Computation of Capital gains under Income Tax Act 1961

COMPUTATION OF CAPITAL GAINS
• Section – 45 chargeability
• Section - 47 Transactions not regarded as
transfer
• Section - 48 Methods of computation of
capital gains

03/02/14

sanjaydessai@gmail.com

1

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".

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2

Capital Asset u/s. 2(14)
•
1.
2.
a.
b.
c.
d.
e.
f.
3.

"capital asset" means property of any kind held by an assessee, whether or not
connected with his business or profession, but does not include following Any stock-in-trade, consumable stores or raw materials held for the purposes of
his business or profession;
Personal effects, that is to say, movable property (including wearing apparel and
furniture) held for personal use by the assessee or any member of his family
dependent on him, but excludes—
jewellery
archaeological collections
drawings
paintings
sculptures or
Any work of art.
Agriculture land in India provided that it is not situated a) in any area within the
territorial jurisdiction of a municipality or a cantonment board, having a
population of 10,000 or more ; or b) in any notified area.

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3

Transfer u/s. 2(47)
• Transfer, in relation to a capital asset, include
sale, exchange or relinquishment of the asset
or the extinguishment of any rights therein or
the compulsory acquisition thereof under any
law. (Inclusive definition)

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4

Transactions which do not constitute transfer (sec 47)

1.
2.
3.
4.
5.
6.

Distribution of capital asset on total or partial partition of
HUF
Transfer of capital asset under a gift or will or an irrevocable
trust
Transfer of capital asset by a company to its 100 percent
subsidiary company.
Transfer of capital asset by a company to its 100 percent
holding company.
Transfer of capital asset in a scheme of amalgamation
Transfer of capital asset by a demerged company to the
resulting company

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5

Not to be considered as transfer
 Transfer of any work of art, archaeological, scientific or art
collection, book, manuscript, drawing, painting, photograph or
print, to Government/University/National museum/National
Art Gallery/National Archives or any other notified public
institution/museum
 Conversion of bonds or debentures, debenture-stock or
deposit certificates in any form, of a company into shares or
debentures of that company.

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6

Computation of capital gains (48)
The Capital Gains have been divided in two parts
under Income Tax Act 1961.
Short term capital gain and
Long term capital gain

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7

1. Short Term Capital Gain
• When Capital asset is sold within 36 months (Shares or
securities within 12 months) of its purchase then the gain
arising out of its sales after deducting there from the
expenses of sale (Commission etc.) and the cost of acquisition
and improvement is treated as short term capital.

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8

Long Term Capital Gain
• When Capital Asset is held for more than 36
months (12 months in case of shares or
securities) is a long term capital asset and the
gain arising from sale of asset is a long term
capital gain.
• Long term capital gains are arrived at after
deducting from the net sale consideration of
the long term capital asset the indexed cost of
acquisition and the indexed cost of
improvement of the asset.

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9

Cost of indexation

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10

Taxability of short term capital
gains
• Section 111A of the Income tax Act provides that
those equity shares or equity oriented funds which
have been sold in a stock exchange and securities
transaction tax is chargeable on such transaction of
sale then the short term capital gain arising from
such transaction will be chargeable to tax @15%
from assessment year 2009-10 onwards.

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11

Taxability of short term capital
gains
• The short term capital gains other than those
u/s 111A shall be added to the income of the
assessee and will be taxed normally at slab
rates applicable to the assessee.

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12

• If an Assessee does the business of buying and
selling of shares in that case he cannot take
advantage of section 111A or section 10(38).
In this case income will be treated as business
income.

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13

Taxation of Long term capital
gains:
• The long term capital gains are taxed @ 20%
after the benefit of indexation. No deduction
is allowed from the long term capital gains
from section 80C to 80U.

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14

Taxation of long term capital gains
• Section 112(1) provides that any capital gain arising from a
long term capital asset being the listed securities which are
sold outside the stock exchange the long term capital gain
shall be calculated on such securities as below:
• a) Tax arrived at @ 20% on such long term capital gain after
indexation u/s 48 or
b) Tax arrived at @ 10 % on such long term capital gain
without indexation
Whichever is less.

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15

Tax on long term capital gains
• The long term capital gain on equity shares or
units of equity oriented mutual fund which
are sold in the stock exchange and on which
securities transaction tax is paid, is exempt u/s
10(38).

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16

Computation of short term capital gains
1. Find out full value of consideration
2. Deduct the following
a. Expenditure incurred wholly and exclusively in
connection with such transfer
b. Cost of acquisition
c. Cost of improvement

3. Balance amount is short term capital gain

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17

Computation of long term capital gains
1. Find out full value of consideration
2. Deduct the following
a. Expenditure incurred wholly and exclusively in
connection with such transfer
b. Indexed cost of acquisition
c. Indexed cost of improvement

3. Balance amount is long term capital gain

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18

Capital gains exempt from tax
1.
2.

Section 54 Capital gains arising from transfer of residential house.
Section 54B capital gains arising from the transfer of land used for
agriculture purpose.
3. Section 54D Capital gains on compulsory acquisition of land and building
forming part of industrial undertaking .
4. Section 54 EC Capital gains not to be charged on investment in certain
bonds.
5.
Section 54ED Capital gains on transfer of certain listed securities / units
not to be charged to tax in certain cases.(up to assessment year 200708).
6. Section 54 F Capital gains on transfer of a long term capital asset other
than a house property .
7. Section 54G capital gains on transfer of assets in case of shifting of
industrial undertaking from urban area.
8. Section 54GA Capital gains on transfer of assets in cases of shifting of
industrial undertaking from urban area to any special economic zones . 19
03/02/14

Computation of Capital gains under Income Tax Act 1961

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