Calculation Of Capital Gain In Special Cases

1. Amount received from Insurer [Section 45(1A)]

Where any person receives at any time during the previous year any money or other assets, from the 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, earthquake, cyclone, typhoon, etc., or (b) Civil disturbance or riots,(c) Enemy action (whether there is war or not),

any profit or gain from receipt of such money or other assets, shall be chargeable to tax as capital gain as income of the previous year in which such amount or other asset is received. For the purposes of section 48 full consideration will mean the amount of money received or fair market value of the asset on the date of such receipt. 

2. Deemed Transfer [Section 45(2)]

In case a capital asset is converted into stock-in-trade or is treated as stock-in-trade by the assessee it will be deemed to have been transferred. The difference between market value and the cost price shall be taxable as capital gain under this head.

3. Transfer of Capital Assets by a person to firm, AOP or body of individuals [Section 45(3)]

When a person transfers his capital asset to a firm, AOP or body of Individuals in which he is or becomes partner or member by contributing capital or otherwise, profit or gain from such transfer shall be chargeable to tax as his income of the previous year in which such transfer takes place and for computation of capital gain, the amount recorded in the books of firm, AOP or body of individuals as the value of capital asset shall be deemed as full consideration for the transferor. This provision has come into effect from 1-4-88 i.e. assessment year 1988-89.

The amount recorded in the books of firm, BOI or AOP, shall become the sale price. The cost at which it was acquired by the person shall be treated as cost of acquisition.

4. Transfer of Capital Assets on dissolution of firm, AOP or body of individuals [Section 45(4)]

When an asset is transferred by way of distribution on the dissolution of the firm, AOP or body of individuals, the profit or gain arising from such transfer, shall be chargeable to tax as the income of firm, AOP or body of individuals, of the previous year in which such transfer takes place. For computing capital gains the Fair Market Value on the date of transfer shall be deemed to be the full value of the consideration received or accruing as a result of the transfer. This provision has come into effect from 1-4-88 i.e. assessment year 1988-89.

5. Enhancement of compensation on compulsory acquisition of Assets [Sec. 45 (5)]

In case of compulsory acquisition of assets 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 or Tribunal, the Capital Gain shall be treated in the following manner :

(a) the capital gain arising due to such acquisition shall be taxable in the previous year in which transfer takes place:

(b) the enhanced compensation or consideration shall be chargeable to tax under the head "Capital Gains" of the previous year in which such amount is received by the assessee (or by any other person, if the original transferor has died).

(c) With effect from 1-4-2004 in case an asset is taken over under compulsory acquisition and assessment has been made on the basis of original compensation or enhanced 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)]

6. Taxability of interim compensation in case of compulsory acquisition [Proviso to 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.

7. Taxability of capital gain on transfer of land or building or both under specified agreement to develop a real estate project. [Insertion of section 45(5A)] [w.e.f. A.Y. 2018-19]

Where the capital gain arises to an assessee, being an individual or a Hindu undivided family, from the transfer of a capital asset, being land or building or both, under a specified agreement, the capital gains shall be chargeable to income-tax as income of the previous year in which the certificate of completion for the whole or part of the project is issued by the competent authority. For the purposes of computation of capital gain under section 48, the stamp duty value, on the date of issue of the said certificate, of his share, being land or building or both in the project, as increased by the consideration received in cash, if any, shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset.