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Income From Capital Gains

  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".

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 —

  1. Stock-in-trade

  2. Personal effects of the assessee

  3. Agricultural land in a rural area

  4. 6½% Gold Bonds, 1977 or 7% Gold Bonds, 1980 or National Defence Bonds, 1980 issued by the Central Government

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

  6. 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—

  1. Quoted or unquoted equity or preference shares in a company

    Circular No. 495 dated 22.9.1987 explaining amendments by Finance Act, 1987 whereby unquoted shares of a private limited company also if held more than 12 months falls in the category of LTCG. Also Refer the Judgment in 120 TTJ 699 for unquoted shares held for less than 36 months.

  2. Quoted Securities

  3. Quoted or unquoted Units of UTI

  4. Quoted or unquoted Units of Mutual Funds specified u/s. 10(23D)

  5. Quoted or unquoted zero coupon bonds

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

  1. Year of chargeability to tax

Capital gains are generally charged to tax in the year in which ‘transfer’ takes place. Exceptions —

  1. Sec. 45(1A) — Insurance Claim — In the year of receipt.

  2. Sec. 45(2) — Conversion of capital asset into stock-in-trade — In the year of actual sale of the stock.

  3. Sec. 45(5) — Compulsory acquisition — When consideration or part thereof is first received.

Exempt Capital Gains under Section 10

10(33)

:

Transfer of US 64 on or after April 1, 2002

10(37)

:

Compulsory acquisition of Urban Agriculture Land where consideration is received after March 31, 2004.

10(38)

:

Long-term capital gain arising on transfer on or after October 1, 2004 of equity shares or units of equity oriented mutual fund and the STT is paid at the time of transfer.

  1. 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

  1. Full value of consideration for transfer of land or building or both: Sec. 50C

Higher of the followings:—

  1. Full value of the consideration received or accruing

  2. Value adopted or assessed (w.e.f. 1st day of October, 2009 the word "or assessed" shall be substituted by "or assessed or assessable") by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer.

  1. Indexed Cost of acquisition = Cost of acquisition * Cost inflation index for the financial year In which the asset is transferred/ Cost inflation index for the first financial year in which the asset was held by the assessee or the year beginning on 1.4.1981, whichever is later or the year of Improvement of the asset

However, in case of Bonds, Debentures except capital indexed bonds depreciable assets, and for non-residents even if they are long term capital assets the benefit of indexation is not available.

Cost inflation Index

Financial Year

Cost Inflation Index

1981-82

100

1982-83

109

1983-84

116

1984-85

125

1985-86

133

1986-87

140

1987-88

150

1988-89

161

1989-90

172

1990-91

182

1991-92

199

1992-93

223

1993-94

244

1994-95

259

1995-96

281

1996-97

305

1997-98

331

1998-99

351

1999-2000

389

2000-01

406

2001-02

426

2002-03

447

2003-04

463

2004-05

480

2005-06

497

2006-07

519

2007-08

551

2008-09

582

2009-10

632

2010-11

711

2011-12

785

Computation of Long Term Capital Gains on Shares both Equity and Preference, Listed or Unlisted and Debentures:

Capital Assets

 

 

If transaction is covered by STT at the time of transfer

 

 

IF it is not covered by STT
 

Long Term

Without indexation

With indexation

Listed equity shares covered by Sec. 10(36)

0%

0%

0%

Listed equity shares not covered by Sec. 10(36)

0%

10%

20%

Unlisted equity shares

NA 

NA

20%

Listed Preference shares

NA

10%

20%

Unlisted Preference shares

NA

NA

20%

Listed Debenture

NA

10%

NA

Unlisted Debenture

NA

20%

NA

CAPITAL GAIN IN CASE OF CONVERSION OF A PRIVATE COMPANY OR AN UNLISTED PUBLIC COMPANY INTO AN LLP:

Sec. 47(XIIIb)

This section provides that conversion of a private company or unlisted public company into an LLP in accordance with Secs. 56 and 57 of the LLP Act will not be regarded as transfer, if following conditions are fulfilled :

  1. All the assets and liabilities of the company become the assets and liabilities of the LLP.

  2. All the shareholders of the company become the partners of the LLP and their profit sharing ratio and the capital contribution in the LLP are in the same proportion as their shareholding in the company on the date of conversion.

  3. Shareholders of the company do not receive any consideration or the benefit, directly or indirectly, other than share in the profit and capital contribution in the LLP.

  4. For a period of at least five years from the date of conversion, the erstwhile shareholders of the company in aggregate are entitled to at least 50% of the profits of the LLP.

  5. The total sales, turnover or gross receipts in the business of the company in any of the three years preceding the year of conversion do not exceed Rs. 60 lakhs.

  6. For a period of three years from the date of conversion, the accumulated profits of the company on the date of conversion are not paid to any partner of the LLP, whether directly or indirectly.

Sec. 47A (4)

This section provides that if any of the conditions in (a) to (f) above are not complied with, then the profits arising from transfer of capital assets or intangible assets on conversion of the company to the LLP not charged under Sec. 45 shall be taxed in the hands of the LLP in the year in which the conditions are violated.

Sec. 49

It provides that cost of acquisition of the capital assets acquired by the LLP in the process of conversion shall be deemed to be the cost for which the converted company had acquired the assets.

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.


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