dr. gurumurthy k h asst. prof. in commerce and ......gfgc magadi, 562120, ramanagar (dt) 9448226676,...

1

CAPITAL GAIN (Sec. 45 to 55 A)

1.1 Meaning: Any profit or gain arising from transfer/sale of a capital asset is a capital gain.

This gain or profit is shall be charged to tax in the year in which transfer of capital assets

takes place.

No capital gain is applicable when an asset is inherited because there is no 'sale', only a

transfer. However, if this asset is sold by the person who inherits it, capital gains tax will

be applicable. The Income Tax Act has specifically exempted assets received as gifts by

way of an inheritance or will.

1.2 Conditions:

There must be a capital asset

The transfer must be of capital asset

The transfer must have been taken place during the previous year.

The transfer of such capital asset must give rise to profit or gain

1.3 Transfer Sec. 2 (47): It includes a sale, exchange or relinquishment of the asset or

extinguishment if any right or the compulsory acquisition under the law or conversion of

the asset in to stock in trade

The following are not consider as transfer (Sec 49(1))

Transfer of asset in a scheme of amalgamation

Transfer of agricultural land before 1/4/1970

Transfer of debenture or bonds into shares

Transfer of assets in kind at the time of liquidation

Transfer of asset by a parent company to the own subsidiary company

Transfer of asset under the gift or will

Transfer of capital asset at the time of partition of HUF

1.4 Capital Assets Sec. 2(14): property any kind held be assessee whether connected or not

with his business or profession. It includes all kinds of property, movable or immovable,

tangible or intangible. For examples land, building, house property, vehicles, patents,

trademarks, leasehold rights, machinery, jewellery, shares, debentures, units, mutual

funds, securities held by FII as per SEBI etc.

The following are not considered capital assets:

Stock in trade: Any stocks or consumables or raw material held for the purpose of

Business or Profession

Personal effect: Personal goods such as wearing apparel, car, scooter, TV,

refrigerator, musical instruments, generator, furniture etc held for personal use.

6½% Gold Bonds, 1977 or 7% Gold Bonds, 1980 or National Defence Gold

Bonds, 1980 issued by the Central Government

Special Bearer Bonds 1991

Gold Deposit Bond issued under the Gold Deposit Scheme, 1999

Dr. Gurumurthy K H

Asst. Prof. in Commerce and Management

& Coordinator for M.com

GFGC Magadi, 562120, Ramanagar (dt)

9448226676, [email protected]

2

Agricultural land in a rural in India area: definition of rural area (from AY14-15)

Any area which is within the jurisdiction of a municipality or

cantonment or board

having a population of less than 10,000 is considered Rural Area,

If situated outside the limit of municipality etc distance measured..

Being more than two kilometres from the local limits of any

municipality, having population more than 10000 but not

exceeding 1,00,000 or

Being than six kilometres from the local limit of any municipality,

having population more than 1,00,000 but not exceeding

10,00,000

Being than Eight kilometres from the local limit of any

municipality, having population more than 10,00,000

1.6 Type of capital Gain:

a) Short term Capital Gain: Any gain arising from transfer of short term capital asset is

known as short-term capital gain eg. Equity funds are considered short-term when

held for 12 months or less.

Tax on short-term capital gain when securities transaction tax is not

applicable: short-term capital gain is added to your income tax return and the

taxpayer is taxed according to his income tax slab

Tax on short-term capital gain if securities transaction tax is applicable:

short-term capital gain is taxable at the rate of 15% +surcharge and cess

1.5 Types of Capital Asset

For determining the nature of

capital assets, the period of holding

shall be counted from the date of

purchase to the date of sale of

capital asset by the assessee.

Short Term:

1. Financial Asset: It is held for

less than 12 months or 1 year

like securities, bonds, shares

mutual funds

2. Other Asset: It is held for less

than 36 months or 3 year like

Jewellery etc. & Less than 24

months for immovable

properties like land ,building,

house property

Long Term:

1. Financial Asset: It is held for

more than 12 months or 1 year

2. Other Asset: It is held for more

than 36 months or 3 year &

more than 24 months for

immovable properties like land

,building, house property

3

b) Long-term capital Gain: Any gain arising from transfer of long term capital asset is

known as long-term capital gain eg. House property held for more than 3 years is

termed as a long-term capital asset,

Sale of equity share -10% tax of the gain amount exceeds Rs 1(one) lakhs

Except for sale of equity – 20% tax rate

Financial year -2001-2002 taken as base =100

1.7 Terms used:

1) Full value consideration/Sales: The consideration received or to be received by the

seller in exchange of his assets, which he has transferred. Capital gains are chargeable

to tax in the year of transfer, even if no consideration has been received.

2) Cost of acquisition: The value for which the capital asset was acquired by the seller.

3) Cost of improvement: Expenses incurred to make improvements to the capital asset

by the seller. Eg. Alteration, repairs etc. Note that improvements made before April 1,

2001 is never taken into consideration.

4) Selling/realization /expenditure in connection with such transfer: Eg. Brokerage,

commission, cost of stamp paper, registration, travelling, legal expenses etc incurred

for transferring the capital assets.

1.8 Calculation of Capital Gains

Particulars Rs Rs

Value Consideration/Sale

Less: Selling Expenses/expenditure in connection with such transfer

Net sales consideration

Less: Indexed Cost of Acquisition

Less: Index cost of improvement

Long term capital Gain

Less: Exemption U/S 54, 54B, 54D, 54EC, 54F, 54G, 54GA

Xx

xx

Xx

X

Xx

Xx

xx

xx

Taxable Long term Capital Gain Xx

1.9 Calculation of Capital Gains for Depreciable Assets

Particulars Rs Rs




Less: Written Down Value as on 01/04/20

Less: cost of new assets purchased during the year

Xx

xx

Xx

X

Xx

Xx

Taxable Capital Gain Xx

1.10 Calculation of Capital Gains for Self generated Assets

Particulars Rs Rs




capital Gain

Xx

X

Xx

xx

Note: in case self generated assets e.g. goodwill cost of acquisition is nil

4

1.11 Cost of acquisition of (a) original, (b) rights and(c) Bonus shares

Particulars Cost of acquisition

1. If (a) original, (b) Right and

(c) bonus shares are acquired

before 1/4/2001

(a) Original Actual cost or Fair market value

(b) Right Whichever is High (WEH)

(c) Bonus Share –Fair market Value

2. If (a) original, (b) Right and

(c) bonus shares are acquired

after 1/4/2001

(a) Original Actual cost

(b) Right

(c) Bonus Share –Nil

1.12 Indexed cost of acquisition/improvement

a. Indexed cost of acquisition (ICOA) / Cost inflation index (CII): Means inflating

the cost of an asset acquired to the present value. i.e. the year in which the asset

is transferred. Indexation benefits are available only long term capital assets.

However the Indexation benefit is not available in case of debentures even

though it is long term asset.

Calculation

If the assessee acquired the property before 1/4/2001

ICOA=

×CII of the year in which asset sold

If the assessee acquired the property After 1/4/2001

ICOA=

×CII the year in which asset sold

b. Indexed cost of improvement: the year in which the improvement took place and

cost inflation index for the year in which the asset is transferred. For short term capital

asset the actual cost of improvement is allowed as deduction, where in case of long

term capital asset it will be indexed and allowed as deduction

If the improvement incurred before 1/4/2001 should be ignored

If the improvement incurred After 1/4/2001

×CII the year in which asset sold

c. Why is cost of acquisition and improvement indexed? Indexation, done by

applying CII (cost inflation index), is made to adjust for inflation over the years. This

increases one's cost base and lowers the capital gains.

1.14 Capital Gains exempt from Tax

Capital gain on transfer of units of US64 ( sec. 10(33)

Capital gain on compulsory acquisition of agricultural land of an Individual or

Hindu undivided family which is not situated in rural area and the land was used

for agricultural purpose by the assessee at least two years immediately preceding

compulsory acquisition (sec. 10(37)

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1.15 Exemptions from capital gains u/s 54,54B, 54D, 54EC, 54F, 54G and 54GA

U/S Allowed

Assessee

Conditions to be satisfied Quantum of exemption

54

Individual

HUF

1. Transfer/sale of a “residential house Property”

(RHP) (i) Income of which is chargeable under House

Property.

(ii) It must be a long-term capital asset.

2. Investment/Purchase of another “RHP”

(i) The seller (Assessee) should purchase

another residential house either one (1)

year before the date of transfer

(ii) Two (2) years after the date of

sale/transfer.

(iii) In case constructing a new house within

three (3) years from the date of

sale/transfer.

(iv) In case of compulsory acquisition, the

period of acquisition or construction will be

determined from the date of receipt of

compensation.

3. The new residential house should be in India.

Assessee cannot buy a residential house abroad for

claim exempt.

4. The above conditions are cumulative. Hence, even

if one condition is not fulfilled, then the seller

cannot avail the benefit of the exemption under

Section 54

Actual amount invested

in new asset+ deposited

in CG a/c in Bank

or

The capital gains

whichever is less is

exempt

54B

Individual

1 Transfer should be of “agricultural land”.

(i) It must have been used in the 2 years

immediately preceding the date of transfer for

agricultural purposes either by the assessee or his

parent.

2 Investment in another “agricultural land”

(i) Another agricultural land should be purchased

within 2 years after the date of transfer.



in CG a/c

or The capital gains

whichever is less

54D

Any

assessee

1. Transfer/ compulsory acquisition of an

“industrial undertaking”,

(i) The property should be land and building

forming part of an industrial undertaking.

(ii) The assessee must have been used the

property for the purpose of the business in

the 2 years immediately preceding the date

of transfer

2. Investment in “new industrial undertaking”

(i) Within a period of 3 years from the date

acquisition should be purchased or

constructed or set up new industries



in CG a/c

or

The capital gains

whichever is less

6

54EC

Any

assessee

1. Transfer of any long term capital assets

(i) Transfer of any long- term capital asset

2. Investment in long term bonds issued by

NBARD or NHAl or RECL

(i) Within a period of 6 months from the date

of transfer, the CG must invest in specified

assets i.e. bonds redeemable after 3 years

issued by NBARD or NHAl or RECL.

(ii) Maximum amount which can be invested in

any FY cannot exceed Rs. 50,00,000



in CG a/c

or

The capitals gain or

maximum 50 lakhs

whichever is less

then exemption would

be available as

computed in Sec. 54F

54F

Individual

HUF

1. Transfer of Long term capital assets “other than

a residential house ”(RHP)

(i) the asset transferred is a long term capital

asset other than a residential HP

2. Invested in residential house property (RHP)

(ii) within a period of one (1) year before the

date of transfer or

(iii) Two (2) years after the date of transfer or

(iv) Constructed within a period of 3 years from

the date of transfer.

(v) this exemption is not available, on the date

of transfer, the assessee owns any HP other

than the new RHP (asset)

If the cost of the new

residential house is

greater than the net

consideration received

then the whole of the

capital gain is exempted

Otherwise,

exemption=

×CG

54 G

Any

assessee

1. Transfer/Shifting of industrial undertaking

from urban area to Rural area

(i) Transfer of Machinery, plant, building, or

land used for the business of an industrial

undertaking situated in an urban area

2. Investment in another Industrial undertaking

in Rural area

(i) Within a period of 1 year before the date of

transfer or

(ii) 3 years after the date of transfer construct

building and completed shifting to any new

rural area

The cost of the new

assets and expenses

incurred for shifting are

greater. i.e

Amount invested

or

capital gain

whichever is less

54GA

Any

assessee

1. Transfer/Shifting of industrial undertaking

from urban area to Special Economic Zone

(i) Machinery, plant, building, or land used

for the business of an industrial

undertaking situated in an urban area

should have been transferred.

2. Invested to Special economic Zone (SEZ)

(i) Shifting to any Special Economic Zone

whether developed in any urban area or

any other area.

(ii) Within a period of 1 year before the

date of transfer or

(iii) 3 years after the date of transferor to the

new SEZ area

The cost of the new

assets and expenses

incurred for shifting are

greater. i.e

Amount invested

or

capital gain

whichever is less

7

Notes in simple:

1) Capital Gain arising out of transfer of property

2) investment made in new property either purchase or construct within the

prescribed time limit or deposit in capital Gain A/c in any Bank

3) If the new asset is not acquired under sections 54, 54B, 54D, 54F, 54G and

54GA or the full amount could not be invested up to the due date, Capital

Gain exemption Scheme is not applicable.

Workout problems and solution (Under Section 54 Capital gain on transfer of residential

house property and invested in another residential house property)

Problem: 1 Mr X sells his villa (house property) for Rs 45, 00,000 in Aug 2018 which he

was purchased in Sept 2005 Rs 250000. With the proceeds of the sale, he purchases

another villa for Rs 60, 00,000 in Feb 2019 (CII 2018-19=280, 2005-06=117)

Solution 1 Assessee: Mr. X Ay 2019-20 , FY 2018-19

Computation of Capital Gain

Particulars (Rs.)

Full value of consideration transfer of Residential House 45,00,000

Less: Selling expense Nil

Net sales consideration 45,00,000

Less : Indexed cost of acquisition

(a) Actual cost of Acquisition 250000 WEH

(b) Fair market value (FMV) Nil

Indexed cost of acquisition (Rs. 250000 ×280/117) 5,98,290

(5,98,290) Less: Indexed cost of improvement Nil

Long term capital gain 39,01,710

Less Exemption u/s 54

Invested in capital Assets 6000000

Deposited in Capital Gain A/c +0 600000 WEL

Or long term Capital gain 3901710 exemption 39,01,710

Taxable Long term capital Gain Nil

Conclusion: no capital gain tax u/s54

8

Problem: 2 Mr X sells his villa (house property) for Rs 45, 00,000 in Aug 2018 which he

was purchased in Sept 2005 Rs 250000. With the proceeds of the sale, he purchases

another villa for Rs 30, 00,000 in Feb 2019 (CII 2018-19=280, 2005-06=117)

Solution 2

Assessee: Mr. X Ay 2019-20 , FY 2018-19

Computation of Capital Gain

Particulars (Rs.)

Full value of consideration transfer of Residential House 45,00,000







(5,98,290) Less: Indexed cost of improvement NIL





Or long term Capital gain 3901710 Exemption 30,00,000

Taxable Long term capital Gain 9,01,710

Conclusion: after claiming capital gain exemption u/s54 there is a long term capital gain is Rs 901710.

The flat rate of tax is 20%+ HEC 4% LTCG Tax = (901710*.2)=1,80,342

Health and education cess (180342*.04)= 7,214

Long-term Capital gain tax payable is Rs 1,87,556

9

Problem: 3 Mr Y has sold residential house property in May 2017 long term capital gain

amounted to Rs. 30,00,000. In June 2017, Mr Y purchased a residential house property worth

Rs. 18,00,000/- Mr Y sells the new residential house property (Purchased in June 2017) in

December 2018 for Rs. 35,00,000/-

Based on the facts mentioned above, lets compute the taxable capital gains for Mr Y .

FY 18-19 (Property sold in May 2017) (CII 2017-18 =272, 2018-19= 280, 2001=100

Assessee: Mr. Y Ay 2018-19 , FY 2017-18

Particulars (Rs.)






Taxable Long term capital Gain FY 17-18 12,00,000

FY 2018-19 AY 2019-20

Sales consideration

Less: cost of acquisition (investment in new asset)

35,00,000

18,00,000

Taxable Short term capital Gain FY 2018-19 17,00,000

Add: Exemption claimed U/s 54 18,00,000

Total taxable short term capital Gain 35,00,000

WN:1 Given long term capital gain not sales proceeds

Note:2, the new property was sold in December 2018 (ie within 2 years from the date of

acquisition), the entire exemption claimed u/s 54 treated as short term capital gain, so the

total Taxable short term capital gain and is 35,00,000.

10

Problem: 4 Mr Z has sold a residential house property and the capital gains is Rs

25,00,000/- in June 2017. In October 2017, Mr Z purchased a new residential house property

of Rs 40,00,000/-In January 2019, Mr Z sold the new residential house Property for Rs

55,00,000/-Based on the capital gains mentioned above, let’s compute the taxable capital

gains for Mr Z

Solution: 4 FY 2017-18 AY 2018-19

Long term capital gain (WN:1) 25,00,000


Cost of acquisition 400000



Taxable Long term capital Gain FY 17-18 NIL

FY 2018-19 AY 2019-20

Sales consideration

Less: cost of acquisition (purchase of new property)

55,00,000

40,00,000

Taxable Short term capital Gain FY 2018-19 15,00,000

Add: Exemption claimed u/s 54 25,00,000

Total taxable short term capital gain 40,00,000

WN:1 Given long term capital gain not sales proceeds

Note: ; Note:2, the new property was sold in December 2018 (ie within 2 years from the

date of acquisition), the entire exemption claimed u/s 54 treated as short term capital gain,

so the total Taxable short term capital gain and is 40,00,000.

(U/s 54B Capital gain on transfer on agriculture land in urban area and invested in

agricultural land in urban or rural area)

Problems: 5 Mr. Shankar sell an agricultural land in Kanpur on 10/06/2018 for Rs 1500000

the land was purchased by him on 15/07/2005 for Rs 250000. He purchased another

agriculture land for Rs 1600000 on 31-03-2019 (CII 2005-06=117, 2018-19=280)

11

Solution: 5 U/S 54B

Assessee: Mr. Shankar FY 2017-18 AY 2018-19

Computation of capital gain (Rs.)

Full value of consideration 15,00,000









Less Exemption u/s 54B


Deposited in Capital Gain A/c +0 16,00,000 WEL

Or long term Capital gain 9,01,710 9,01,710


U/s 54D, (compulsory acquisition of L&B and investment in new L&B for new

undertaking)

Problem: 6 A building of Mr. Akash is compulsorily acquired by U.P Govt. Its cost of

acquisition to the assessee was Rs 1,72,000 in Aug. 2005. The U.P Govt. pays Rs 6,75,000

as compensation on 25/05/2018. Mr. Akash purchased another building for industrial

undertaking for Rs 2,80,000 on 24/06/2018. Mr. Akash sold the new building for Rs

3,50,000 on 31/08/2018. Compute the taxable capital gain for Ay 2019-20 (CII 2005-

06=117, 2018-19=280)

12

Solution: 6 , U/s 54D Assessee: Mr. Akash FY 2017-18 AY 2018-19

Computation of Taxable Capital Gain

Particulars (Rs.)

Full value of consideration (Compensation received in 2018) 6,75,000









Less Exemption u/s 54D





Note: Since new building is sold within 3 years. It is taxed as short term capital gain in

the year in which it is sold

Full value of consideration (purchased new building) 3,50,000



Less : Cost of acquisition 2,80,000

Short term capital gain 70000

Add: Exemption given U/S 54D 2,63,376

Total taxable short term capital gain 3,33,376

Note: total short term taxable capital gain is 333376

13

U/S 54EC (capital gain on transfer of any long term capital asset and invested in the

bonds issued by NBARD, NHAI AND RECL)

Problem:7 Mr. Kamalesh Purchased Jewellery on 10/03/2006 for Rs 1,00,000 and he

sold it for consideration of Rs 2,80,000 on 2/11/2018. He incurred the expenses at the

time of purchase Rs 2,000 and at the time of sale Rs 4,000. He invested Rs 70,000 in

bonds with National Highway Authority of India (NHAI) on 3/01/2019 out of the sale

consideration. Compute the taxable capital gain (CII for 2005-06=117, 2018-19=280).

Solution: 7 Assessee: Mr. Kamalnath FY 2017-18 AY 2018-19


Particulars (Rs.)


Less: Selling expense 4,000



(a) Actual cost of Acquisition (100000+2000) 102000 WEH

(b) Fair market value Nil



Long term capital gain 31,900

Less Exemption u/s 54EC

Invested in capital Assets 70,000

Deposited in Capital Gain A/c +0 70,000 WEL

Or long term Capital gain 31,900 Exemption 31,900


14

Problem:8 Mr. Madhu Purchased a plot on 10/03/2006 for Rs 6,00,000 and he sold it

for consideration of Rs 15,80,000 on 2/11/2018 and incurred brokerage Rs 20,000. He

invested Rs 2,00,000 on bonds with NBARD and Rs 3,10,000 bonds Rural

electrification corporation Ltd. On on 3/01/2019 out of the sale consideration. Compute

the taxable capital gain (CII for 2005-06=117, 2018-19=280).

Solution: 8 Assessee: Mr. Madhu FY 2017-18 AY 2018-19


Particulars (Rs.)










Less Exemption u/s 54EC

Invested in capital Assets (200000+310000) 5,10,000

Deposited in Capital Gain A/c +0 WEL

Or long term Capital gain 1,24100 Exemption 1,24,100


15

U/S 54F (capital gain on transfer of any long term capital asset other than residential

house and invested in the residential house

Problem:9 Mr. Amaresh sold his Jewellery on 16/06/2018 for Rs 10,10,000 and

brokerage paid on sale Rs 10,000. Cost of jewellery on 25/5/2005 was Rs 1,55,000. He

purchased a residential house for Rs 5,50,000 on 3/09/2018 out of the sale consideration.

Compute the taxable capital gain (CII for 2005-06=117, 2018-19=280).

Solution: 9 Assessee: Mr. Amaresh FY 2017-18 AY 2018-19


Particulars (Rs.)








(3.70,940) Less: Indexed cost of improvement Nil


Less Exemption u/s 54F

Invested in capital Assets Rs 550000 which is less than sales proceeds then

× capital gain,

× 6,29,060 Exemption 3,45,983


Note: if investment is more than net sales consideration then no need to apply formula for

calculating exemption limit, the entire capital gain is exempted

If investment is less than net sale consideration then need to apply formula for calculating

proportion deduction

16

Exemption U/s 54G( capital gain on transfer of industrial undertaking from urban to

rural and investment on L&B, P&M on rural area)

Problem: 10, Scoop Limited sold Land ,building and Machinery for Rs 38,00,000, Rs

9,00,000 and Rs 3,00,000 Respectively on 25th

Nov. 2018, while they were shifting the

industrial undertaking to a rural area. These assets were acquired during 2008-09,

Land cost was Rs 15,00,000, cost of building Rs 18,00,000 and the cost of Machinery was

Rs 8,00,000. The WDV of the building and Machinery as on 1-4-2018 were Rs 4,20,000

and Rs 2,80,000 Respectively. The company incurred the transfer expenses of 2% on the

sale consideration for each asset. The company deposited on 10th

July 2019 in the capital

gain deposit scheme Rs 52,00,000 for the purpose of acquiring these assets. Your are

required to compute the taxable capital gain of the company for the AY 2019-20 (CII

for 2018-19=280, 2008-09=137)

Solution: 10 Assessee: Mr. Scoop Ltd FY 2017-18 AY 2018-19

Computation of capital gain (Rs.)

1. Land : Sale of Land (long term) 38,00,000

Less: Selling expense (3800000*.02) 76,000







Long term capital gain on land 6,58,300

2. Building: Sale of Building (Short term) 9,00,000



Less : cost of acquisition being WDV as on 1-4-2018 4,20,000

Short term capital gain 4,62,000

Note: Cost of acquisition when WDV is given need to take WDV taken as the cost of acquisition

17

2.Machinery: Sale of Machinery (Short term) 3,00,000



Less : cost of acquisition being WDV as on 1-4-2018 2,80,000

Short term capital gain 14,000

Note: Cost of acquisition, when WDV is given need to take WDV as the cost of acquisition and not

purchased cost

Total Long term capital gain Rs

Land (long term capital gain)

Building (short term capital gain)

Machinery (short-term capital gain)

6,58,300

4,62,000

14,000

11,34,300

Less Exemption u/s 54G

Invested in capital Assets 0 5200000



Taxable capital Gain Nil

Exemption 54 GA (Transfer to industrial undertaking from urban to SEZ)

Problem: 11 Sunlight limited sold land for Rs 88000, on 15th

Oct. 2018 while they were

shifting the industrial undertaking from an urban area to SEZ. The land was acquired

on 10th

Oct. 2012 for Rs 3500000. The company incurred 4% a transfer expenses. The

company purchased on 31st march 2019 a new land industrial undertaking in the SEZ

for Rs 2500000. Compute taxable capital gain.(CII for 2018-19=280, 2012-13 =200)

18

Solution: 11 Assessee: Sunlight limited FY 2017-18 AY 2018-19


Particulars (Rs.)


Less: Selling expense (880000*.04) 3,52,000








Less Exemption u/s 54GA

Invested in capital Assets 25,00,000 25,00,000


Or long term Capital gain 55,48,000 Exemption 25,00,000


1.16 Treatment of Long-term capital gains arising from sale of listed securities or any

unit of UTI or mutual fund (whether listed or not), being covered under Section 112A

[with effect from Assessment Year 2019-20] shall be taxed at the rate of 10 per cent of

such capital gains exceeding Rs. 1,00,000

(a) Treatment of cost of acquisition of listed equity share before Feb 1 2018

(i) The actual cost of acquisition of such asset; or xx WEH

(ii) Fair market value (FMV) of such shares as on Jan, 31, 2018 xx

However, if there is no trading in such shares on January 31, 2018, the highest price of such

share on a date immediately preceding January 31, 2018 on which trading happens in that

share shall be deemed as its fair market value.

In case of units which are not listed on recognized stock exchange, the net asset value

(NAV) of such units as on January 31, 2018 shall be deemed to be its FMV

19

Problem-12 Mr. Janak is a salaried employee. In the month of January, 2015 he purchased

100 shares of X Ltd. @ Rs. 1,400 per share from Bombay Stock Exchange. These shares

were sold through BSE in April, 2019 @ Rs. 2,600 per share. The highest price of X Ltd.

share quoted on the stock exchange on January 31, 2018 was Rs. 1,800 per share. What will

be the nature of capital gain in this case?

Solution-12 Assessee: Janak FY 2018-19 Ay 2019-20

It is a long term assets: Shares were purchased in January, 2015 and were sold in April, 2019, i.e., sold

after holding them for a period of more than 12 months

Full value of consideration (Rs 2600*100 Shares) 2,60,000

Less : cost of acquisition

Actual cost of Acquisition (1400*100) 140000 WEH

Fair market value (FMV) (31/3/2018) ( 1800*100) 180000 1,80,000

Long term capital gain 80,000

Note : Rs 80000 does not exceed Rs 100000, hence nothing is taxable (80000)

Taxable long term capital gain on shares Nil

Problem-13, Mr. Saurabh is a salaried employee. In the month of July, 2017 he purchased

100 shares of XYZ Ltd. @ Rs. 2,000 per share from Bombay Stock Exchange. These shares

were sold through NSE in Sept, 2018 @ Rs. 4,900 per share. The highest price quoted on the

stock exchange on this share on January 31, 2018 was Rs. 3,800 per share. What will be the

nature of capital gain in this case?

Solution-13 Assessee: saurabh FY 2018-19 Ay 2019-20

It is a long term assets: Shares were purchased in January, 2016 and were sold in Sept., 2017, i.e., sold

after holding them for a period of more than 12 months

Full value of consideration (Rs 4900*100 Shares) 4,90,000

Less : cost of acquisition

Actual cost of Acquisition (2000*100) 200000 WEH

Fair market value (FMV) (31/3/2018) ( 3800*100) 380000 3,80,000


Note : Rs 110000 exceed Rs 100000, hence it is taxable (1,00,000)

Taxable long term capital gain on shares 10,000

Long term capital gain tax on share 10% + 4% (10000*.1)=(1000*.04)=40 (1000+40)=1040

20

Problems-14 Mr. Kumar (a non resident) purchased equity shares (listed) of Shyamal Ltd. in

Jan 2001 for Rs. 28,100. These shares are sold (outside recognised stock exchange) in April,

2018 for Rs. 5,00,000. He does not have any other taxable income in India. What will be his

tax liability? (CII for 2001-02=100, 2018-19=280)

Solution-14 Assessee: Kumar FY 2018-19 Ay 2019-20

In this situation, Mr. Kumar has following two options:

Particulars Option 1

(Avail

indexation)

Option 2 (Do

not avail

indexation)

Full value of consideration 5,00,000 5,00,000

Less: Indexed cost of acquisition (Rs. 28,100 × 280/100) 78,680 ——-

Less: Cost of acquisition ——– 28,100

Long term Taxable capital Gain 4,21,320 4,71,900

Less: Exempted LCG on shares up to 1,00,000 (1,00,000) (1,00,000)

Taxable capital gain 3,21,320 3,71,320

Tax @ 20% on Rs. ( 321320*.2) 64,264 ——–

Tax @ 10% on Rs. ( 371320*.1) ——- 37,190

Note: if the exchange price quoted is not available in the given problem then assessee can

opt for any of the above option

Accordingly, From the above computation, it is clear that Mr. Kumar should exercise

option 2, since in this situation the tax liability (excluding cess as applicable) comes to Rs.

37,190 which is less than tax liability under option 1 i.e. Rs. 64,264.

21

Works out miscellaneous Problems

Example: 15 Mr. Chandu sold a house on 1/10/2018 for Rs 30,00,000. The house was

inherited by him during 2001-02 from his father , who has constructed it in 1995-96 for Rs

180000. Mr. chandu spent Rs 50000 on renovation of this house in 2008-09. Fair market

value of the house as on 1/04/2001 was Rs 480000. Compute the amount of capital gain for

the Ay 2018-19 (CII for 2001-02=100, 2008-09=137, 2018-19=280

Solution : 15 Assessee: Mr Chandu FY 2018-19 AY 2019-20

Computation of capital Gain

Particulars (Rs.)



Net sales consideration 30,00, 000


Actual cost of Acquisition 0 WEH

Fair market value 1-4-01 4,80,000

Indexed cost of acquisition (Rs. 4,80,000 ×280/100) 13,44,000

(14,46,200) Less: Indexed cost of improvement (Rs. 50,000 ×280/137) 1,02,200





Or long term Capital gain 15,53,800 Exemption 0


( capital gain on transfer of long term assets not invested hence no exemption claimed u/s 54-54GA)

22

Example: 16 Mr. Japan sold a plot on 1/11/2018 for Rs 80,00,000. The plot was purchased on

07/07/ 2008 for Rs 10,00,000 Mr. Japan spent Rs 50000 and 1.20,000 for brokerage on

purchase and sales respectively. Compute the amount of capital gain for the Ay 2018-19 (CII,

2008-09=137, 2018-19=280

Solution : 16 Assessee: Mr Japan FY 2018-19 AY 2019-20


Particulars (Rs.)


Less: Selling expense 1,20,000

Net sales consideration 78,80, 000


Actual cost of Acquisition (1000000+ 50000) WEH

Fair market value 1-4-01 0

Indexed cost of acquisition (Rs. 10,50,000 ×280/137) 21,45,985






Or long term Capital gain 57,34,015 Exemption 0


( capital gain on transfer of long term assets not invested hence no exemption claimed u/s 54-54GA)

23

Example: 17 Mr. Vijay purchased a residential house in Bangalore on 1-4-1999 for Rs

5,00,000 and added 1st floor in the year 2000 at a cost of Rs 1,00,000. On 1

st December 2011 he

gifted the house to his son Mr. Kapur who added two rooms in June 2014 at a cost of Rs

40,00,000. On 1st Nov. 2018 Mr. kapur sold the property for Rs 2,00,00,000.. Compute the

amount of Taxable capital gain for the Ay 2018-19. If the FMV of the property as on 1-4-2001

was Rs 15,00,000 (CII, 2001-02=100, 2010-11= 167, 2014-15=240, 2018-19=280

Solution : 17 Assessee: Kapur FY 2018-19 AY 2019-20


Particulars (Rs.)

Full value of consideration 2,00,00,000


Net sales consideration 2,00,00,000


Actual cost of Acquisition 0 WEH

Fair market value 1-4-2001 15,00,000

Indexed cost of acquisition (Rs. 15,00,000 ×280/167) * 25,14,970

(71,81,640) Less: Indexed cost of improvement (Rs. 40,00,000 ×280/240) 46,66,670

Long term capital gain 1,28,18,360




Or long term Capital gain 1,28,18,360 Exemption 0

Taxable Long term capital Gain 1,28,18,360

Note: the indexation base year 2001-02, prior to this date any transaction relating to

property should be ignored. In this problem Though the property gifted to his son

Kapoor in December 2011, the value of property is take into account FMV as on 1-4-2001

and for Indexation CII the year in which it is gifted (2011) must be consider.

24

Example: 18 Mr. Prasanna sold his residential house on 1-1-2019 for Rs 16,06,000 which he

has purchased in 2005-06 for Rs 2,00,000. He spent Rs 6,000 for sale of the house. He spent Rs

10, 50,000 on the construction of new house and deposited Rs 1, 00,000 under capital gain

account scheme on 28.03.2019. compute the capital gains for the AY 2019-20 (CII, 2005-

06=117, , 2018-19=280

Solution : 18 Assessee: Prsanna FY 2018-19 AY 2019-20


(capital gain on transfer of residential house and invested buy or construct another new residential house

(exemption u/s 54)

Particulars (Rs.)





Actual cost of Acquisition 2,00,000 WEH

Fair market value 0


(4,78,635) Less: Indexed cost of improvement (Rs.) 0



Invested in capital Assets 10,50,000 11,50,000

Deposited in Capital Gain A/c +1,00,000 WEL

Or long term Capital gain 11,21,365 Exemption 11,21,365


25

Example: 19 Mr. Prasad sold the following assets

(a) Agriculture land situated at Mysore was sold for Rs 350000. It was purchases in 2008-09 for Rs 50000

(b) Personal car sold for Rs 40000 purchased in 2010-11 for Rs 210000, WDV as on 1-4-2018 Rs 30000

(c) Jewellery sold for Rs2700000, was purchased 15th Oct. 1995 Rs 120000 its FMV as on 1-4-01 250000

(d) Office furniture sold for Rs 5000 purchased in Dec. 2003 for Rs 20000 and WDV on 1-4-18, Rs 6000

(e) Listed debenture sold for Rs 50000 was purchased 15th Oct. 2006 for Rs 45000

(f) Shop located near Mangalore sold for Rs 500000 was purchased for Rs 200000 in Nov. 2003

The Assessee purchased a new Residential House for Rs 1000000. Compute the amount of taxable capital

gain for the Ay 2019-20 (CII, 2001-02=100, 2003-4=109, 2010-11=167, 2008-09=137, 2018-19=280)

Solution : 19 Assessee: Prasad FY 2018-19 AY 2019-20

( capital gain on transfer of any long term assets invested in residential house property (Exemption u/s 54F)

Particulars Ag. Land (Rs) Jewellery (Rs) Listed Deb Shop (Rs.)

Full value of consideration 3,50,000 27,00,000 50,000 5,00,000

Less: Selling expense Nil Nil Nil Nil

Net sales consideration 3,50,000 27,00,000 50,000 5,00,000

Less : Indexed cost of acquisition (W N 1) (1,02,200) (7,00,000) (45,000) (5,13,760)

Less: Indexed cost of improvement Nil Nil Nil Nil

Long term capital gain or Loss 2,47,800 20,00,000 5000 (13,760)

*Note: Sales consideration (350000+2700000+50000=Rs 31,00,000) Rs

Total Long term capital Gain (CG) (2,47,800+20,00,000+5,000) 22,52,800

Less Exemption U/S 54 (f)

× Total C G (

× 22,52,800) (7,26,710)

Total Taxable Long term capital gain before adjusting any capital loss 15,26,090

Less: loss on sale of capital assets (long +short term loss) (13760+1000) 14,760

Taxable capital Gain 15,11,330

Indexed cost of

acquisition (W N 1)

Agricultural Land (Rs. 50000 ×280/137)=1,02,200

Jewellery Actual cost (120000 )or FMV (250000) WEH

(Rs. 250000 ×280/100)=7,00,000

Shop (Rs. 200000 ×280/109)=5,13,760

Debenture cannot be indexed as per law

Personal car sold is a personal effect hence it is ignore while calculating capital gain

Office furniture is sold

WDV balance is given ,

hence it is consider as

short term capital gain

(WDV=cost-Dep.)

Sales consideration

Less: selling Expenses: 5000

Nil


Less: WDV 5000

(6000)

Short term capital gain or (loss) (1000)

26

Example: 20 Mr. Fun sold the following assets Compute the amount of taxable capital gain for the Ay 2019-20

(a) Agriculture land in Goa sold for Rs 10, 50, 000 in Aug 2018 by paying Rs 25000 brokerage. It was

purchases in 2003-04 for Rs 2, 25,000. He purchased another agricultural Another agricultural land in a

village for Rs 2,50,000 on 10th June 2018

(b) Household furniture and music system purchased on 1-1-2004 for Rs 22,000 is sold on 5-12-18

(c) Machinery purchased on 1-1-2008 for Rs 40,000 is sold for Rs 15,000 on 1-4-2018 the WDV of the

machinery on 1-4-2-18 was 25000

(d) Sold his residential house for Rs 38, 00, 000 on 31-3-2019. The house was gifted by his mother- in- law

in July 2000. The house was purchased by her in 1999 for Rs 3, 00,000 (FMV 1-4-2001 was 3, 25,000)

additions were made by him 1st jan2002 by spending Rs 30,000. The commission paid on sales is Rs

30000, he purchased another residential property Rs 2,25,000 and deposited Rs 7,50,000 under capital

gain A/c scheme on 30-6-2019

(e) Debenture purchased in Dec. 2017 for Rs 30000 are sold for Rs 55000 on 1-11-2018

(f) Sold 200 bonus share of company on 1-2-2019 for Rs 250 per share by paying a brokerage of 1% on

selling price. These shares were issued on 1-4-2008. Market price of these share on the date of issue were

Rs 100 per share, (CII, 2001-02=100, 2003-4=109, 2010-11=167, 2008-09=137, 2018-19=280)

Solution : 20 Assessee: Mr. Fun FY 2018-19 AY 2019-20 ( long-term capital gain)

Particulars Agricultural

Land (Rs)

Residential

house (Rs)

Bonus share Total

(Rs.)

Full value of consideration (Bonus 250/*200) 10,50,000 38,00,000 50,000 49,00,000

Less: Selling expense (given) (BS, 50000*.01 25,000 30,000 500 55,500

Net sales consideration 10,25,000 37,70,000 49,500 48,44,500

Less :Indexed cost of acquisition & ICI (WN1) (4,29,358) (9,94,000) (Nil) (14,23,358)

Long term capital gain 5,95,642 27,76,000 49,500 34,21,142

Less: exemption u/s 54 (RHP)

(a) Actual investment Rs 2,25,000

(b) Deposited in CG A/c Rs 7,50,000

Total Rs 9,75, 000 OR

Capital gain 27,76,000 WEL

-

(9,75,000)

-

(9,75,000)

Less: exemption u/s 54B (Agricultural Land)

(a)Actual investment Rs 2,50,000

(b) Deposited in CG A/c Rs 0

Total Rs 2,50,, 000 OR

Capital gain 55,95,642 WEL

(2,50,000)

-

-

(2,50,000)

Total Long term capital gain 3,45,642 18,01000 49,500 21,96,142

27

(W N 1)

Agricultural Land

Indexed cost of acquisition. (Rs. 225000 280/109) 4,29,358

Indexed cost of Improvement (ICI) Nil

Total claiming for Exemption U/s 54B 4,29,358

Residential house

(indexed cost of acquisition

(ICA)

ICA Actual cost (325000 ) or FMV (300000) WEH

(Rs. 325000 ×280/100)

9,10,000

Indexed cost of Improvement (Rs. 30000 ×280/100) 84,000

Total Claiming for exemption u/s 54 9,94,000

Bonus share -issued after 2-4-2001 no cost of acquisition as per law

House hold furniture and musical system sold is a personal effect hence it is ignore

Short-term capital gain: WDV is given the assets consider as short term

Particular Debenture(Rs) Machinery (Rs) Total (Rs)

Sales consideration 55,000 15000 70,000

Less: Selling Expenses Nil Nil Nil

Net sales consideration 55,000 15000 70,000

Less: cost of acquisition (WDV for Machinery) (30000) (25000) (55000)

Short term capital gain 25,000 (10000) 15,000

Problems 21:From the following particulars compute capital gain of Mr. Balaji for AY 2019-20

Assets Date of

purchase

Purchase

cost

FMV as on

1-4-2001

Date of

sale

Sale price Selling

expenses

House property 1-12-2003 75000 1-10-2018 1500000 20000

Personal

Jewellery

1-12-1998 12000 20000 1-11-2018 300000 4500

Debenture 1-12-2013 50000 1-2-2019 200000 1000

Personal car 1-12-2007 30000 1-1-2019 12000

Urban

agriculture. Land

1-12-1995 40000 40000 1-3-2019 500000 30000

He purchased a new agricultural land on 31-3-2018 for Rs 1000000

(CII 2018-19=280, 2013-14=220, 2007-08=129, 2003-04=109, 2001-02=100

28

Solution 21 House

property

Personal

Jewellery

Listed

debenture

Urban

agricultural

Land

Total

Sales 1500000 300000 200000 500000 2500000

Less selling expenses 20000 4500 1000 30000 55500

Net sales consideration 1480000 295500 199000 470000 2444500

Less Indexed cost of acquisition:

House property=75000/109*280 192660 0 0 0 192660


Personal Jewellery=20000/100*280 0 56000 0 0 56000


Urban agricultural

land=40000/100*280 0 0 0 112000 112000

Long term capital gain 1287340 239500 199000 358000 2083840

Less: exemption u/s 54B

(Agricultural Land)

(a)Actual investment Rs 10,00,000

(b) Deposited in CG A/c Rs 0

Total Rs 1000,000 OR

Capital gain 3,58,000 WEL (358000) (358000)

Taxable Long term capital Gain 1287340 239500 199000 Nil 17,25,840

dr. gurumurthy k h asst. prof. in commerce and ......gfgc magadi, 562120, ramanagar (dt) 9448226676,...

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