CAPITAL GAINS

(Project Report)

Submitted to
Mr. V. Surya Narayana Raju
Faculty Member in Corporate Tax

Submitted by
SURBHI BAIS
B. A. LL. B. (Hons.) Student
Semester – VIII , Section – C, Roll No. 175

Hidayatullah National Law University

Uparwara Post, Abhanpur, New Raipur – 493661 (C.G.)

1
 DECLARATION
This is to certify that the Project work done at Hidayatullah National Law University, Raipur
Chhattisgarh by Ms.SURBHI BAIS, Roll no.175 has been found satisfactory. It has not been
submitted for any other examination and does not form a part of any other course undergone by
the candidate. It is further certified that she has made the project with all her sincerity and is
found authentic and not copied from any other project submitted earlier.

SURBHI BAIS

2
 ACKNOWLEDGEMENTS
First and foremost I would like to thank our course teacher Mr.V.Surya Narayana Raju, Faculty
in land laws, HNLU, for allotting me this topic to work on and whose help and assistance
enabled me to move ahead with this topic.
I would like to thank my friends, who gave me their precious time for guidance and helped me a
lot in completing my project by giving their helpful suggestion and assistance. I would like to
thanks my seniors for their valuable support. Last, but not the least I thank the University
Administration for equipping the University with such good library and I.T. facilities, without
which, no doubt this work would not have taken this shape in correct time .

SURBHI BAIS
SEM VIII
ROLL NO.175

3
CONTENTS

4
CHAPTER 1: INTRODUCTION

CAPITAL GAINS
A capital gain is a profit that results from a sale of a capital asset, such as stock, bond or real
estate, where the sale price 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.

When we buy any kind of property for a lower price and then subsequently sell it at a higher
price, we make a gain. The gain on sale of a capital asset is called capital gain. This gain is not a
regular income like salary, or house rent. It is a one-time gain; in other words the capital gain is
not recurring, i.e., not occur again and again periodically.
Opposite of gain is called loss; therefore, there can be a loss under the head capital gain. We are
not using the term capital loss, as it is incorrect. Capital Loss means the loss on account of
destruction or damage of capital asset. Thus, whenever there is a loss on sale of any capital
asset it will be termed as loss under the head capital gain.

OBJECTIVES
1. To study the standard rent.
2. To examine the Procedure .
3. To analyse the rights and obligations of tenants .

RESEARCH METHODOLOGY
Nature of research work: This project “Standard rent its practice and procedure” is a “Doctrinal”
work. Doctrinal research includes studying books and established literature and not actually
going to the field and doing empirical research.
Source of research work: The sources of this project are both primary (bare acts, statutes, etc)
and secondary sources (books given by different authors, journals, internet, etc).

5
SCOPE AND LIMITATION

This project is limited to the provisions and recognition of concept there under in Chhattisgarh
Rent Control Act, 2011

6
OBJECTIVE
After going through this lesson you will be able to understand the meaning of capital asset, types

of capital asset, what is not capital asset, computation of capital gain, types of capital gains etc.

You will also be learning how to calculate the capital gain of simple problems. The capital gain

is also an income and it is taxable too, at the end of the chapter you will also learn the tax

treatment of the capital gain.

BASIS OF CHARGE
The capital gain is chargeable to income tax if the following conditions are satisfied:

1. There is a capital asset.

2. Assessee should transfer the capital asset.

3. Transfer of capital assets should take place during the previous year.

4. There should be gain or loss on account of such transfer of capital asset.

DEFINITION OF ‘CAPITAL ASSET’

As per S.2 (14) of the Income Tax Act, 1961, unless the context otherwise requires, the term
“capital asset” means:
(a) Property of any kind held by an assessee, whether or not connected with his business or
profession;

(b) Any securities held by a Foreign Institutional Investor which has invested in such securities
in accordance with the regulations made under the Securities and Exchange Board of India Act,
1992; but does not include:

(i) Any stock- in-trade, other than the securities referred to in sub-clause (b), consumable stores
or raw materials held for the purposes of his business or profession;

(ii) Personal effects, that is to say, movable property (including wearing apparel and furniture)
held for personal use by the assessee or any member of his family dependent on him, but
excludes:

11

7
(a) jewellery;

(b) archaeological collections;

(c) drawings;

(d) paintings;

(e) sculptures; or

(f) any work of

art. Explanations:

1. For the purposes of this sub-clause, “jewellery” includes:

(a) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing
one or more of such precious metals, whether or not containing any precious or semi-precious
stone, and whether or not worked or sewn into any wearing apparel;

(b) precious or semi-precious stones, whether or not set in any furniture, utensil or other article
or worked or sewn into any wearing apparel.

2. For the purposes of this clause:

(a) the expression “Foreign Institutional Investor” shall have the meaning assigned to it in clause
(a) of the Explanation to section 115AD;

(b) the expression “securities” shall have the meaning assigned to it in clause (h) of section 2 of
the Securities Contracts (Regulation) Act, 1956;

(iii) agricultural land in India, not being land situate:

(a) in any area which is comprised within the jurisdiction of a municipality (whether known as a
municipality, municipal corporation, notified area committee, town area committee, town

12

8
committee, or by any other name) or a cantonment board and which has a population of not less
than ten thousand; or

(b) in any area within the distance, measured aerially:

(I) not being more than two kilometres, from the local limits of any municipality or cantonment
board referred to in item (a) and which has a population of more than ten thousand but not
exceeding one lakh; or

(II) not being more than six kilometres, from the local limits of any municipality or cantonment
board referred to in item (a) and which has a population of more than one lakh but not exceeding
ten lakh; or

(III) not being more than eight kilometres, from the local limits of any municipality or
cantonment board referred to in item (a) and which has a population of more than ten lakh.

Explanation: For the purposes of this sub-clause, “population” means the population according to
the last preceding census of which the relevant figures have been p ublished before the first day
of the previous year.

(iv) 6½ per cent Gold Bonds, 1977, or 7 per cent Gold Bonds, 1980, or National Defence Gold
Bonds, 1980, issued by the Central Government;

(v) Special Bearer Bonds, 1991, issued by the Central Government;

(vi) Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 notified by the Central
Government.

Explanation:
“Property” includes and shall be deemed to have always included any rights in or in relation to
an Indian company, including rights of management or control or any other rights whatsoever.

Definitions of capital asset mainly distinguish the business assets from other assets for the
purpose of taxation under the head Capital Gains.

9
TRANSFER

Capital gain arises on transfer of capital asset; so it becomes important to understand what is the
meaning of word transfer. The word transfer occupy a very important place in capital gain,
because if the transaction involving movement of capital asset from one person to another person
is not covered under the definition of transfer there will be no capital gain chargeable to income
tax. Even if there is a capital asset and there is a capital gain.
The word transfer under income tax act is defined under section 2(47). As per section 2 (47)
Transfer, in relation to a capital asset, includes sale, exchange or relinquishment of the asset or
extinguishments of any right therein or the compulsory acquisition thereof under any law.
In simple words Transfer includes:
a) Sale, exchange or relinquishment of asset

b) Extinguishment of right over asset

c) Compulsory acquisition under any law

d) Personal effects converted into Stock-in-trade

e) Maturity of zero coupon bonds

f) Allowing possession under transfer of property act, 1882

g) Allowing enjoyment of immovable property

Transfer includes:

i) Sale, exchange or relinquishment of a capital asset

A sale takes place when tide in the property is transferred for a price. The sale need not be
voluntary. An involuntary sale of a property of a debtor by a court at the instance of a decree
holder is also transfer of a capital asset.
An exchange of capital asset takes place when the title in one property is passed in
consideration of the title in another property.
Relinquishment of a capital asset arises when the owner surrenders his rights in property in
favour of another person. For example, the transfer of rights to subscribe the shares in a
company under a ‘Rights Issue’ to a third person.

14

10
ii) Extinguishment of any rights in a capital asset
This covers every possible transaction which results in destruction, annihilation,
extinction, termination, cessation or cancellation of all or any bundle of rights in a capital
asset. For example, termination of a lease or of a mortgagee interest in a property.

iii) Compulsory acquisition of a capital asset under any law

Acquisition of immovable properties under the Land Acquisition Act, acquisition of
industrial undertaking under the Industries (Development and Regulation) Act etc.., are some
of the examples of compulsory acquisition of a capital asset.

iv) Conversion of a capital asset into stock-in-trade

Normally, there can be no transfer if the ownership in an asset remains with the same person.
However, the Income tax Act provides an exception for the purpose of capital gains. When a
person converts any capital asset owned by him into stock-in- trade of a business carried on by
him, it is regarded as a transfer. For example, where an investor in shares starts a business of
dealing in shares and treats his existing investments as the stock- in-trade of the new business,
such conversion arises and is regarded as a transfer. The Fair Market Value of the asset on the
date of such conversion shall be the Full Value of Consideration for the transfer.

v) Part performance of a contract of sale

Normally transfer of an immovable property worth Rs. 100/- or more is not complete without
execution and registration of a conveyance deed. However, section 53A of the Transfer of
Property Act envisages situations where under a contract for transfer of an immovable
property, the purchaser has paid the price and has taken possession of the property, but the
conveyance is either not executed or if executed is not registered. In such cases the transferer is
debarred from agitating his title to the property against the purchaser.
The act of giving possession of an immovable property in part performance of a contract is
treated as ‘transfer’ for the purposes of capital gains. This extended meaning of transfer applies
also to cases where possession is already with the purchaser and he is allowed to retain it in
part performance of the contract.

15

11
vi) Transfer of rights in immovable properties through the medium of co-
operative societies, companies etc.
Usually flats in multi-storeyed building and other dwelling units in group housing schemes
are registered in the name of a co-operative society formed by the individual allottees.
Sometimes companies are floated for this purpose and allottees take shares in such companies. In
such cases transfer of right to use and enjoy the flat is effected by changing the membership of co-
operative society or by transferring the shares in the company. Possession and enjoyment of
immovable property is also made by what is commonly known as ‘Power of Attorney’ transfers.
All these transactions are regarded as transfer.

vii) Transfer by a person to a firm or other Association of Persons [AOP] or Body of

Individuals [BOI]
Normally, firm/AOP/BOI is not considered a distinct legal entity from its partners or members
and so transfer of a capital asset from the partners to the firm/AOP/BOI is not considered
‘Transfer’. However, under the Capital Gains, it is specifically provided that if any capital asset
is transferred by a partner to a firm/AOP/BOI by way of capital contribution or otherwise,
the same would be construed as transfer.

viii) Distribution of capital assets on Dissolution

Normally, distribution of capital assets on dissolution of a firm/AOP/BOI is also not
considered as transfer for the same reasons as mentioned in (vii) above. However, under the
capital gains, this is considered as transfer by the firm /AOP/BOl and therefore gives rise to
capital gains for the firm/AOP/BOI.

ix) Distribution of money or other assets by the Company on liquidation

If a shareholder receives any money or other assets from a Company in liquidation, the shareholder
is liable to pay capital gains as the same would have been received in lieu of the shares held by him
in the company. However, if the assets of a company are distributed to the shareholders on its
liquidation such distribution shall not be regarded as transfer by the company.

16

12
x) The maturity or redemption of a zero coupon bond
Here, a zero coupon bond means a bond issued by any infrastructure capital company or

infrastructure firm or public sector company on or after 1st June, 2005 in respect of which no

payment or benefit is received or receivable before maturity or redemption and which has been

specifically notified by the Central Govt.

13
CHAPTER 3:-TYPE OF CAPITAL ASSETS

A. Short Term Capital Asset

Capital asset held for not more than 36 months immediately prior to the date of transfer shall be

deemed as short-term capital asset. However, following assets held for not more than 12 months

shall be treated as short-term capital assets:

a) Equity or preference shares in a company which are listed in any recognized stock exchange in

India;

b) Other listed securities;

c) Units of UTI;

d) Units of equity oriented funds; or

e) Zero Coupon Bonds.

Note: Unlisted shares held for not more than 24 months immediately prior to the date of transfer

shall be treated as short-term capital asset.

B. Long Term Capital Asset

Capital Asset that held for more than 36 months or 12 months, as the case may be, immediately
preceding the date of transfer is treated as long-term capital asset.

14
CHAPTER 4:-COMPUTATION OF CAPITAL GAIN
Computation of capital gain depends upon the nature of the capital asset transferred during the

previous year, vis-à-vis, short-term capital asset, long-term capital asset or depreciable asset.

Capital gain arising on transfer of short-term capital asset or depreciable asset is considered as

short-term capital gain, whereas transfer of long-term capital asset gives rise to long-term

capital gain.

The capital gains on transfer of capital asset shall be computed in the following manner: - See

more at:

Short-term capital assets Long-term capital assets Depreciable asset

[Section 48]
Full value of consideration
Less: Cost of acquisition of
asset
Less: Cost of improvement
Less: Expenditure incurred
wholly and exclusively in
connection with such transfer
[Section 48]
Full value of consideration
Less: Indexed Cost of
acquisition (See Note 1)
Less: Indexed Cost of
Improvement (See Note 1)
Less: Expenditure incurred
wholly and exclusively in
connection with such transfer
[Section 50]*
WDV of block of asset at the
beginning of previous year
Add: Actual cost of assets
falling within that block
acquired during the year
Less: Full value of
consideration of assets
transferred during the year
Less: Expenditure incurred
wholly and exclusively in
connection with such transfer

* Short-term capital gain or loss from sale of depreciable asset will arise only in the
following two situations:
a) When on last day of the previous year, WDV of the block of asset is nil; or
b) When on last day of the previous year, block ceases to exist.

15
Note 1: Indexed Cost of Acquisition and Improvement [Second Proviso to Section 48]
a) In case of transfer of long-term capital assets, indexed cost of acquisition and indexed cost of
improvement shall be deducted from the full value of consideration;
b) Indexed cost of acquisition and Indexed cost of improvement shall be computed
with reference to Cost Inflation Index (‘CII’) in the following manner:

Indexed Cost of [(Cost of Acquisition) × (CII for the year of transfer)]

Acquisition = (CII for the year of acquisition or for the Financial Year 1981-82,
whichever is later)

Indexed Cost of [(Cost of Improvement) × (CII for the year of transfer)]

Improvement = CII for the year of Improvement

However, there are some cases where benefit of indexation is not available, which are as under:

SECTION CAPITAL ASSET TRANSFEROR

Third Bonds or debentures. Any person
provison to Note: However, indexation benefit is available on two type of
section 48 bonds, namely,-
• Capital indexed bonds (issued by the Government)
• Sovereign Gold Bond (issued by the RBI under the
Sovereign Gold Bond Scheme, 2015)
112 Capital gains arising from transfer of unlisted shares (which is Non-resident
taxable at concessional rate of 10%) as calculated without
giving effect to first proviso to Section 48
50A Depreciable asset (other than an asset used by a power Any person
generating unit eligible for depreciation on straight line basis)
50B Undertaking/division transferred by way of slump sale as Any person
covered by section 50B
115AB Units purchased in foreign currency as given in section 115AB Offshore fund

22

16
115AC Global depository receipts (GDR) purchased in foreign Non-resident
currency as given in section 115AC
115ACA Global depository receipts (GDR) purchased in foreign Resident
currency as given in section 115ACA individual –
employee
115AD Securities as given in section 115AD Foreign
Institutional
Investors

CII in relation to a previous year means such index, as Central Government notifies on year to

17
CHAPTER 4:-RATES OF TAX ON CAPITAL GAINS

1. Short Term Capital Gains

a) Short-term capital gains shall be included in the gross total income of the taxpayer and will be
taxed at the normal rates;
b) Short-term capital gains arising from transfer of Equity Shares, Units of an Equity Oriented
Funds or a unit of a business trust which is chargeable to securities transaction tax shall be
taxed at 15% under Section 111A;
Note:-
Now benefit of reduced rate of tax (i.e., 15%) shall be available w.e.f. 1-4-2016 even in respect
of income arising from transfer of units of a business trust which were acquired by assessee in
lieu of shares of special purpose vehicle as referred to in section 47(xvii).
2. Long Term Capital Gains
a) Long-term capital gains are subject to tax at 20%;
b) Long-term capital gains arising from transfer of listed securities, units or a zero coupon
bonds shall be taxable at lower of following:
i.20% after taking benefit of indexation; or
ii.10% without taking benefit of indexation.
c) Long-term capital gains arising to a non-residents or foreign company from transfer of
unlisted securities shall be taxed at without giving benefit for indexation;
d) Long-term capital gains arising from transfer of listed securities, units of equity oriented or a unit
of business trust which is chargeable to STT shall be exempt from tax under Section 10(38).
Note:
1. Now exemption from capital gains under Section 10(38) shall be available w.e.f. 1-4-2016
even in respect of long-term capital gains arising from transfer of units of a business trust which
were acquired in lieu of shares of special purpose vehicle as referred to in section 47(xvii) and on
which securities transaction tax has been paid.
2. Now exemption from long term capital gains under section 10(38) shall be available w.e.f
April 1, 2017 even where STT is not paid, provided that –
– transaction is undertaken on a recognised stock exchange located in any
International Financial Service Centre, and
– consideration is paid or payable in foreign currency

18
CONCLUSION

The general misconception is that there is no advantage in earning short-term gain, since

it is taxed at the normal rates. However, what may be lost sight of is that the advantage flows

from the fact that a large portion of withdrawals is capital and, simultaneously, an equal amount

from the income gets converted into capital. In other words, you are consuming capital and

investing income.

Obviously, this principle would work only for the long-term investor. If you have a short-

term view and were to sell your entire holdings at one go, this investing strategy will not work.

Look at it any which way, the only way to make the dividend truly tax-free is to avoid

it altogether. The rule is simple - no dividend, no tax.

A capital gain is the difference between what an individual purchases an item for and

what they sell the item for. For instance, if you buy a stock for 45 dollars a share, but sell

that same stock a few years later for 60 dollars a share, then your capital gain on that stock is

15 dollars.

Capital gains do not apply to all items that an individual purchases. For instance,

disposable goods or food do not accumulate capital gains, even if you are able to sell them for

more than you originally paid for them. Rather, capital gains are limited to capital assets,

which are items that an individual buys for personal or investment purposes. Although stocks

are the most common example, this can also include real estate, jewelry, art, or fine goods.

When an individual inherits a capital asset, or is given a capital asset as a gift, this is also

subject to capital gains, even though the transaction is not precisely one of buyer-seller. In such

instances, the capital gain is the difference between the values of the item when purchased by

the gift-giver and when received by the gift-receiver.

19
BIBLIOGRAPHY:

- http://www.investopedia.com/terms/c/capitalgain.asp
- https://en.wikipedia.org/wiki/Capital_gain

- file:///C:/Documents%20and%20Settings/Savarmal/Desktop/Capital%20Gain%20

%E2%80%93%20All%20you%20want%20to%20know.html

- https://www.bankbazaar.com/tax/capital-gains-tax.html

- http://www.charteredclub.com/capital-gain-tax/

- http://taxguru.in/income-tax/taxation-capital-gains- india-frequently-

asked-questions-faqs.html

20