Capital Gain Tax Simplified

CA Pallav Singhania , Last updated: 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