Income tax on Individual
INCOME FROM CAPITAL GAIN
The basis of charge is the profits and gains arising from the transfer of a capital
asset in the PY. It is taxable under the head ‘Capital Gain’.
The essential elements of capital gain are
1) Capital assets.
2) Transfer of capital assets. (should be transferred during PY)
3) Computation of capital gains.
4) The transfer of such capital asset should give rise to profit or gain.
Capital assets:
A kind of property held by an assesses connected with his business or
profession or not,
1) Any securities held by foreign intuitional investor under SEBI,
2) It may be movable or immovable, tangible or intangible, fixed or floating,
3) It includes land, building, plant, machinery, investments, goodwill, lease
hold rights, jewellery, shares, a manufacturing licence etc.,
4) Any right related in or in relation to an Indian company, including right
of control of management or any other rights,
5) Goodwill, tenancy rights, carriage permits, right to manufacture, produce
or process of any article or thing.
But does not include as capital asset:
1) Commercial goods/ stock in trade.
2) Movable assets for personal use( except drawings, paintings,
sculptures, any work of art, jewellery for personal use)
3) Agricultural land situated in rural area (within the limits of any
municipality or a cantonment board, having a population of 10,000 or
more or more than 2km, and distance may vary)
4) Gold bonds issued by central government.
5) Special bearer bonds, 1991
6) Gold deposit bonds.
Transfer of capital asset:
Transfer in relation to a capital asset includes:
1) Sale or exchange or relinquishment of the asset,
2) The extinguishment of any rights,
3) Its compulsory acquisition under law,
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Notes By: Mallikarjuna. S. G ( M.S.G)
Income tax on Individual
4) If asset is converted by the owner as stock in trade of a business carried
by him,
5) Maturity, or redemption of a zero coupon bond,
6) Conversion of a business into a limited company,
7) Transfer of asset under Transfer of Property Act, 1982,
8) Any transaction which has effected of transferring the enjoyment of any
immovable property.
Exceptions:
1) Any distributions of capital assets on the total or partial partition of
HUF.
2) Any transfer of asset under a gift or will or an irrevocable trust.
3) Any transfer of asset, being art work, art collection, book manuscript,
drawing, photograph, to government or university or national
museum,etc.
Kinds of assets:
1) Short term capital assets: An asset held by an assessee for not more
than 36 months immediately preceding the date of transfer.
In case of land & building & unlisted shares, holding period is less
than 2 years, they are treated as STCA.
In case of financial asset such as securities, unit of UTI, unit of equity
oriented fund, zero coupon bonds, should not be held more than 12
months.
If assets used for business or profession on which depreciation is allowed
on basis of WDV, are treated always as short term assets.
2) Long term capital assets: Asset held by assessee more than 36 months
immediately preceding the date transfer.
In case of land & building & unlisted shares, holding period is more
than 2 years, they are treated as LTCA.
In case of financial assets if it is held more than 12 months.
Note: Depreciable assets are always treated as short term capital
asset.
Computation of capital gains:
1) Short term capital gain:
Sale proceeds of short term assets............................................xxx
Less: a) Selling expenses related to sale of asset..........xxx
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Notes By: Mallikarjuna. S. G ( M.S.G)
Income tax on Individual
b) Cost of acquisition of capital asset .................xxx
c) Cost of improvement of capital asset...............xxx xxx
xxxx
Less: Deduction U/S 54......................................................... xxx
Short term capital gain or loss.........................xxxx
2) Long term capital gains:
Sale proceeds of long term assets..................................... xxx
Less: a) Selling expenses related to sale of assets......xxx
b) Indexed cost of acquisition of assets.............xxx
c) Indexed cost of improvement of assets..........xxx xxx
xxxx
Less: Deduction U/S 54............................................................ xxx
Long term capital gain/ loss.......................................... xxxx
Note: Indexed cost of acquisition can be calculated as
Cost inflation index for the year in which asset sold
Cost ×
Cost inflation index for the first year in which asset
Was held or CII on 2001-02, whichever is more.
Indexed cost of improvement shall be calculated as
Cost inflation index for the year in which asset sold
Cost ×
Cost inflation index for the year in which
Improvement took place.
Note:
1. If improvement made before 2001-02, it should not be considered.
2. If owner purchases asset before 1.04.2001, actual cost or fair
market value of capital asset as on 1.4.2001, whichever is higher,
will be cost of acquisition under LTCA.
3. If owner purchases asset after 1.4.2001, actual purchase value to be
considered.
4. If any advance amount received and forfeited, than
a. On or before 2014-15 PY, such amount shall be deducted
from the cost of acquisition.
b. On or after 2015-16 PY, such amount is taxable in the hands
of recipient under income from other sources in the year
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Notes By: Mallikarjuna. S. G ( M.S.G)
Income tax on Individual
which advance money is forfeited. Consequently, it will not
be deducted from cost of acquisition.
c. In the following cases, indexation is not available, even if
the capital asset is long term capital asset- bonds,
debentures & shares from Indian company.
Deductions u/s 54:
1) Deposited under Capital Gain Account Scheme, 1988.
2) New house purchased within one year of sales.
3) Cost of new agricultural land purchased in PY.
4) Cost of another building constructed in PY for purpose of industrial
undertaking.
5) Entire sale proceeds if invested in purchase of residential house.
6) Purchase of NHAI Bonds.
Capital gains exempt from tax:
1) Any gains arising from transfer of property used for residence.
2) Any gains arising from transfer of agriculture land.
3) Any gains on compulsory acquisition of lands and buildings.
4) Any gain arising from transfer of LTCA, which is invested in long
term specified asset.
5) Any gains in transfer of capital asset in case of shifting to industrial
undertaking from urban area or SEZ.
6) Gains in respect of transfer of residential property.
Note:
1. Exemptions cannot be claimed, if there is gross capital loss.
2. No deduction is available from LTCG U/S 80C- 80U.
3. Exemption U/S 54, 54B, 54D, 54EC, 54F, 54G, 54GA & 54GB
can be claimed even by assessee, who opts for the alternative
tax regime.
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Notes By: Mallikarjuna. S. G ( M.S.G)
Income tax on Individual
CII values for the years are:
Financial years CII Values Financial Year CII Values
2001-02(base 100 2012-13 200
year)
2002-03 105 2013-14 220
2004-05 113 2014-15 240
2005-06 117 2015-16 254
2006-07 122 2016-17 264
2007-08 129 2017-18 272
2008-09 137 2018-19 280
2009-10 148 2019-20 289
2010-11 167 2020-21 301
2011-12 184 2021-22 317
2022-23 331 2023-24 348
2024-25 363
Illustrations on capital gains:
1) Mr. Krishna purchased a piece of land on 4.1.1979 for Rs 6, 00,000. This
land was sold by him on 2.09.2022 for Rs 70, 00,000. The market value of
land as on 1.4.2001 was Rs 4, 00,000. Expenses on sales were 2% of
transfer price. Compute the capital gain for the AY 2021-22, assuming CII
for 2022-23 is 331.
2) Mr. A purchased in Delhi on 2008 for Rs 4, 00,000 and added two rooms
and a veranda in the house at a cost of Rs 1,00, 000 in 2008. He made
improvements in the house and added two bathrooms at a cost of Rs 3,
00,000 in May 2016.
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Notes By: Mallikarjuna. S. G ( M.S.G)
Income tax on Individual
Mr. A sells the house on 1st July, 2022 for Rs 90, 00,000. Find out the
capital gain or loss if the market value of house on1st April, 2001 was Rs 4,
50,000. The CII in 2001-02 is 100, 2008-09 is 137 and 2022-23 was 331.
3) From the following information compute chargeable capital gains;
a) Cost of acquisition of residential house in 2001-02 Rs 4, 00,000.
b) Sale consideration on 2.6.2022 Rs 90, 00,000.
c) Cost of new house purchased for residential purposes by due date of
filing of return Rs 10, 00,000.
The CII for 2001-02 was 100 and in 2022-23 was 331.
4) Shri Sharma sells his only residential house in Mangalore on 24th August,
2022 for Rs 1.00, 00,000 and incurs expenditure of Rs 1.00,000 in
connection with this transfer. Cost of acquisition of the house for him in
1999 was 5, 00,000 and on 1st April, 2001 the fair market value was Rs 7,
00,000. On 16th January, 2022 he deposited Rs 10, 00,000 in the Capital
Gain account Scheme.
Compute the taxable capital gain for the PY 2022-23, the CII for 2001-02
was 100 and 2022-23 was 331.
5) X. Co ltd has an industrial undertaking in U.P. a building, which was
constructed in July, 2007 and used for purposes of the industrial
undertaking since very beginning in compulsorily acquired by the U.P.
Govt. On 10th July, 2022 for Rs 60, 00,000. The W.D.V. of the building
on 1.4.2022 was 8, 00,000. The company constructed another building for
the purpose of shifting the department which was functioning the building
acquired by the Govt. On 28th May, 2022 at a cost of 6, 00,000.
6) Mr. A provides the following data relating to his transaction for the sale
of his residential house for PY 2022-23. Compute the amount of capital
gain to be included in the total income for the Py 2022-23:
House purchased in 2001-02 Rs 6, 00,000.
Sold in November, 2022 Rs 90, 00,000.
Purchased another residential house in Sept. 2022 Rs 10, 00,000.
Invested in bonds of NHAI u/s 54 EC in Jan 2023 Rs 6, 00, 000.
The CII for 2001-02 was 100 and 2022-23 was 331.
7) Mr. Ajay sold some of his properties during the year 2022-23, as under
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Notes By: Mallikarjuna. S. G ( M.S.G)
Income tax on Individual
a) Jewellery costing Rs 2, 60,000 (which were acquired in June 2014)
was sold for Rs 10, 20,000 in May 2022.
b) Household furniture costing Rs 50, 000 in 2008 was sold in March,
2022 for Rs 6,00, 000.
c) Car was sold on 1.12.2022 for Rs 12,00, 000, its written down value
on 1.04.2022 was 4,00, 000.
d) Self cultivated land was compulsory acquired under a law for Rs 40,
00,000 on 1.1.2023 and its cost in 2002-03 was Rs 2, 00,000.
Compute his total capital gain if the CII for 2001-02 was 100 and 2022-
23 was 331.
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Notes By: Mallikarjuna. S. G ( M.S.G)
Income tax on Individual
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Notes By: Mallikarjuna. S. G ( M.S.G)
