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Relevant Sections

Definitions: 2(14), 2(29A), 2(29B), 2(42A), 2(42B) & 2(47)

Exemption: 10 (38)

Computation: 45 to 55A

Tax: 111A, 112

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CHARGE

Section 45 (1)

Any profits or gains arising from the transfer of a Capital Asset effected in the previous year shall, save as otherwise provided in sections be charged to income-tax under the head “Capital gains”, and shall be deemed to be the income of the previous year in which the transfer took place.

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Capital Asset … … Section 2(14)

“Capital Asset” means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include

i. Any stock-in-trade, consumable stores or raw materials held for the purpose of his business & 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

Jewellery, archaelogicla collections; drawings; paintings; sculptures OR any work of art

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……. Jewellery ……

Explanation – For the purpose of this sub-clause “jewellery” includes –

a. Ornaments made of gold, silver, platinum or any other precious or any alloy containing one or more of such precious or semi precious metals, whether or not containing any precious or semi precious stone

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.

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iii. Agricultural land in India, not being land situated-

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 committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year; or

b. In any area within such distance, not being more than eight km, from the local limits of any municipality or cantonment board referred to in item (a), as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the official Gazette.

……. Does not include ……

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……. Does not include

iv. 6 ½ per cent Gold Bonds, 1977; or 7 per cent Gold Bonds, 1980; or National Defence 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.

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CAPITAL ASSET Land Building Plant & Machinery Motor Car if used in B&P Jewellery Silver Utensil Share Watch Studded with stones

NOT A CAPITAL ASSET

Personal Effects

Agricultural Land

Specified Bonds

Personal Motor Car

Watch not studded with stones

Sum up

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Different types of Assets

Section 2(29A)o Long Term Capital Asset means a capital asset which is

not a Short Term Capital Asset Section 2(42A)

o Short Term Capital Asset means a capital asset held by an assessee for not more than thirty six months, in case of shares the period of holding shall be not more than twelve months.

LO NG TERMCAPITAL ASSET

SHO RT TERMCAPITAL ASSET

CAPITAL ASSET

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Transfer Section 2(47)

Transfer in relation to a capital asset, includes,-i. The sale, exchange or relinquishment of the asset;ii. The compulsory acquisition thereof under any law;iii. In a case where the asset is converted by the owner thereof into,

or treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment

iv. Any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the TOP Act;

v. Any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any 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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Exceptions … 45 (1A) - When Compensation is received from an

Insurance company – CG is chargeable in the year of receipt.

45((2) – When a CA is converted into stock-in-trade – CG will be charged in the year of sale – NSC will be the FMV of the asset on date of such conversion.

45(3) – When CA is transferred to Firm/AOP/BOI/ Partnership as capital contribution - CG is chargeable in the year of transfer – NSC will be the book value of the asset in the books of the firm.

45(4) – When CA is transferred by Firm/AOP/BOI/ Partnership to a person - NSC will be the FMV of the asset. 11

… Exceptions 45 (5) - When Compensation is received from RBI /

Central Government – CG is chargeable in the year of receipt.

If the compensation is enhanced then the entire amount of such enhanced compensation is to be charged to tax and the NSC will be treated as NIL. In case of death of the receiver of such compensation then the actual recipient will be liable to pay the tax.

But if the amount of enhanced compensation is reduced, CG will be recomputed.

45((6) – No indexation is to be allowed in case at the time of repurchase of units covered u/s 80CCB(2)

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Section 45 (2A)

Capital Gains to be charged in the hand of the beneficial owner not in the hand of the depository.

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Section 47 Transactions not regarded as transfer

Any distribution of capital asset on the total or partial partition of HUF

Any transfer under gift or will or irrevocable trustAny transfer from a holding company to a

subsidiary company and vise versaAny transfer in a scheme of amalgamation or

demerger of companies or conversion of firm/proprietary concern into a company

Withdrawal of exemption in certain cases 14

Section 48

Mode of Computation

Full Value of Consideration

Less

Cost of Acquisition

+ Cost of Improvement

+ Exp. incurred in connection with such transfer

In case of Long Term Capital Asset CA & CI would be replaced by ICA & ICI

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Section 49 Cost with reference to certain mode of acquisition

Any distribution of capital asset by :::: Succession :::: Inheritance

Any distribution of capital asset :::: On the total or partial partition of HUF :::: Dissolution of Firm or AOP or BOI :::: Liquidation of a Company :::: Under a Transfer to a revocable or irrevocable trust.

The CA of the asset shall be the cost for which the previous owner acquired the property plus the cost of any improvement incurred by the previous owner or the assessee.

Indexation to be allowed on the basis of the years in which the actual possession was taken. 16

Self Generated Assets Sec. 55

Self Generated Assets

Sale Cons.

COA COI Exp. on Trf.

Capital Gain

Goodwill Actual Nil Nil Actual Sale Cons. – Exp.

Tenancy Right & Route Permit

Actual Nil Actual Actual Sale Cons –(COI+Exp.)

Right to Manufacture,

Produce or Process any article

Actual Nil Nil Actual Sale Cons. – Exp.

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Section 50

Special Treatment for Computation of CG in case of Depreciable Assets

All gains shall be treated as Short Term Capital Gain so no question of Indexation

Will be calculated on the entire block

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EXAMPLE

1. WDV of ten Motor Cars is Rs. 1,50,000/- on 01-04-2003

2. Six Cars are sold at a price of Rs. 4,80,000/- on 01-07-2003.

3. Brokerage paid Rs. 10,000/-

4. On 01-03-2004 one car was purchased at a price of Rs. 3,00,000/-.

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… CONTINUED Rs. Rs.

• Sale Consideration 4,80,000Less : Brokerage 10,000• Net Sale Consideration 4,70,000 Less• WDV as on 01-04-2003 1,50,000Add : Addition

on 01-03-2004 3,00,000 4,50,000• Short Term Capital Gain 20,000

• WDV as on 01-04-2004 NIL

Year of Purchase of the cars are of no significance20

Section 50Co CA/ICA of a building : Rs. 6,40,000/-

o Sales Consideration received : Rs. 7,00,000/-

o Incidental Expenses : Rs. 10,000/-

o Value adopted by the ‘stamp Rs. 7,50,000/- valuation authority :

NSC actually received : Rs. 7,00,000/- STCG/LTCG (before S 50C) : Rs. 50,000/-

Deemed NSC as per S 50C : RS. 7,50,000/- STCG/LTCG as per S 50C : Rs. 1,00,000/-21

Remedy

Condition :i. The ‘a’ claims before the A.O. that value adopted by

SVA exceeds the FMV of the property.

ii. The value so adopted has not been disputed before any other authority / Court.

The valuation of the asset shall be referred to a valuation Officer.

The lesser of the two valuation will be accepted as Full Consideration

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Section 54 [Res. HP Res. HP] Entitlement :

Individual & HUF Residential Building & Land appurtenant thereto (OA) Long Term Capital Asset

Investment in : A Residential House Property (NA)

Investment within: Purchased

o One Year before or Two years after the date of tr. Constructed

o Three years after the date of tr.

Deduction available : Amount of investment to be deducted from LTCG24

…… Investment … Unutilised amount to be invested in Capital

Gains Accounts Scheme, 1988 of a Public Sector Bank on or before the due date for filing of Return.

o Evidence to be filed with the return of income

Amount to be utilisedi. Within 2 years from tr. in case of purchaseii. Within 3 years from tr. in case of construction

Amount not untilised within the above time limito To be charged as LTCG in the P.Y. in which the

period of 3 years from the date of transfer of OA expires 25

… If NA is transferred If the New Asset is transferred after 3 Years of

Purchase/construction Regular Treatment of ICA

If the New Asset is transferred within 3 Years of Purchase/construction If CA of NA < LTCG arising out of transfer of OA

o CA of NA = NIL If CA of NA > LTCG arising out of transfer of OA

o CA of NA = CA of NA - LTCG

CG on transfer of NA + Deduction availed earlier

Entire amount of Gain is treated as STCG 26

Section 54 EC [Cap. Asset Spec. Asset] Entitlement :

Any assessee Any Long Term Capital Asset (OA) transferred on

or after 01-04-2000

Investment in : Specified Long Term Asset (NA)

o NHAI, RECL & No 80C Max. 50L in a F.Y.

Investment within: Within 6 months from the date of transfer of the OA

Minimum Period of Holding of NA : 3 Years

Deduction available : Amount of investment to be deducted from LTCG

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Section 54F [Any CA Res. HP] Entitlement :

Individual & HUF Any Long Term Capital Asset

Investment in : A Residential House Property (NA)

Investment within: Purchased

o One Year before or Two years after Constructed

o Three years after

Deduction Available : Proportionate to net consideration received

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…… Calculation …

Deduction

Net Consideration

Amount Invested

LTCG X=

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…… Investment … Unutilised amount to be invested in Capital

Gains Accounts Scheme, 1988 of a Public Sector Bank on or before the due date for filing of Return.

o Evidence to be filed with the return of income

Amount to be utilisedi. Within 2 years in case of purchaseii. Within 3 years in case of construction

Amount not utilised within the above time limito To be charged as LTCG in the P.Y. in which the

period of 3 years from the date of transfer of OA expires

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… Amount not utilised … To be charged as LTCG in the P.Y. in which

the period of 3 years from the date of transfer of OA expires.

Amount of original LTCG

Unutilised Amount

Net Sale Consideration

X

Quantum ofsuch LTCG

=

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… Conditions …i. Must not own more than one Residential House Property

(OA), on the date of transfer, other than NA.

ii. Must not purchase any Residential House Property within 1 year from the date of transfer, other than NA.

iii. Must not construct any Residential House Property within 3 years from the date of transfer, other than NA.

No deduction will be allowed in the first place, if condition (i) is not fulfilled.

Failure to maintain either condition (ii) or (iii) means the entire amount of deduction will be charged as LTCG in the P.Y. in which the condition is broken.

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… If NA is transferred If the New Asset is transferred after 3 Years of

Purchase/construction Regular Treatment of ICA

If the New Asset is transferred within 3 Years of Purchase/construction Exemption allowed earlier will now be taxed as

LTCG in the P.Y. in which the NA is transferred

Plus Capital Gain on transfer of NA as STCG

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Please remember

Exemption are either LTCG based

or

NSC based

In case of NSC based exemption the quantum of exemption is allowed on pro

rata basis

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Other Important Sections Sec. 51 Treatment of retained advance

WDV or CA will be reduced by the quantum of such confiscated advance before Indexation is done

Sec. 55A Reference to Valuation Officer

Sec. 10(38) No CG on transfer of any equity shares sold on or after in 01-04-2004 and is a LTCA

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CALCULATION OF TAX …

For shares or unit of equity oriented fund traded through a recognised stock exchange.

1. STCG is to be taxed @ 10%. Sec. 111A.

2. LTCG is exempt. Sec. 10(38).

Other than shares

1. STCGs are to be taxed at normal rate.

2. LTCGs are to be taxed @ 20% Sec. 112.36

… CALCULATION OF TAX

For STCG on shares and all LTCG - where special rates are applicable

1. No Deduction under Chapter VIA.

However

1. Benefit of basic exemption is available.

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