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Capital Gain Tax Simplified

Pallav Singhania 
Updated on 24 June 2016

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Chargeability u/s 45

Profits or gains arising from the transfer of a capital asset is chargeable to tax in the year in which transfer take place under the head "Capital Gains".

Definitions

Transfer: Sec. 2(47): Transfer in relation to a capital asset includes sale, Exchange, or relinquishment of the asset or extinguishment of any rights therein or the compulsory acquisition thereof under any law or conversion of the asset by the owner in stock-in-trade of a business carried on by him or the maturity or redemption of a zero coupon bond.

Capital Asset: Sec. 2(14): Capital Asset means property of any kind (Fixed, Circulating, movable, immovable, tangible or intangible) whether or not connected with business or profession.

Exclusions —

a. Stock-in-trade

b. Personal effects of the assessee

c. Agricultural land in a rural area

d. 6½% Gold Bonds, 1977 or 7% Gold Bonds, 1980 or National Defence Bonds, 1980 issued by the Central Government

e. Special Bearer Bonds, 1991 issued by the Central Government.

f. Gold Deposit Bonds issued under Gold Deposit Scheme 1999

Short-term capital asset: Sec. 2(42A): means a capital asset held by an assessee for not more than thirty six months immediately preceding the date of its transfer. However, in the following cases, an asset, held for not more than twelve months, is treated as short-term capital asset.

Long-term capital asset: Sec. 2(29A): means a capital asset which is not a short-term capital asset.

Computation of capital gains (Sec. 48)

The method of computation depends on the nature of capital asset transferred. It is as follows:—

Short-term Capital Gain

Long-term Capital Gain

A. Find out Full Value of Consideration

A. Find out Full Value of Consideration

B. Deduct:

B. Deduct:

(i) expenditure incurred wholly and exclusively
in connection with such Transfer.

(ii) Cost of Acquisition

(iii) Cost of Improvement

(iv) Exemption provided by Ss. 54B, 54D & 54G, 54GA

(i) expenditure incurred wholly and exclusively in connection with
such Transfer.

(ii) Indexed Cost of Acquisition

(iii) Indexed Cost of Improvement

(iv) Exemption provided by Ss. 54, 54B, 54D, 54EC, 54ED, 54F & 54G, 54GA

C. (A-B) is short-term capital gain

C. (A-B) is a long-term capital gain

CAPITAL GAINS - VARIOUS EXEMPTIONS DETAILS

 

Section

54

54B

54D

54EC

(a)

Kind of assets transferred

Long-term Capital
Assets being House
Property used for
residential purpose

Land used for
agricultural purposes

Land and Building or any right therein used by an industrial undertaking
compulsorily acquired
under any law

Any Long Term Capital
Assets

(b)

Eligible Assessees

Individual & HUF

Individual & HUF

All

All

(c)

Condition of
period of
holding of
original Asset

3 years

2 years

2 years

1 year for Shares, Listed Securities, Units of UTI/
Mutual Fund specified
u/s 10(23D), Zero
coupon bonds, 3 years for any other capital assets

(d)

Condition of
utilization of
consideration

Purchase of
Residential House
within 2 years after
or 1 year prior to
date of transfer: or
construction of
residential house
within 3 years from
the date of transfer

Purchase of
Agricultural Land
within 2 years from
the date of transfer

Purchase/construction
of land, building, or
any right therein
within 3 years from the date of transfer by way of compulsory
acquisition for the
purpose of shifting/
re-establishing/
setting up another
industrial undertaking

Investment of whole or
any Part of Capital Gain
in ‘specified assets’ as
stipulated in the section.

Investment should be
made within 6 months
from the date of transfer

(e)

Exempt
Amount

The amount of gain
or, the cost of new
asset, whichever is
less

Lower of the Capital
Gain or the Cost of
acquisition of new
agricultural land

Lower of the Capital Gain or the Cost of
acquisition of new
land and building

Lower of the Capital
Gain or the investment
in specified assets subject to a maximum of Rs. 50 lakhs.

(f)

Other requirements

See notes 1, 2 & 4

Assessee or his
parents must have
used the land for
agricultural purpose
for preceding two
years

See notes 1, 2 & 4
Must have been
used for business of industrial undertaking
for preceding 2 years

See notes 1, 2 & 4
Rebate u/s 88 or
deduction u/s 80C not to be granted for the same investment. New Asset must be retained for a
period of 3 years

CAPITAL GAINS - VARIOUS EXEMPTIONS DETAILS

 

Section

54F

54G

54GA

(a)

Kind of asset transferred

Any long term capital asset other than residential house

Land or Building or any right therein or Plant or Machinery in Urban Area used for the business

Land or Building or any right therein or Plant or Machinery in Urban Area used for the business

(b)

Eligible Assessees

Individual & HUF

Industrial undertakings in urban area shifting to an area other than urban area

Industrial undertakings in urban area shifting to any Special Economic Zone

(c)

Condition of period of holding of original asset

1 year for Shares, Listed
Securities, Units of UTI/
Mutual Fund specified
u/s 10(23D), Zero-coupon
bonds, 3 years for other
capital assets

No period specified

No period specified

(d)

Condition of utilization of consideration

Purchase of Residential House within 2 years after or 1 year prior to date of transfer; or construction of residential house within 3 years from date of transfer

Acquire similar assets & incur expenses on shifting original asset, within 1 year before, or 3 years from the date of transfer

Acquire similar assets & incur expenses on shifting original asset, within 1 year before, or 3 years from the date of transfer

(e)

Exempt Amount

Refer Note No. 5

The amount of gain or the aggregate cost of new asset, and shifting expenses, whichever is lower

The amount of gain or the aggregate cost of new asset, and shifting expenses, whichever is lower

(f)

Other Requirements

Must not own more than 1 residential house other than the new asset on the date of transfer of original asset

Must have been shifted to non-urban area. See Notes 1 & 2

See Notes 1, 2, 3 and 4

NOTES:

1. In case New Asset is transferred before 3 years from date of purchase/construction, the Capital Gains exempted earlier will be chargeable to tax in year of transfer of new asset.

2. In order to avail the exemption, gains are to be reinvested, before the due date of return u/s 139(1). If the amount is not so reinvested, it is to be deposited on or before that date in account of specified bank/institution and it should be utilised within specified time limit for purchase/construction of new asset.

3. U/s 54F Capital Gains exempted earlier shall be chargeable to tax — if a) If the assessee purchases within 2 years or constructs within 3 years any residential house other than the one in which reinvestment is made & b) If the new asset is transferred within a period of 3 years from the date of its purchase/construction.

4. As per Section 54H, where the transfer is by way of compulsory acquisition, the period available for acquiring the new asset u/ss. 54, 54B, 54D, 54EC and 54F shall be computed from the date of receipt of compensation and not the date of transfer.

5. If cost of new house is more than the net consideration of original asset, the whole of the gains is exempt. If cost of specified asset is less than net consideration, proportionate amount of the gains will be exempt i.e. Capital Gain X cost of New Asset/Net consideration on sale of asset.

Regards

Courtesy: VG and Study Material

Aryan Singhania


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