A brief information regarding capital gain tax in india. Created by me.

1. MSU PG
DEPLOMA
Capital Gain
C.A Yogesh Kesariya
C.A Yogesh Kesariya

2. BASIS OF CHARGE
• FOLLOWING CONDITIONS MUST BE SATISFIED TO
CONFIRM CHARGEBILITY:1. There is a capital asset.
2. Assessee should transfer the capital asset.
3. Transfer of capital assets should take place during the
previous year.
4. There should be gain or loss on account of such transfer
of capital asset.
5. Such gain should not be exempt under section 54, 54B,
54EC, 54F, 54G or 54GA .
If aforesaid conditions are satisfied, capital gain shall be
arise and taxed in respective previous year.
C.A Yogesh Kesariya
C.A Yogesh Kesariya

3. CAPITAL ASSETS[sec 2(14)]
Capital assets means any property held by assessee will
not include following:
1. Stock in trade held for business.
2. Agricultural land in India not in urban area i.e., an area with
population more than 10,000.
3. Items of personal effects, i.e., personal use excluding: iJewellery, precious stones, iii-Archaeological collections,
Drawings, Paintings, Sculptures.
4. Special bearer bonds 1991.(instruments does not exist at
present)
5. 6.5% Gold bonds 1977, 7% Gold bonds & National
Defence Bonds 1980. (instruments does not exist at present)
6. Gold Deposit Bonds 1999.
C.A Yogesh Kesariya
C.A Yogesh Kesariya

4. Non existence of definition of ‘property’
• The word ‘property’ used in section 2(14)
includes not only tangible assets but also
intangible assets.
• The word property does not mean merely
physical property but also includes rights, title or
interest in it.
C.A Yogesh Kesariya
C.A Yogesh Kesariya

5. TYPES OF CAPITAL ASSETS
There are two types of Capital Assets:
1. Short Term Capital Assets (STCA): An asset, which is
held by an assessee for less than 36 months, immediately
before its transfer, is called Short Term Capital Assets. In
other words, an asset, which is transferred within 36 months
of its acquisition by assessee, is called Short Term Capital
Assets.
2. Long Term Capital Assets (LTCA): An asset, which is
held by an assessee for 36 months or more, immediately
before its transfer, is called Long Term Capital Assets. In
other words, an asset, which is transferred on or after 36
months of its acquisition by assessee, is called Long Term
Capital Assets.
C.A Yogesh Kesariya
C.A Yogesh Kesariya

6. WHEN PERIOD IS NOT 36 MONTHS?
The period of 36 months is taken as 12 months
under following cases:
• Equity or Preference shares,
• Securities like debentures, government securities,
which are listed in recognized stock exchange,
• Units of UTI
• Units of Mutual Funds
• Zero Coupon Bonds
C.A Yogesh Kesariya
C.A Yogesh Kesariya

7. TYPES OF CAPITAL GAINS
• The profit on transfer of STCA is treated
as Short Term Capital Gains (STCG)
sec 2(42B)
• while that on LTCA is known as Long
Term Capital Gains (LTCG).
Sec 2(29B)
C.A Yogesh Kesariya
C.A Yogesh Kesariya

8. WHAT IS TRANSFER SEC 2(47)
• Transfer in this context includes following:
1. Sale of asset
2. Exchange of asset
3. Relinquishment of asset (means surrender
of asset)
4. Extinguishments of any right on asset
(means reducing any right on asset)
5. Compulsory acquisition of asset
6. The maturity or redemption of zero coupon
bonds.
C.A Yogesh Kesariya
C.A Yogesh Kesariya

9. COMPUTATION OF CAPITAL GAIN
• The capital gain can be computed by subtracting the
cost of capital asset from its transfer price.
Particulars
Amount
Full Value of Consideration
-----------
Less: Cost of Acquisition*(COA)
-----------
Cost of Improvement*(COI)
-----------
Expenditure on transfer
-----------
Capital Gains
Less: Exemption U/S 54
---------------------
Taxable Capital Gains
-----------
*To be indexed in case of LTCA
C.A Yogesh Kesariya
C.A Yogesh Kesariya

10. FULL VALUE OF CONSIDERATION
• Full value of consideration includes whole sale price or
exchange value or compensation including enhanced
compensation received for capital asset in transfer. The
following points are considered in relation to full value of
consideration.
1. The consideration may be in cash or kind.
2. The consideration received in kind is valued at its fair
market value.
3. It may be received or receivable.
4. The consideration must be actual irrespective of its
adequacy.
C.A Yogesh Kesariya
C.A Yogesh Kesariya

11. EXPEDITURE ON TRANSFER
• Expenditure incurred wholly and
exclusively for transfer of capital asset is
called expenditure on transfer.
• It is fully deductible from the full value of
consideration while calculating the capital
gain.
• Examples of expenditure on transfer are :
– Commission or Brokerage paid by seller,
– Registration fees & cost of stamp papers etc.
– Travelling expenses, and litigation expenses
C.A Yogesh Kesariya
C.A Yogesh Kesariya

12. COST OF ACQUISITION
• Cost of Acquisition (COA) means any capital
expense at the time of acquiring capital asset
under transfer, i.e., to include the purchase
price, expenses incurred up to acquiring date in
the form of registration, storage etc. expenses
incurred on completing transfer.
• In other words, cost of acquisition of an asset is
the value for which it was acquired by the
assessee.
• Expenses of capital nature for completing or
acquiring the title are included in the cost of
acquisition.
C.A Yogesh Kesariya
C.A Yogesh Kesariya

13. DEEMED COST OF ACQUISITION
Under sec 49(1)
• Where the capital asset became the property of the
assessee in any of the following manner, the cost of
acquisition of asset shall be deemed to be cost for
previous owner:
1. On any distribution of assets on the total or partial partition
of a Hindu undivided family;
2. Under a gift or will;
3. By succession, inheritance or devolution
4. On any distribution of assets on the dissolution of a firm,
body of individuals, or other association of persons, where
such dissolution had taken place at any time before the 1st
day of April, 1987,
C.A Yogesh Kesariya
C.A Yogesh Kesariya

14. DEEMED COST OF ACQUISITION
Continue...
5. On any distribution of assets on the liquidation of
a company,
6. Under a transfer to a revocable or an irrevocable
trust,
7. On a transfer by wholly owned Indian subsidiary
company to its holding company or vise-versa.
8. On conversion of self acquired property of a
member of HUF to the Joint family property, etc.
9. On any transfer in a scheme of amalgamation of
two Indian(or foreign) companies subject to
certain conditions u/s 47(vi);
C.A Yogesh Kesariya
C.A Yogesh Kesariya

15. COST OF ACQUISITION OF RIGHT SHARES
• The price at which the rights issue is made
plus amount paid to person renouncing
right is treated as cost of acquisition.
• Right Issue is normally at a discount to the
market price.
C.A Yogesh Kesariya
C.A Yogesh Kesariya

16. COST OF ACQUISITION OF BONUS SHARES
• the cost of acquisition is zero.
• In case the bonus shares have been allotted
to assessee before 1-4-1981 he can opt for
market value of such shares on 1-4-1981 as
cost of acquisition.
C.A Yogesh Kesariya
C.A Yogesh Kesariya

17. COST OF ACQUISITION OF DEPRECIABLE ASSETS
Under sec 50
• Where full value of the consideration as a
result of the transfer of any part or entire
block of assets exceeds the cost of
acquisition of that block of depreciable
assets, there will be a capital gain , which
will always be a short term capital gain.
C.A Yogesh Kesariya
C.A Yogesh Kesariya

18. INDEXED COST OF ACQUISITION
• Indexed cost of acquisition means an amount which
bears to the cost of acquisition the same proportion as
cost inflation index for the year in which the asset is
transferred bears to the cost inflation index for the first
year in which the asset was held by the assessee or for
the year beginning on 1-4-1981 which ever is later.
• Cost Inflation Index(CII), in relation to a previous year,
means such index as the central government may,
having regard to 75% of a average rise in the consumer
price index for urban non-manual employees for the
immediately preceding previous year to such previous
year, by notification in the official gazette, specified in
this behalf.
Continued...
C.A Yogesh Kesariya
C.A Yogesh Kesariya

19. INDEXED COST OF ACQUISITION
Continue...
Mode a)
Asset can be acquired in following two
modes:
Assets acquired directly by the assessee himself
Cost of acquisition x
Mode b)
CII of the year of transfer
-------------------------------------CII of the year of acquisition
Asset acquired from the previous owner n any mode given u/s
49(1):
CII of the year of transfer
Cost of acquisition previous owner x --------------------------------------CII of the year in which the
asset is first held by the assessee
C.A Yogesh Kesariya
C.A Yogesh Kesariya

20. COST OF IMPROVEMENT
• Cost of improvement is the capital expenditure
incurred by an assessee for making any addition
or improvement in the capital asset.
• It also includes any expenditure incurred in
protecting or curing the title.
• Cost of improvement includes all those
expenditures, which are incurred to increase the
value of the capital asset.
• Any cost of improvement incurred before 1st
April 1981 is not considered or it is ignored.
Continued...
C.A Yogesh Kesariya
C.A Yogesh Kesariya

21. COST OF IMPROVEMENT
Continue...
• The reason behind it is that for carrying any
improvement in asset before 1st April 1981,
asset should have been purchased before 1st
April 1981.
• If asset is purchased before 1st April we
consider the fair market value.
• The fair market value of asset on 1st April 1981
will certainly include the improvement made in
the asset.
C.A Yogesh Kesariya
C.A Yogesh Kesariya

22. INDEXED COST OF IMPROVEMENT
Indexed Cost of improvement =
CII of the year of transfer
Cost of acquisition x ---------------------------------------CII of the year of improvement
C.A Yogesh Kesariya
C.A Yogesh Kesariya

23. INDEXED COST NOT ALLOWED
1. Transfer of bonds and debenture by company
or govt. other than capital indexed bonds
issued by government,
2. Transfer of shares & debentures by nonresident in foreign currency in Indian company.
3. Transfer of undertaking or division in a slump
sale,
4. Transfer of offshore funds,
5. Transfer of GDR by non-resident purchased in
foreign currency.
6. Transfer of securities by FII.[sec 115AD]
C.A Yogesh Kesariya
C.A Yogesh Kesariya

24. CAPITAL GAIN ON CONVERSION OF CAPITAL
ASSET INTO STOCK IN TRADE
Under sec 45(2)
• Up to 1984-85 conversion of capital asset into
stock in trade was not treated as transfer & no
capital gain was charged on it.
• From 1984-85 The profits or gains arising from
the transfer by way of conversion by the owner
of a capital asset into, or its treatment by him as
stock-in-trade of a business carried on by him
shall be chargeable to income-tax as his income
of the previous year in which such stock-in-trade
is sold or otherwise transferred by him and,
Continued...
C.A Yogesh Kesariya
C.A Yogesh Kesariya

25. CAPITAL GAIN ON CONVERSION OF CAPITAL
ASSET INTO STOCK IN TRADE
Continue...
for the purposes of section 48, the fair
market value of the asset on the date of
such conversion or treatment shall be
deemed to be the full value of the
consideration received or accruing as a
result of the transfer of the capital asset.
C.A Yogesh Kesariya
C.A Yogesh Kesariya

26. CAPITAL GAIN ON CONVERSION OF STOCK IN
TRADE IN CAPITAL ASSET
*HERE WE TAKE SHARES AS VARIOUS ASSETS.
• In the absence of a specific provision to deal
with this type of situation, two formulas can be
evolved to work out the profits and gains on
transfer of assets.
• One Formula which had been adopted by the
assessing officer, i.e., difference between the
book value of the shares and the market value
of the shares on the date of conversion, be
taken as a business income and the difference
between the sale price of the shares and the
market value of the shares on the date of
conversion, be taken as capital gain. Continued...
C.A Yogesh Kesariya
C.A Yogesh Kesariya

27. CAPITAL GAIN ON CONVERSION OF STOCK IN
TRADE IN CAPITAL ASSET
Continue...
• The other formula which was adopted by the
assessee, i.e., the difference between the sale
price of the shares and the cost of acquisition of
share, which was the book value on the date of
conversion with indexation from the date of
conversion, should be computed as a capital
gain.
• In the absence of a specific provision, out of
these two formulas, the formula which was
favorable to the assessee, should be accepted.
C.A Yogesh Kesariya
C.A Yogesh Kesariya

28. DISTRIBUTION OF CAPITAL ASSETS ON
DISSOLUTION OF FIRM,AOP/BOI
• Normally, firm/AOP/BOI is not considered
a distinct legal entity from its partners or
members and so transfer of a capital
asset from the partners to the
firm/AOP/BOI is not considered ‘Transfer’.
• However, under the Capital Gains, it is
specifically provided that if any capital
asset is transferred by a partner to a
firm/AOP/BOI by way of capital
contribution or otherwise, the same would
Continued...
be construed as transfer.
C.A Yogesh Kesariya
C.A Yogesh Kesariya

29. DISTRIBUTION OF CAPITAL ASSETS ON
DISSOLUTION OF FIRM,AOP/BOI
Continue...
• For the purpose of computation of capital
gain, fair market value shall be taken as
full value of consideration.
C.A Yogesh Kesariya
C.A Yogesh Kesariya

30. COMPULSORY ACQUISITION OF ASSETS UNDER
ANY LAW
• In this case, settlement of the amount of
compensation usually takes a long time. The
compensation is initially fixed by the Land
Acquisition Officer and is subject to appeal and
re-determination by courts.
• The compensation amount may vary as the case
progresses from one authority to another. The
transferor may get paid in instalments as and
when a higher authority awards further
(enhanced compensation)compensation.
Continued...
C.A Yogesh Kesariya
C.A Yogesh Kesariya

31. COMPULSORY ACQUISITION OF ASSETS UNDER
ANY LAW
Continue...
• Capital gain is taxable in previous year in
which compensation has been received.
• As the deductions in computing the capital
gains are considered while computing the
capital gains in the initial year, no further
deductions are allowed in the subsequent
calculations on account of cost of
acquisition etc.
C.A Yogesh Kesariya
C.A Yogesh Kesariya

32. CAPITAL GAIN ON TRANSFER OF INTANGIBLE
ASSETS
• Capital gain on transfer of Following
intangible assets are taxable
1.
2.
3.
4.
5.
6.
Goodwill
Route permits
Loom hours
Trademarks
Rights to manufacture specific products
Tenancy rights
• Cost will be original purchase price plus
transaction cost plus improvement cost.
C.A Yogesh Kesariya
C.A Yogesh Kesariya

33. CAPITAL GAIN TAX ON TRANSFER OF
DEPRECIABLE ASSET
• In Income Tax Act depreciation is provided on
only four types of assets:
1. Buildings
2. Furniture
3. Machinery and plant
4. Intangible Assets
• For calculating depreciation different blocks are
made based on the name of asset and then the
rate of depreciation, thus a block will contain
only that asset which will have the same name
and same depreciation.
Continued...
C.A Yogesh Kesariya
C.A Yogesh Kesariya

34. CAPITAL GAIN TAX ON TRANSFER OF
DEPRECIABLE ASSET
Continue...
• For the purpose of computing capital gain
following are deducted from consideration:
1. Expense on transfer
2. Cost of acquisition
but for the case of transfer of depreciable asset
Cost of acquisition will be aggregate of the
following:
i.WDV of block at beginning
ii.Actual cost of any asset falling in same block,
acquired during year.
C.A Yogesh Kesariya
C.A Yogesh Kesariya

35. LONG TERM CAPITAL GAIN FROM THE TRANSFER
OF RESIDENTIAL HOUSE PROPERTY
UNDER SEC 54
UNDER SEC 54
• This exemption is available subject to
fulfillment of the following requirements:
1. The transferor shall be an individual or the HUF,
2. The asset to be transferred must be of long-term
capital asset, being buildings or lands
appurtenant thereto, being a residential house,
3. The income from such residential house shall be
assessable under the head "Income from House
Property",
Continued...
C.A Yogesh Kesariya
C.A Yogesh Kesariya

36. LONG TERM CAPITAL GAIN FROM THE TRANSFER
OF RESIDENTIAL HOUSE PROPERTY
Continue...
UNDER SEC 54
UNDER SEC 54
4. The transferor assessee should purchase a
residential house in India within a period of one
year before or two years from the date of transfer
or construct a residential house within three
years from the date of the transfer of the original
house.
5. The new house property purchased or
constructed has not been transferred within a
period of three years from the date of purchase
or construction.
Continued...
C.A Yogesh Kesariya
C.A Yogesh Kesariya

37. LONG TERM CAPITAL GAIN FROM THE TRANSFER
OF RESIDENTIAL HOUSE PROPERTY
Continue...
UNDER SEC 54
UNDER SEC 54
• Deposit Scheme under Section 54:
Where the amount of capital gain is not so utilized for
the purchase or construction of a new residential house
before the due date of furnishing of the return of income, it
shall be deposited by him on or before the due date in an
account with a public sector bank in accordance with the
Capital Gain Account Scheme, 1988.
• If the new house property is transferred within a period of
three years from the date of the purchase or construction,
the amount of capital gains arising there from, together with
the amount of gains exempted earlier, will be chargeable to
tax in the year of sale of the house property.
C.A Yogesh Kesariya
C.A Yogesh Kesariya

38. CAPITAL GAIN ON THE TRANSFER OF
AGRICULTURAL LAND
UNDER SEC 54(B)
UNDER SEC 54(B)
• This exemption is available subject to
fulfillment of the following requirements:
1. Assessee – Individual
2. Asset transferred - Agricultural land used by
individual or his parent for agricultural purposes
during 2 years preceding date of transfer.
3. Nature of Asset - Short/Long Term
4. New asset to be purchased/constructedAgricultural land (urban or rural)
5. Time-limit for purchase/construction - Purchase
within 2 years from the date of transfer.
C.A Yogesh Kesariya
C.A Yogesh Kesariya

39. CAPITAL GAIN ON COMPULSORY ACQUISITION OF LAND
AND BUILDING OF AN INDUSTRIAL UNDERTAKING
UNDER SEC 54(D)
UNDER SEC 54(D)
• Capital gains arising on the compulsory acquisition
of any land or building forming a part of an industrial
undertaking is exempt subject to the following
requirements:
1. Such land or building was used by the assessee for the
purpose of industrial undertaking for 2 years preceding the
date of compulsory acquisition,
2. The assessee has purchased any land or building or
constructed a building within 3 years from the date of the
receipt of the compensation,
3. Newly acquired land or building should be used for the
purpose of shifting or re-establishing the said undertaking
or setting up another industrial undertaking.
C.A Yogesh Kesariya
C.A Yogesh Kesariya

40. LONG TERM CAPITAL GAIN EXEMPTION FOR
INVESTMENT IN CERTAIN BONDS
UNDER SEC 54(EC)
UNDER SEC 54(EC)
• This exemption is available an individual, HUF,
company or any other person
• who invests the long term capital gain, within 6
months of a the transfer of the capital asset, in
any of the specified bond (issued on or after
April 1, 2006) redeemable after 3 years:
1. National Highway Authority of India (NHAI), or
2. Rural Electrification Corporation Ltd. (REC)
• There is a limit of Rs. 50 Lakh on the
investments on or after April 1, 2007.
C.A Yogesh Kesariya
C.A Yogesh Kesariya

41. LONG TERM CAPITAL GAIN FROM THE TRANSFER OF A CAPITAL
ASSET OTHER THAN RESIDENTIAL HOUSE PROPERTY
UNDER SEC 54(F)
UNDER SEC 54(F)
• The exemption is available only an
individual or a HUF
• who transfers (or sells) a capital asset that
results in a long-term capital gain, and
then invests the amount of gain in
acquiring a new residential house.
• This exemption is available subject to
fulfilment of the following requirements:
Continued...
C.A Yogesh Kesariya
C.A Yogesh Kesariya

42. LONG TERM CAPITAL GAIN FROM THE TRANSFER OF A CAPITAL
ASSET OTHER THAN RESIDENTIAL HOUSE PROPERTY
Continue...
UNDER SEC 54(F)
UNDER SEC 54(F)
• The transferor assessee should purchase or a
residential house in India within a period of one year
before or two years from the date of transfer or
construct a residential house within three years from
the date of the transfer of the original house.
(Construction must be completed within these 3
years.) &
• The new house property purchased or constructed
has not been transferred within a period of three
years from the date of purchase or construction.
C.A Yogesh Kesariya
C.A Yogesh Kesariya

43. CAPITAL GAIN ON TRANSFER OF CAPITAL ASSETS IN CASE OF
SHIFTING OF INDUSTRIAL UNDERTAKING FROM URBAN AREA
UNDER SEC 54(G)
UNDER SEC 54(G)
• This exemption is available an individual,
HUF, company or any other person,
• Who transfers the capital assets (being
plant, machinery, land or building or any
right in the land or building) being used for
the purpose of industrial undertaking
situated in an urban area to any area
other than urban area.
Continued...
C.A Yogesh Kesariya
C.A Yogesh Kesariya

44. CAPITAL GAIN ON TRANSFER OF CAPITAL ASSETS IN CASE OF
SHIFTING OF INDUSTRIAL UNDERTAKING FROM URBAN AREA
Continue...
UNDER SEC 54(G)
UNDER SEC 54(G)
• The assessee purchases within one year
before or 3 years after the date of transfer:
1. Purchases plant or machinery for the purpose of
business of industrial undertaking in the area to
which the said undertaking has shifted,
2. Acquires building or land or constructed building
for the purpose of his business in the said area,
3. Shifts the original asset and transferred the
establishment in the said area, and
4. Incurs expenses on such other purpose as may
be specified in a scheme framed by Central
Government for the purpose of this section.
C.A Yogesh Kesariya
C.A Yogesh Kesariya

45. CAPITAL GAIN ON TRANSFER OF CAPITAL ASSETS IN CASE OF SHIFTING
OF INDUSTRIAL UNDERTAKING FROM URBAN AREA TO ANY SEZ
UNDER SEC 54(GA)
UNDER SEC 54(GA)
• This exemption is available to an
individual, HUF, company or any other
person.
• who transfers the capital assets (being
plant, machinery, land or building or any
right in the land or building) being used for
the purpose of industrial undertaking
situated in an urban area to a special
economic zone (SEZ).
Continued...
C.A Yogesh Kesariya
C.A Yogesh Kesariya

46. CAPITAL GAIN ON TRANSFER OF CAPITAL ASSETS IN CASE OF SHIFTING
OF INDUSTRIAL UNDERTAKING FROM URBAN AREA TO ANY SEZ
Continue...
• The assessee purchases within one year
before or 3 years after the date of transfer:
1. Purchases plant or machinery for the purpose of
business of industrial undertaking in the area to
which the said undertaking has shifted,
2. Acquires building or land or constructed building
for the purpose of his business in the said area,
3. Shifts the original asset and transferred the
establishment in the said area, and
4. Incurs expenses on such other purpose as may
be specified in a scheme framed by Central
Government for the purpose of this section.
C.A Yogesh Kesariya
C.A Yogesh Kesariya

47. C.A YOGESH KESARIYA
C.A Yogesh Kesariya
C.A Yogesh Kesariya