustration 3
X sells the following capital asset during the previous year 2013-14
House
Rs.
Sale consideration
16,40,500
Year of acquisition
1998-99
Cost of acquisition
18,000
Cost of improvement incurred in 2002-03
1,05,407
Illustration 4
M owns a residential house at Mumbai since 1968 (income is taxable under section 22).
The house is sold by him for Rs. 50,00,000 on June 30,2013 (cost of acquisition : Rs.
3,00,000, fair market value on April 1, 1981 5,10,000). Determine the amount of capital
gains chargeable to tax.
Illustration 5
G purchases a house property for Rs. 30,000 on June 20, 1964. He gets the first floor of
the house constructed in 1965-66 by spending Rs. 20,000. He dies on December 22,
1980. The property is transferred to Mrs. G by his will. Mrs. G spends Rs. 25,000 and Rs.
26,700 during 1979-80 and 1984-85 respectively for reconstruction of the property. Mrs.
G sells the house property for Rs. 32,50,000 on February 15, 2014. Brokerage paid by
Mrs. G is Rs. 12,500. The fair market value of the house on April 1, 1981 is Rs. 1,60,000.
Ascertain capital gains.
Illustration 6
X purchases a property on April 1, 1965 for Rs. 50,000. Later on he gifts the property to
his friend Y on June 10,1984. The following expenses are incurred by X and Y for
renewals of the property.
Particulars
RS
Addition of one room by X during 1978-79
30,000
Addition of two room by Y during 1986-87
40,000
Addition of four room by Y during 1991-92 1,15,000
The fair market value of the property as 1-4-1981 is 65,000. The house property is sold
for Rs 48,00,000 on 1-6-2013

CA.CS.CMA.MBA: Naveen. Rohatgi

TAXATION

Illustration 7
The Central Government acquires the property of Mr. Jayakishan on 1-6-2007. It
was purchased by him on 1-1-1996 for Rs. 3,98,000. He had incurred expenses of
Rs 99,500 on making capital alterations to it during May 1999. A compensation of
Rs. 42,00,000 was awarded to Jaykishan, which he received on 1-6-2009. He filed a
suit against the Government for increasing the amount of compensation. The High
Court increased the compensation by Rs.12,00,000 on 1-1-2012 which was actually
received by Mr. Jaykishan on 1-1-2014. He had incurred Rs. 10,000 as legal
expenses in this connection. Calculate the amount of taxable capital gains
Illustration 8
Mr Ketanbhai acquires shares in Global Ltd. On 1-5-1989 for Rs. 1,50,000, as an
investment. He starts a share brokerage firm Gafla & Co. on 1-6-1993 and converts the
above shares as stock-in-trade on this date. The fair market value of these shares on 1-61993 is Rs. 3,00,000. He sells these shares on 1-6-2013 for Rs. 10,00,000.
(b) What would be the taxability, if these shares are not sold but held as stock-in-trade as
on 31-3-2014?
Illustration: 9
X holds 1000 equity shares in A Ltd since 1978 (cost of acquisition : Rs 10,000, fair
market value of the property on April1, 1981 is Rs 14,000). A Ltd offers Bonus shares of
800 shares on April 1. 1986. A Ltd offers 2000 right shares of Rs 10 each to X on May 1,
2013 at a premium of Rs 50. X subscribes right shares and renounces 1200 shares in
favour of C by transferring the right entitlement for a consideration of Rs 4,800. X sells
2600 shares in A LTD on March 30, 2014 @ Rs 175 per share. Brokerage 1%..
Advise tax planning
a)X have purchased the bonds of REC Rs 60,000. NABRD Bonds Rs 50,000. on 15 July
2014.
b) X purchased residential house for Rs 1,50,000 June 12015
Cost Inflation Index
SR. NO.

FINANCIAL YEAR

COST INFLATION
INDEX

SR. NO.

FINANCIAL YEAR

COST INFLATION
INDEX

1.

1981-82

100

2.

1982-83

109

3.

1983-84

116

4.

1984-85

125

5.

1985-86

133

6.

1986-87

140

7.

1987-88

150

8.

1988-89

161

9.

1989-90

172

10.

1990-91

182

CA.CS.CMA.MBA: Naveen. Rohatgi

TAXATION

11.

1991-92

199

12.

1992-93

223

13.

1993-94

244

14.

1994-95

259

15.

1995-96

281

16.

1996-97

305

17.

1997-98

331

18.

1998-99

351

19.

1999-2000

389

20.

2000-01

406

21.

2001-02

426

22.

2002-03

447

23.

2003-04

463

24.

2004-05

480

25.

2005-06

497

26.

2006-07

519

27.

2007-08

551

28.

2008-09

582

29

2009-2010

632

30

2010-2011

711

31

2011-12

785

32

2012-13

852

33

2013-14

939

CA.CS.CMA.MBA: Naveen. Rohatgi

TAXATION