CAPITAL GAIN

Sec 45,48,49,50,54 & 54EC

&
Sec 2(14) & 2(47)

CAPITAL GAINS U/S 45

 ANY PROFIT OR GAIN ARISING FROM THE TRANSFER OF CAPITAL ASSET IS CHARGEABLE TO TAX UNDER
THE HEAD CAPITAL GAINS.

*TRANSFER WHEN COMPLETE & EFFECTIVE

. Generally capital gain is taxable in the year in which capital asset is transferred.

. Different rules are applicable in case of movable/immovable asset to find out when a capital asset is
“TRANSFERRED”

 CAPITAL ASSET IS DEFINED TO INCLUDE PROPERTY OF ANY KIND WHETHER FIXED OR CIRCULATING
,MOVABLE OR IMMOVABLE , TANGIBLE OR INTANGIBLE.
 CAPITAL ASSET MEANS PROPERTY OF ANY KIND HELD BY AN ASSESSEE WHETHER OR NOT CONNECTED
OR HELD BY AN ASSESSEE WITH HIS BUSINESS/PROFESSION
 EXCEPT FOLLOWING.,
1. Any stock in trade consumable stores or raw materials held for the purpose of business and profession.
2. “Personal effect” i.e Any asset used for personal purpose. But Jewellery, archeological collections, grings,
painitings, sculptures of any work of art personal use is treated as a capital asset
3. Agricultural Land in India.
4. 6 ½ % Gold Bonds, 1977 or 7 % Gold Bonds 1980, or National Defence Gold bonds 1980
5. Special Bearer Bonds, 1991
6. Gold Deposit Bonds issue under Gold deposit Scheme 1999
SHORT TERM CAPITAL ASSET [SECTION 2(42A)]
 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
 Capital Assets being shares in a company listed securities or Units in UTI or Zero Coupon bonds
 Such assets is held for a period of not more than 12 months it shall be treated as short –Term
Capital Asset
LONG TERM CAPITAL ASSET [SECTION 2 (29A)]
 LONG TERM CAPITAL ASSET MEANS A CAPITAL ASSET HELD BY AN ASSESSEE FOR MORE THAN 36
MONTHS.

 SHARES AND DEBENTURES ARE ALSO LONG TERM CAPITAL ASSET ,BUT THE PERIOD OF HOLDING SHOULD
BE MORE THAN 12 MONTHS.

TRANSFER OF CAPITAL ASSET

According to Section 2(47)

TRANSFER INCLUDES
 SALE OF CAPITAL ASSET
 EXCHANGE OF CAPITAL ASSET
  RELINQUISHMENT OF CAPITAL ASSET
 EXTINGUISHMENT OF RIGHTS IN A CAPITAL ASSET
 COMPULSORY ACQUISITION BY GOVERNMENT
 CONVERSION OF CAPITAL ASSET INTO STOCK IN TRADE
TRANSACTION NOT TREATED AS TRANSFER
 DISTRIBUTION OF CAPITAL ASSET BY COMPANY TO THE SHAREHOLDER AT THE TIME OF LIQUIDATION
 DISTRIBUTION OF CAPITAL ASSET BY H.U.F TO ITS MEMBERS AT THE TIME OF PARTITION.
 CAPITAL ASSET DISTRIBUTED OR ACQUIRED BY WAY OF GIFT,UNDER WILL OR UNDER LAW OF
INHERITANCE.
 TRANSFER OF CAPITAL ASSET BEING ART COLLECTION DRAWINGS PAINTINGS OR ANY ANTICS etc TO
NATIONAL MUSEUM , NATIONAL ART GALLERY PULIC MUSEUM
 DEBENTURES CONVERTED INTO SHARES OF THE SAME COMPANY OR DEPOSITS CERTIFICATES
CONVERTED INTO DEBENTURES OF SAME COMPANY
Calculation of Short-term Capital Gain
 Full Value of consideration XX

 Less Transfer Expenses XX

 Less Cost of acquisition XX

 Less Cost of Improvement XX

Short-term Capital Gain XX

Full Value of Consideration Section – 48

 Consideration means the value received for the transfer. The value may be money or money’s worth.
Consideration received or receivable is taken into account. Capital Gain are taxed on accrual basis and not
on cash basis

 Full Value means the whole or entire or complete value

 The gross value i.e what the transferor receives in lieu of the asset he gives up

Expenditure on Transfer

 Expenditure incurred by the transferor wholly and exclusively in connection with such transfer . Means
the expenditure which is necessary to effect the transfer. eg., Brokerage, commission, stamp duty,
registration fees, travelling expenses incurred in connection with such trasfer

 Cost Of Acquisition

Cost of acquisition of an asset is the value for which it was acquired by the assessee. Expenses of capital nature for
completing or acquiring the title to the property are includible in the cost of acquisition

COST OF ACQUISITON (SEC 48)

No Type of Capital Asset Cost of Acquisition

1 Goodwill of a business, trademark on brand Amount of purchase price (FMV on 1-4-2001not allowed even
name associated with a business, right to
manufacture or produce or process any if acquired before 1-4-2001)
article or thing or tenancy rights or state
carriage permits or loom hours purchased
from previous owner.

2 Same assets as above but self generated. Nil (FMV on 1-4-2001 not allowed)

3 (a) Bonus shares Nil (But if acquired before 1-4-2001 FMV as on 1-4-2001 allowed)

(b) Right Shares Amount actually paid

4 Any other asset becoming the property of Cost of acquisition to the assessee or its FMV as on 1-4-2001
assessee.
at the option of the assessee

5 Capital asset becoming the property of the Cost of acquisition to the previous owner or its FMV as on 1-4-2001
assessee in any of the modes specified in
section 49(1) which became the property of at the option of the assessee.
the previous owner before 1-4-1981.

DEEMED COST OF ACQUISITON (SEC 48)

No Type of Capital Asset Cost of Acquisition

1 (a) Distribution of assets on partition of HUF. Cost of acquisition to the previous owner. [Sec 49 (1)]
(b) Gift or will.
© Succession, inheritance or devaluation.
(d) Distribution of assets on liquidation of the
company
(e) Transfer to a trust.
(f) Transfer by holding co. to wholly owned subsidiary
co. or vice versa.
(g) Transfer in a scheme of amalgamation of
Two Indian companies &Two Foreign companies
(h) Conversion of self acquires individual property
with HUF property
2 Share of debentures acquired on conversion of Cost of corresponding debentures or the debenture
debentures, stock or deposit certificate. stock or deposit certificate.

3 Acquisition of shares in the resulting co. due to Cost of shares * Book value of assets tfd. / Net worth
demerger. of co. before demerger.

4 Acquisition of original shares of demerged co. Original cost of acquisition less the value arrived at

point no. 3 above.

The income chargeable under the head “Capital Gain” shall be computed, by deducting from the full value of the
consideration received or accruing as the result of the transfer of the capital asset. The following are the amount
namely

Expenditure incurred wholly or exclusively in connection with the transfer.

The cost of acquisition of the asset and the cost of any improvement thereto.

Provided that long term capital gain arises from the transfer of a long term capital asset. While computing
long term Capital Gain “Indexed cost of acquisition” & “Indexed cost of improvement” is to be considered.

 “INDEXED COST”
 meaning :
 index cost refers to computing of long term capital gains.
 index cost helps to tax only real gains earned by the assessee on the sale of goods.

“COST OF INFLATION INDEX”.

Cost
inflation
Year index
2001-02 100
2002-03 105
2003-04 109
2004-05 113
2005-06 117
2006-07 122
2007-08 129
2008-09 137
2009-10 148
2010-11 167
2011-12 184
2012-13 200
2013-14 220
 2014-15 240
2015-16 254
2016-17 264
2017-18 272
“INDEX COST OF ACQUISITION SEC.48

Index cost of acquisition is a amount which bears to the cost of acquisition the same proportion as the cost of
inflation index (cii).

Index cost of Acquisition = COA X CII FOR YR. OF TRANSFER

CII FOR YR.OF ACQUISITION
Note : for post April 2001 assets indexation starts from the year, when the asset is held.
For pre = April 2001 assets CII for the yr of acquisition is taken as 100.
“INDEXED COST OF IMPROVEMENT”

It is defined as an amount which bears the cost of improvement the same proportion as the cost of inflation index
for the year which the asset is transferred.

INDEX COST OF IMPROVEMENT = Cost of Improvement X CII FOR YR.OF TRANSFER.

CII FOR YR.OF IMPROVEMENT
Exemptions of Capital Gains
Exemption is nothing but a reduction from the capital gain which is
taxable, on which tax will not be levied and paid.
The exemptions of capital gains are provided in the following cases
Under sec 10, 54, 54B, 54D, 54EC, 54ED, 54EF, 54F & 54G as follows:-
 Exemption of capital gains on compulsory acquisition of agricultural land
 Exemption of LTCG arising from sale of shares and units
 Exemption of capital gain on transfer of an asset of an undertaking engaged in the business of generation,
transmission, distribution of power
 If house property that is transferred is used for residential purpose
 House property was a long term capital asset
 If agricultural land used by an assessee to purchase another agricultural land within a period of 2 years
after the date of transfer
 Any LTCG shall be exempt to the extent such capital gain is invested within a period of 6 months after the
date of transfer in the specified long term asset
 Capital gain arising from the transfer of LTCA being listed securities or Unit of a mutual fund or the UTI
shall be exempt to the extent such capital gain is invested in equity shares forming part of an eligible
capital within a period of 6 months after the date of such transfer
 The Capital gain that arises to an individual/HUF from the transfer of any capital asset other than
residential house property shall be exempt in full if the entire net sales consideration is invested in
purchase of one residential house 1 year before or two years after the date of transfer.
Any capital gain arising to an individual undertaking from the compulsory acquisition under any law, shall be
exempt to the extent such capital gain is invested in the purchase of another land/building within a period of 2
years after the date of transfer