CAPITAL GAINS.

CAPITAL GAINS

TOPIC: CAPITAL GAINS BASIS OF CHARGE
U/s 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 section 54, be chargeable to income tax under the head ‘capital gains’ and shall be deemed to be the income of the previous year in which transfer took place unless such capital gains are exempt under sections 54, 54B, 54D, 54EC, 54F, 54G, 54GA and 54GB.

MEANING OF CAPITAL ASSETS
Section 2(14) defines capital assets as: Property of any kind held by an assesse whether or not connected with his business or profession; Any security held by a Foreign Institutional Investor which has invested in such security in accordance with the regulations made under SEBI Act, 1992 [ w.e.f. A.Y ]. CLARIFICATION OF THE EXPRESSION “PROPERTY” USED IN THE DEFINITION OF CAPITAL ASSET “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. What is not included in capital asset? U/s 2(14) following assets have been specially excluded from the scope of the definition of capital assets: (i) Any stock-in-trade, raw materials, consumable stores held by an assesse for the purposes of his business or profession.

(ii) Personal effects (movable property) including wearing apparel, motor car, electric appliances, refrigerator, furniture etc. ; ornaments excluding jewellery , archaeological collections, drawings, paintings, sculptures, or any work of art held for personal use by the assesse or any other member of his family dependent upon him. (iii) Agriculture land in rural area- But the land should not be situated (a) Within the limits of any municipality or cantonment board having a population of :;10,000 or more or (b) Within distance measured aerially(shortest aerial distance) from any municipality or cantonment board as follows: Distance Population of Area within 2 kilometers ,001-1,00,000 within 6 kilometers ,00,001-10,00,000 within 8 kilometers More than 10,00,000 (iv) 6% Gold Bonds 1977 or 7% Gold Bonds 1980 or National Defence Gold Bonds, 1980 issued by the Central Government. (v) Special Bearer Bonds,1991. (vi) Gold Deposit Bonds issued under Gold Deposit Scheme 1999.

TYPES OF CAPITAL ASSETS
Short term capital assets [ Section 2(42A)] Short-term capital asset is that which is held by an assessee for not more than 36 months immediately preceding the date of its transfer. In case of listed shares ( equity or preference) held in a company securities listed in any recognized stock exchange, units of U.T.I. or units of equity oriented Mutual Funds specified u/s 10(23D) and zero coupon bonds the period has been reduced to 12 months w.e.f i.e. assessment year Increase in ‘period of holding’ for unlisted shares and certain units of Mutual Funds W.e.f. A.Y , unlisted shares and units of Mutual Funds( other than equity oriented funds) shall be regarded as short term capital asset where the same are held for a period of less than or equal to 36 months. However, unlisted shares or units of Mutual Funds(other than equity oriented) transferred during the period beginning on and ending on shall be regarded as short term capital asset if held for a period of 12 months or less before the date of transfer. (ii) Long term capital assets [ Section 2(29A)] Assets which do not fall within the definition given in section 2(42), i.e. the assets which are held by the assesse for a period exceeding 36 months immediately preceding the date of transfer, are called ‘long-term capital assets’.

TYPES OF CAPITAL GAINS Short term capital gains- Any gain on transfer of short term capital asset is called short term capital gain. It is calculated as follows: Full value of consideration XXX Less: Expenses on transfer XXX Net Consideration XXX Less: (i) Cost of acquisition XXX (ii) Cost of improvement XXX XXX Short term capital gain XXX Long term capital gain- Any gain on transfer of long term capital asset is called long term capital gain. It is calculated as follows: Full value of consideration XXX Less: Expenses on transfer XXX Net consideration XXX Less: (i) Indexed cost of acquisition XXX (ii) Indexed cost of improvement XXX XXX Long term capital gain XXX

COMPUTATION OF ‘PERIOD OF HOLDING’
It starts from the day when the asset is acquired by the assesse and ends on the day when it is sold/disposed off/transferred otherwise. Hence, the day on which capital asset is transferred is not to be counted in the period of holding. Shares held in a company in liquidation- While calculating period of holding of shares, the period subsequent to the date on which the company goes into liquidation is to be excluded. Capital asset acquired by specified modes mentioned in Section49(1)- In the case of a capital asset which becomes the property of an assesse in the circumstances mentioned in section 49(1) i.e. under gift, will, succession, inheritance etc., the period for which the asset was held by the previous owner shall be included.

3. Shares acquired in Indian amalgamated company- In the case of a share in an Indian company which becomes the property of the assesse in a scheme of amalgamation, the period for which the share in the amalgamating company was held by the assesse shall be included. 4. Shares acquired in Indian resulting company- In the case of a share in an Indian resulting company which becomes the property of the assesse in a scheme of demerger, the period for which the share in the demerged company was held by the assesse shall be included. 5. Trading or clearing rights or shares- In the case of a capital asset, being (i) trading or clearing rights of recognized stock exchange in India acquired or (ii) equity shares or share in a company allotted by a person pursuant to demutualization or corporatization of the recognized stock exchange in India, these shall be included while calculating the period of holding of trading or clearing rights, the period for which the person was a member of the recognized stock exchange in India immediately prior to such demutualization or corporatization.

TRANSFER OF A CAPITAL ASSET[SECTION 2(47)
Transfer- U/s 2(47) of Income Tax Act 1961, the term ‘transfer’ has been defined as: Transfer in relation to a capital asset includes: The sale, exchange or relinquishment of the asset; or The extinguishment of any rights therein; or The compulsory acquisition thereof under any law; or In case where the asset is converted by the owner thereof into , or is treated by him as stock in trade of a business carried on by him , such conversion or treatment; or 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 Transfer Of Property act ,1882; or Any transaction which has the if act of transferring or enabling the enjoyment of any immovable property . Maturity or redemption of a zero coupon bond .

Transaction not regarded as transfer
Under section 47,the following transactions are not regarded as transfer. Hence any gain arising from such transactions is also not taxable under the head 'capital gains'. Any distribution of capital asset on total or partial of HUF. But this provision will not be applicable if assets of HUF are sold by karta and cash is realized and after that the cash is distributed among the members. In this case HUF shall have to pay tax on any gain which has accrued to it on sale of assets. Omitted 3. Any transfer of assets under a gift or will or an irrecoverable trust. 4. Any transfer of capital assets by a company to its subsidiary company, if A) the parent company or its nominees hold the whole of share capital of the subsidiary, and B) the subsidiary company is in Indian company.

5. Any transfer of capital asset by a subsidiary company to the holding company, if
A) the whole of the share capital of the subsidiary company is held by the holding company, and the holding is an Indian company. 6. (A) any transfer in a scheme of amalgamation of a capital asset being a share or shares held in an Indian company, by the amalgamating foreign company to that amalgamated foreign company provided: a) at least 25% of the shareholders of the amalgamating foreign company continue to remain shareholders of the amalgamated foreign company and b) such transfer does not attract tax on capital gains in the country in which amalgamating company is incorporated.

6(AA). Any transfer in scheme of amalgamation of a banking company with a banking institutions sanctioned and brought into force by the central government under sub-section (7) of section 45 of the banking regulation act, 1949 of a capital asset by the banking company to banking institution. 6(AB) any transfer in a scheme of amalgamation of the capital asset, being a share of a foreign company, referred to in explanation 5 to section 9(1)(i),which derives, directly or indirectly, it's value substantially from the share or shares of an Indian Indian company, held by the amalgamating foreign company to the amalgamated foreign company, if (a) at least 25 % of the shareholders of the amalgamating foreign company continue to remain shareholders of the amalgamated foreign company, and such transfer does not attract tax on capital gains in the country in which the amalgamating company is incorporated [inserted by finance act with effect of A. Y ]. 6(B) transfer of assets on demerger : (a) any transfer of a capital asset owned by a demerged company to the resulting Indian company under a scheme of demerger [section 47(6B)]

6.(C) in case demerger of foreign companies is taking place and capital asset in the nature of share of an Indian company held by such demerged company are transferred to resulting foreign company, it shall not be regarded as transfer if: the shareholders holding not less than 3/4th in value of shares remain shareholders of the resulting company, and there is no tax on such capital gains in the country in which such foreign demerged company is incorporated. 6.(CA) any transfer in the business reorganization of a capital asset by the precedecessor co- operative bank to the successor co-operative bank.

6.(CB) any transfer by a shareholder in a re-organisation of a capital asset being a share or shares held by him in the precedecessor co-operative bank if the transfer is made in consideration of the allotment to him on any share or shares in the successor co-operative bank. 6.(CC) any transfer in a demerger of a capital asset being a share of a foreign company referred to in explanation 5to clause (i) of sub sub-section (1) of section 9,which dervies, directly or indirectly it's values substantially from the time share or shares of an Indian company held held by the demerged foreign company to resulting foreign company, if - “ a) the shareholders holding not less than 3/4th in value of the share demerged for company, continue to remain shareholders of the foreign company

such transfer does not attract tax on capital gains in the country in which the demerged foreign company is incorporated. 7. any transfer by a shareholder in the scheme of amalgamation of share or shares held by him in the amalgamating company, if (a) the transfer is made in consideration of the allotment to him of any share or shares in the amalgamating company, and (b) the amalgamated company is an Indian company. 7.(A)any transfer of a capital asset, being bonds or global depository receipt referred to in sec. 115AC(1) shall not be regarded as transfer if such transfer is made outside India by a non-resident to another non-resident.

7.(B) any transfer of capital asset being a government security carrying a periodic payment of interest, made outside India through an intermediary dealing in settlement of securities by a non-resident to another non-resident. 8..any transfer of agricultural land in India affected before 1st of March, any transfer of capital asset, being any work of art, archaeological, scientific or art collection, book etc. as may be notify by the central government in official Gazette to be of national importance. 10. Any transfer by way of conversion of bonds, debentures or deposit of certificate in any format, of a company into share or debentures of that company. 10.(A) any transfer by way of conversions of bonds into share or debentures of any company.

11. Any transfer made before the 31st day of December 1998 by a person of a capital asset being membership of stock exchange of a recognized stock exchange to a company in exchange of shares alloted by that company to the transfer. These shares cannot transferred for 3 years. 12. Any transfer of a capital asset being land of a sick industries company, under a scheme prepared and sanctioned under sec 18of the sick industrial companies act 1985 where such industrial companies is being managed by its worker's co- operative.

13. When any capital or intangible asset owned by a firm is transferred to a company which has succeeded the firm, it shall not be regarded as a transfer if: all the asset and the liabilities of the firm existing on the date of succession are taken over by the company. all the partner of the firm become shareholders of the company in same proportion in which their capital existed on the date of succession. the partners do not receive any other benefit except allotment of share in such company. d) the share holding of all the partner of the firm in the succeeding company is not less than the 50% of voting power on the date of succession and remain so for 5 succeeding years.

13.(A) with effect from any transfer of a capital asset being a membership right held by a member of a recognized stock exchange in India for acquisition of shares and trading or clearing right acquired by such member in that recognized stock exchange in accordance with the scheme of demutualisation and exchange board of India. 13.(B) any transfer of a capital asset or intangible asset by a private company or unlisted public Co. To LLP or any transfer of share n shares held in the company by a shareholder as a result of conversion of the company into LLP under sec. 56&57 of LLP act, 2008,shall not be regarded as transfer on fulfillment of the following conditions :- a) all the assets and liabilities of the company immediately before the conversion become the assets and liability of LLP. b) no amount is paid to any partner out of balance of accumulated profit of the company on the date of conversions for a period 3years from the date of conversion.

c) the total sale or gross receipt in business of the company in any of the three previous years preceding the year in which the conversion take place does exceed Rd. 60 lakh. d) the aggregate of the profit sharing ratio of the shareholders of the company in the LLP shall not be less than 50% at any time during the period of 5 years from the date of conversion. 14. In case there is transfer due to lending of securities by its holder under an agreement with the borrower and as per guidelines issued by securities exchange board of India or by RBI. It shall not be regarded as transfer. 15.any transfer of a capital asset in a transaction of reverse mortgage under a scheme made and notified by central government. 16. Any transfer of capital asset of a 'special purpose vehicle' to a business trust in exchange of units alloted by that trust to the transferor. 17. Any transfer by unit holder of a capital asset, being a unit held by him in the consolidating a mutual fund, made in consideration of the allotment to him of a capital asset being unit or un-condolidated scheme of the mutual fund.

Capital gain is taxable in the previous year in which capital asset is transferred
The capital gain is deemed to be income of the previous year in which the transfer takes place. As such any capital gains should be assessed in the assessment year corresponding to the previous year in which transfer takes place. A transfer does not take place merely because an agreement has been entered into or consideration is paid thereunder in whole or in part. The following rules can be framed in this connection :- 1. The change of capital gain arises only when there has been a duly executed and registered deed of transfer.

2. The year of assessment would be the year corresponding to the previous year in which such transfer is completed. 3.in respect of transaction concerning immovable property worth rs.100 or above, no capital gain can be charged to tax so long as there is no registration deed or transfer - though possession might have been given to the buyer. 4. Whether the consideration is paid at the time of transfer or made payable immaterial, the charge will be levied in the year in which transfer of title takes place. However, there are certain cases where capital gain is taxable in the previous year in which consideration is received and not in the previous year in which capital asset is transferred. For example, compulsory acquisition by government, amount received from insurer.

Amount received from insurer [section 45(1A)]
Where any person receives at any time during the previous year any money or other assets from insurer under a contract of insurance as a result of damage to or destruction of any capital asset caused by:- a) Natural calamity such as flood, cyclone n etc. b) civil disturbance or riots, or c) enemy action Any profit or gain receipt of such money or other asset, shall be chargeable to tax as capital gain as income of the previous year in which such amount or other asset is received.

Enhancement of compensation on compulsory acquisition of assets
In this case, if the consideration is determined or is approved by Central Govt. or the Reserve Bank of India and later on such consideration is enhanced by the court of tribunal, the Capital Gain shall be treated in following manner: (a) the capital gain shall be taxable in the previous year in which transfer takes place. (b) the enhanced compensation shall be chargeable to tax under the head “Capital Gains” of the previous year in which such amount is received by the assessee.

(C) With effect from in case an asset is taken over under compulsory acquisition and assessment has been made on the basis of original compensation and later on such compensation is reduced by any authority, the assessment shall be rectified by taking the reduced compensation [Section 45 (5)(c)] Taxability of interim compensation of compulsory acquisition [Section 45(5) Where any amount of compensation is received in pursuance of an interim order of the court, Tribunal or any other authority, such compensation shall be deemed to be income chargeable under capital gain head in the previous year in which final order of high court, tribunal or any other authority is made.

Distribution of assets by a company in liquidation
Under section 46(1) if a company distributes its assets among its shareholders on account of its liquidation, such distributions shall not be regarded as transfer in the hands of the company. U/S 46(2) if a shareholder receives any money or assets from the company, he shall be liable to tax on the excess of fair market value or sale proceeds (if sold) of such assets on the date of distribution over the cost of acquisition of shares held by assessee and such an amount which is assessable under the dividend clause.

EXAMPLE If a person receives some assets from a company in liquidation whose fair market value is 50,000. The assessee held 300 shares which he had purchased for Z 125 each. The value of assets distributed included a sum of P 10,000 taxable as dividend. In this case the capital gain shall be: F.M.V ,000 Cost of acquisition of : (a) each = 37,500 (b) Amount taxable as dividend = 10,000 47,500 Capital Gain ,500

Capital gain on purchase by a company of its own shares or other securities [Section 46A]
Where the shares or any other specified security is purchased back by a company and some consideration is received by the holder of such share or security, the difference between such consideration and cost as indexed u/s 48, shall be deemed to be capital gain of the previous year in which such shares or specified securities are purchased back by the company.

Capital gains on transfer in the context of foreign currency exchangeable bonds (FCEB)
With a view to providing a level playing field to FCEB, has been provided that the conversion of FCEB into shares or debentures of any company shall not be treated as a "transfer." Further section 49 (2A) has been substituted to provide that the cost of acquisition of the shares.

DEEMED CAPITAL GAIN [section 47A]
In case an asset is transferred from a parent company to a subsidiary company or from subsidiary company to a parent company [Section 47 (iv) or (v)} and Such capital asset is converted by the transferee company into or is treated by it as stock- in-trade before the expiry of a period of 8 years from the date of transfer, or The parent company or its nominees cease to hold the 100% of share capital of subsidiary company before the expiry of a period of 8 years from the date of transfer, the capital gain which was exempted u/s 47 will become taxable as deemed capital gain of the year in which such transfer took place.

(c) In case there is breach of any of the conditions prescribed for exemption of capital gain on succession of a firm or a sole proprietary concern u/s 47(xiii) and (xiv), the amount of gain arising from such transfer shall be deemed to be the gain taxable in the hands of successor company in the previous year in which such breach of condition takes place. [Section 47A(3)1 (d) With effect from assessment year the transferor who has transferred its membership of a recognised stock exchange and has received shares as consideration, such shares cannot be transferred for a period of three years from the date of transfer of membership, the amount of exemption claimed under section 47 shall be deemed as income chargeable to tax under the head capital gains. [Section 47A(2)].

Transfer in case of reverse mortgage [Sec. 47(xa)]
The Finance Act 2008 clause 47 (xa) It provides that any transfer of capital asset in a transaction of reverse mortgage shall not be regarded as transfer and hence shall not attract capital gains tax. b) Loan received either in lump sum or in installments It is further provided that loan received either in lump sum or in installments is a capital receipt and shall be exempted u/s 10. c) Borrower under the reverse mortgage scheme: He will be liable to income tax (i.e. tax on capital grains) only at the point of alienation of the mortgaged property by the mortgagee for the purposes of recovering of loan.

Method of Computing Capital Gain [Section 48]
1. For all assessees and all assets except shares and debentures owned by a non-resident (a) Short-term capital gain shall be computed by deducting out of full value of consideration the following amounts (i) expenditure incurred wholly and exclusively in connection with such transfer; (ii) the cost of acquisition of the asset; and (iii) the cost of any improvement thereto.

(b) Long-term capital gain shall be computed by deducting out of full value of consideration the following amounts (i) expenditure incurred wholly and exclusively in connection with such transfer; (ii) the indexed cost of acquisition; and (iii) the indexed cost of any improvement thereto. (c) Where capital asset being shares, debentures or warrants as referred in Section 47(iii) are transferred under a gift or irrevocable trust the market value on the date of transfer shall be deemed to be the full value of consideration received or accruing as a result of transfer.

ILLUSTRATION Cost of acquisition in Z 1.20,000. Find out the indexed cost if sold in (C1.1. for is 109 and for is 1081) SOLUTION : Computation of Indexed Cost in = Rs. 1,20,000 Indexed cost = Rs. 1,20,000 x 1081/109 = Rs

Computation of Capital Gain in Case of Non-Residents [Sec
Computation of Capital Gain in Case of Non-Residents [Sec. 48 Provison1] This provision is applicable to non-residents only. The non-resident must have acquired shares or debentures of Indian companies using foreign currency. Such non-resident, wanting to transfer such shares will follow the following considerations and conditions. The asset may he short term or long term.

Determination of Cost of Acquisition
The cost of acquisition means the price which an assessee has paid to purchase, construct or acquire an asset. No problem arises in finding out the cost of acquisition in case of assessee purchasing, constructing or acquiring the asset himself But in other cases there are different rules to determine the cost of acquisition. They are :

In case of assets acquired without paying any price [49 (1)1.
CASES: (i) any division of assets by H.U.F. among its members on its partial or total partition; (ii) assets received under a gift or will; (iii) (a) assets received under succession, inheritance or devolution; or (b) any distribution of assets on the dissolution of firm, body of in of individuals or other association of persons where such dissol dissolution has taken place before ; or (c) any distribution of assets on liquidation of a company; or

(d) a transfer to a revocable or irrevocable trust; or
(e) any such transfer from a parent company to its wholly owned nsubsidiary Indian Company or vice versa; or any transfer, in a scheme of amalgamation, by the amalgamated company from the amalgamating company subject to the conditions prescribed u/s 47(vi) or; (g) any transfer of a capital asset in a scheme of business nreorganisation of a cooperative bank as per section 47 or;

(h) any transfer by a private company or unlisted public company to a limited liability partnership (LLP) as a result of conversion of the company into LLP in accordance with the provisions of section 56 or section 57 of the LLP Act 2008; or (i) any transfer of capital asset or intangible asset by a firm to a company as a result of succession subject to conditions prescribed u/s 47(xiii); or (j) any transfer of capital asset or intangible asset by a sole proprietary concern to a company as a result of succession subject to conditions prescribed u/s 47(xiv).

2. Shares in amalgamated company [49 (2)]
In case of amalgamation of a company into an indian company, the cost of acqisiyion of shares of amalgamated company shall be taken to be the cost of acquisition to him of the shares of the amalgamating company. 3. Cost of Original shares of demerged company [Section 49(2D)] The sost of original shares held by the assessee in the demerged company shall be deemed to have been reduced by the amount so arrived at [Section 49(2D)] .

4. Cost of Acquisition of Specified security or Sweat Equity Shares
With effect from the assessment year , where the capital gain arises from the transfer ofspecified security or sweat equity shares reffered to in the Section 17(2)(vi), the cost of acqisition of such security or shares shall be the fair market value which has been taken into account for the purposes of Section 17(2)(vi)

5. Cost of shares of resulting company [Section 49(2C)]
The cost of acquisition of shares of resulting company as a result of merger shall be: Cost of acquisition of shares held by the x Net Book value of assets assessee in the demerged company Net worth of demerged company before demeger

7. Assets on which depreciation has been claimed [Section 50]
6. Cost on conversion of capital assets into trading assets or stock-in-trade When a capital asset is converted into a trading asset then the cost of the capital asset which is so converted into stock-in-trade of assessee's business may be taken as the market value of those assets on the date of such conversion. 7. Assets on which depreciation has been claimed [Section 50] In case assets are sold during the previous year and some gain occurs, this capital gain is taxable under this head. Section 50 of the Income-tax Act provides the procedure for calculation of deemed capital gain/loss in case of depreciable assets.

8. Succession of a private company or unlisted public company by a limited liability partnership
In case of a private company or unlisted public company is converted into Limited Liability Partnership (LLP), the cost of acquisition of such a LLP shall be the cost for which the predecessor company acquired the same.

9. Cost in case of deemed capital gain u/s 47 A [Section 49 (3)]
Where the capital gain arising from the transfer of a capital asset is deemed to be income chargeable under the head capital gains as a result of operation of provisions of section 47A, the cost of acquisition of such asset to the transferee company shall be the cost for which such asset was acquired by it.

10. Taxation of gain on Slump Sale
The term ‘Slump Sale’ has been defined u/s 2(42C) and it means “transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets.” If values are assigned to some assets only for the purpose of stamp duty and registeration, it shall not be regarded as assignment of values to each asset.

PROFIT/LOSS ON SLUMP SALE (sec-50b)
Any profits and gains arising from ‘slump sale’ effected in the previous year shall be chargeable to tax as capital gains and shall be deemed as income in previous year. In case asset was held for less than 36 months, it is a short term capital asset. “Net Worth” shall be the aggregate value of total assets of the undertaking or division as appearing in the books of accounts. Every assesse having slump sale shall furnish a report along with its return of income, form a CA certifying that the net worth has been has been correctly calculated.

TEREATMENT OF ADVANCE MONEY FORFEITED DURING PY2013-14 SEC-51
in case an asset was subject to negotiation for transfer and deal was made. The deal was firm up by receiving some advance. Such advance was received by the assessee. The cost of such asset shall be reduced by such advance money received and forfeited by the assessee. In case advance money received and forfeited is more than cost of aquisation of such asset nothing shall be taxable at the time of receipt. If the amount of advance money is forfeited due to fault of buyer, it shall not be treated as capital loss in the hands of buyer.

TREATMENT OF ADVANCE MONEY RECEIVED AND FORFEITED DURING PY 2014-15 OR AFTERWARDS (SEC51)
W.e.f. A.Y , any sum received as an advance or otherwise in the course of negotiation for transfer of a capital asset and forfeited due to non transfer of such capital asset shall be treated as income U/H’ income from other sources’ and it is taxable in the hands of the recipient of advance money in the year in which advance money was forfeited. The provision to section 51 provides that where any sum of money received as an advance or otherwise in the course of negotiations for the transfer of a capital asset and has been treated as Income u/h other sources

Illu-4 Mr. Ghosh sold a house on 1-9-2015 for rs 12 lakh
Illu-4 Mr. Ghosh sold a house on for rs 12 lakh. This house was inherited by him during from his father who had constructed it in for rs 50,000. Mr. Ghosh spent rs on renovation of the house in F.M.V. of the house as on the rs This house was under negotiations for sale in may, 1990 and he recived rs as advance money. The contract could not materalise and the advance money was forfeited. Compute the amount of capital gain assuming that he does not qualify for any exemption. SOLUTION- Sale price in ,00,000 Less: cost of acquisition ,50,000 Less: advance money rec ,000 net cost ,000

Indexed cost( 70,000×1081/100) ,56,700 Indexed cost of improvement (50000×1081/140) ,86,071 11,42,771 LONG TERM CAPITAL GAIN ,229 14) Cost of acquisition of goodwill. In case good will was purchased, the cost shall be price paid but in case it was not purchased the cost is taken as nil. In case the capital asset is goodwill, tenancy rights, stage carriage permits or loom hours the cost of acquisation will be: Purchase price will be nil. Nil in all other cases except those covered u/s 49.

15) ADOPTION OF FAIR MARKET VALUE SECTION 55(2)(B)
Where the asset became the property of the assessee before it will mean the cost of acquisation of the asset to the assessee or the F.M.V. of the asset on at the option of the assessee. Assessee will choose whichever of the 2 is higher. Where the capital asset becomes the property of the assessee under any of the mpodes given under section 49, the assessee is given the option either to adopt either the cost of the asset to the the previous owner or F.M.V. As on , whichever is higher.

16) COST OF ACQUISATION OF SHARES
When an assessee acquires capital asset in the form of asset or stock of company on: Conversion of shares into stock Reconversion of any stock into shares. Sub-division of the shares of large company into then shares of the small company. Conversion of one share into the kind of any other share.

17) INVESTMENT IN DEBENTURES/BONDS AND THEN CONVERSION INTO SHARES.
IN case the amount invested in debentures or bonds is converted into share either fully or partly, no capital gain arisee because of conversion of debentures into shares is not transferable. Capital gain arises when further debentures are sold or transfered. 18) WHEN COST CANNOT BE ASCERTAINED Where the cost of particular asset for which the previous owner had acquired the asset, cannot be ascertained, the cost of acquisation to the owner means the fair market value of the asset on the date on which it becomes the property of such owner.

19) Cost of bonus of shares
As per new amendment the cost of financial asset alloted to the assesse without any payment on the basis of holding of any other financial asset shall be taken as nil. This amendment has come into affect from AY EXPENDITURE INCURRED IN CONNECTION WITH TRANSFER These expenditure are allowed under full consideration

EXEMPTIONS IN RESPECT OF CERTAIN CAPITAL GAINS
THESE specific exemptions can be brodly classified into two categories: CAPITAL GAINS EXEMPTED u/s 10 CAPITAL GAINS EXEMPTED u/s54 CAPITAL GAINS EXEMPTED u/s 10 Income from sale of shares in certain cases. Capital gain on compulsory acquisation of urban agriculture land. Exemption of long term capital gain. Income from transfer of asset of an undertaking engaged in business of generation, transmission or distribution of business power.

AMOUNT OF EXEMPTION In case assessee invests the full amount of net consideration in the purchase or construction of a residential house, then full amount of long term capital gain shall be exempted. If the assessee invests only a part of the net consideration then only a proportionate part of Capital gains shall be exempted. Exempted Capital gain = L.T.Capital gain x Amount invested to purchase or construct a residential house __________________________________ Net Consideration

EXAMPLE Sale consideration received for the sale of a plot =10,10,000 Less: Selling expenses = 10,000 Net consideration =10,00,000 Less: Indexed cost of acquisition = 4,00,000 Long term capital gain =6,00,000 # If the assessee invests full net consideration of Rs. 10,00,000(or even invests more than net sale consideration),then the full amount of capital gain of Rs.6,00,000 shall be exempted. #In case he invests only 80% of net consideration, then only80% of the capital gain shall be exempted and the balance will be taxable.

Amount deposited in Capital gain deposit account scheme
If the amount of net consideration is not re-invested to purchase or construct a residential house upto the last date of filing of return of income u/s 139, Then the same amount should be deposited in the capital gain deposit account scheme with a specified bank upto the last date of filing of return. The proof of deposit is required to be attached with the return of income of that year. The amount deposited under this scheme must be utilised to purchase or construct a residential house within the specified period. If amount deposited is not utilised wholly or partly for the purchase or construction of a residential house within stipulated period. Then the amount which remains unutilized shall be treated as capital gain of the previous year in which the period of 3 years from the date of the transfer of the original asset expires.

Claim of exemption u/s 54F if more than one asset is sold
The assessee can claim exemption u/s54F in such a manner, which is most beneficial to him. In this context he has 2 options:- He may calculate the exemption u/s54F for each asset separately and then compare the most beneficial alternative. OR He may calculate the exemption in following manner and then choose the beneficial alternative: Calculate capital gain for each asset separately. Calculate percentage of Long term capital gain to net consideration. Allow exemption u/s 54F out of LTCG of that asset whose percentage is highest. If amount invested in house is more than net consideration of one asset, the balance investment is to be taken up out of that asset whose percentage is highest and so on.

6.Capital Gain on shifting of industrial undertaking from urban areas to non-urban areas[Section 54G] In case following conditions are fulfilled, the capital gain shall be exempted as per rates given below:- Capital asset(Plant and machinery,land,buildings or any right therein)is transferred due to shifting of industrial undertaking from urban areas to rural areas; and Capital gain is reinvested within a period of 1 year before or 3years after the date in: Purchase of new machinery or plant for the purposes of business of the industrial undertaking in the area to which the said undertaking is shifted; Acquiring building or land or construction of building for the purpose of his business in the said area; Shifting the original asset and transferring the establishment of such undertaking to such area; and Incurred expenses on such other purposes as may be specified in a scheme framed by the Central Government for the purposes of this section.

Non-utilisation of amount before filing of return[Section 54G(2)]
If the amount of the capital gain is not utilised by the assessee, then the same shall be deposited by him before furnishing such return in an account in any such bank or institution, as may be specified in, and utilized in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf. If the amount deposited under this sub-section is not utilised wholly or partly for all or any of the purposes mentioned in clauses(a)to(d) of sub-section(1) within the period specified in that sub- section, then: The amount not so utilized shall be charged u/s 45 as the income of the previous year in which the period of 3 years from the date of the transfer of the original asset expires; The assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.

Amount of Exemption Least of following 2 amounts shall be exempted:-
Amount of Capital Gain earned on the transfer of Capital Asset. Amount spent on the purchase,constructionetc. Of new assets in a Special Economic zone within specified time frame. No transfer of new assets within 3 years:- New assets acquired by invested the amount of Capital Gain are not supposed to be transferred within 3 years from the date of their purchase, construction etc. If transferred exemption allowed earlier under section 54GA shall be withdrawn and so Capital Gain arising from such transfer and Capital Gain got exempted earlier, both will be taxed in the year in which transferred.

7.Exemption of Capital Gain on transfer of assets in case of shifting of Industrial Undertaking from an urban area to any Special Economic Zone(SEZ)[Section 54GA] With effect from Assessment Year this exemption has been introduced to encourage industrial undertaking in an urban area to shift to a Special Economic Zone. To avail this exemption, following points are to be noted: There is a transfer of assets like land and building or any right in land and building, plant and machinery of an industrial undertaking situated in an urban area. The above mentioned transfer has been made with the intention of shifting of an industrial undertaking from an urban area to a Special Economic Zone. The assessee has set up an industrial unit in an Economic Zone within a period of 1 year before or 3 years after the date on which such transfer took place.

Amount of Exemption Least of following 2 amounts shall be exempted:-
Amount of Capital Gain earned on the transfer of Capital Asset. Amount spent on the purchase,constructionetc. Of new assets in a Special Economic zone within specified time frame. No transfer of new assets within 3 years:- New assets acquired by invested the amount of Capital Gain are not supposed to be transferred within 3 years from the date of their purchase, construction etc. If transferred exemption allowed earlier under section 54GA shall be withdrawn and so Capital Gain arising from such transfer and Capital Gain got exempted earlier, both will be taxed in the year in which transferred.

8.Long term Capital gain on transfer of residential property if net consideration is invested in the equity shares of an Eligible company[Section 54 GB][w.e.f.Assessment Year but upto Assessment Year ] (i)Eligible assessee:-An Individual or HUF. (ii)Conditions: The residential property must be a house or plot of land. Such residential property must be a long term capital asset. Such residential property must have been transferred on or after but on or before There must be long term capital gain on such transfer.

The assessee utilises the net consideration of residential property in the equity shares of an eligible company before the due date of furnishing of return of income under section 139(1). The eligible company is to utilise the amount for purchase of new asset within 1 year from the date of subscription in equity shares by the assessee. If the amount is not utilised by the company for the purchase of new asset before the due date of furnishing of the return of income by the assessee u/s 139(1),shall be deposited by the company, before the said due date in an account in any such bank or institution as may be specified shall be utilised in accordance with any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf.

(iii) Amount of Exemption
If Net Consideration > Cost of new asset, then Amount of Exemption=LTCG x Cost of new asset Net Consideration If Net Consideration < Cost of new asset, then Amount of exemption = whole amount of LTCG (i.e.100%)

(iv) Forfeiture of Exemption
If the assessee sells or otherwise transfers the equity shares of the eligible company within 5 years from the date of acquisition: In such a case, the old exempted capital gain u/s 54GB shall be deemed to be the long term capital gain of the previous year in which such shares are sold or otherwise transferred. If the eligible company sells or otherwise transfers the new asset within 5 years from the date of acquisition: In such a case, the old exempted capital gain u/s 54GB shall be deemed to be the long term capital gain of the previous year in which such new asset is sold or otherwise transferred. If the amount deposited in specified bank/institution is not utilised fully or partly by the eligible company for purchasing the new asset within 1 year from the date of subscription in shares by the assessee:In such a case capital gain proportionate to unutilised amount shall be deemed to be the long term capital gain of the previous year. 0

Investment of compensation received[section 54H]
In case there is transfer of asset due to compulsory acquisition under any law and the amount of compensation awarded for such acquisition is not received by the assesses on the date of such transfer, the period or period available for depositing or investing the amount under any of the section 54,54B,54D,54EB,54EC and 54F,in relation to such compensation shall be reckoned from the receipt of such compensation.

Receipt of enhanced compensation
Enhanced compensation is taxable in the year in which such compensation is received and if the assesse wants to avail exemption u/s 54 54B 54D 54EC 54F,etc. the time limits shall be determined from the date and year of receipt of enhanced compensation. While calculating taxable amount of enhanced compensation , any expanses incurred on litigation etc. to obtain enhanced compensation shall be allowed to be deducted.

TREATMENT OF CAPITAL LOSS [Section 74]
Set off. –Short term capital loss can be set off from either Short Term Capital Gain or Long Term capital Gain. Long Term Capital Loss can be set off only Long Term Capital Gain. Carry forward. Unadjusted capital losses are carry forward separately for 8 succeeding previous year to be set off in following manner: (a) Loss on transfer of long equity shares (subject to STT).Long term capital gain on transfer of shares (which are subject to STT) is exempted u/s 10(38) and so loss on transfer of long term shares cannot be set off against any other long term capital gain and hence such a loss is ignored.

Adjustments of loss on sale of securities or units [section 94 (7)]
Any person buys or acquires securities or any units within in a period of three months prior to the record date; Such person sell or transfer: such securities within in a period of three months after such date, or such unit within in a period of nine months after such date; The dividend or income on such securities or units received or receivable by such person is exempt. The loss , if any arising to him on account of such purchase and sale of securities or units shall be ignored up to the amount of income exempted under (c) above. Such loss shall not be allowed to be set off or carried forward up to the amount of income exempted under (c) above.

Deemed cost of units acquired within a period of three months prior to the record date[section94(8)]
Any person buy any units within a period of three months prior to the record date; Such person is allotted additional units without any payment on the basis of holding of such units on such date; Such persons sells or transfer all or any of the units referred to in clause (a) within in a period of nine months after such date, while continuing to hold all or any of the additional units referred in clause (b), then, if any, arising to him on account of such purchases and sale of all or any of such units shall be ignored for the purpose of computing his income chargeable to tax.

Short Term Capital Assets[Section 111a]
Short term capital asset being equity shares in a company or units of equity oriented fund where transaction is covered under Securities Transaction Act: The tax on gain such transfer shall be calculated in following manner: The rate of tax on gain from Short term capital asset being equity shares in a company o units of equity oriented fund where transaction is covered under Securities Transaction Act; shall be 15% of such gain; Such gain shall be reduced out of total income and balance income shall be deemed as total income on which the schedule of rates as applicable to an individual shall be applied. For allowing deductions u/s 80c to 80u the total of all deductions cannot exceed gross total income as reduced by an amount of capital gain, if any. Short term capital assets other than those referred to in (a) above.

B . Long term capital gain [section 112]
Long term capital asset being equity shares in a company or units of equity oriented fund where transaction is covered under Securities Transaction Act : Any income from transfer of long term capital asset being equity share in a company or unit of equity oriented fund where transaction is covered under STA is fully exempted u/s 10(38). Long term capital gain being listed securities or units where securities transaction tax has not been paid on transfer: Long term capital gain from such asset shall be subject to tax: @10% of such gain if such gain is computed without indexing the cost of acquisition; or @20% of such gain if such is computed after indexing the cost of indexing the cost of acquisition; Whichever is less.

C . Adjustment For allowing deductions u/s 80 gross total income shall be reduced by long term capital gain and balance amount shall be deemed as Gross Total Income for this chapter. In case of individuals and HUF. If balance total income is less than exempted limit, the long term capital gain shall be reduced by such amount by which the total income falls short for exempted limit and on balance long term capital gain tax shall be calculated.

CAPITAL GAINS.

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CAPITAL GAINS.

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