Income From Capital Gain
Capital Asset
• Capital Asset means property of any kind held by an assesse whether connected with his profession
or not.
• Any security held by foreign institutional investors according to the rules of SEBI.
• capital Asset include land, building, plant ,machinery,investment, lease hold right ,jewellery
,shares, manufacturing licence etc.
Exception for capital assets
• Stock in trade or stores used in the business.
• Movable asset for personal use.
• Special bearer bond.
• Gold deposit bond 1999.
Note :Self generated Goodwill ,tenancy rights, carriage permit, right to manufacture an article are
treated as capital Asset however self generated Goodwill of a profession is not a capital asset.
Types of capital Asset
1. Short term capital Asset
• it means any capital Asset held by the assessee for not more than 36 months
immediately preceding the date of its transfer.
• In case of financial asset- any financial asset held by an assesse for not more than 12
months immediately preceding the date of transfer.
• Any gain or loss arising from the transfer of short term capital asset asset is known as
short term capital gain or loss
2. Long term capital assets
• it means any asset held by the assessee for more than 36 months immediately preceding
the date of transfer.
• In case of financial asset -any financial asset held by the assessee for more than 12
months immediately preceding the date of transfer transfer.
• Any gain or loss arising from the transfer of long term capital Asset is called long term
capital gain or loss.
Transfer
• Transfer means sales, exchange relinquishment of a right, compulsory acquisition under any law,
conversion of asset into stock in trade,redemption of zero coupon bond, conversion of business into
limited company.
• Transaction are not treated as transfer
1. Any distribution of capital Asset on the total or partial partition of HUF.
2. Any transfer of capital Asset under a gift or will or irrecovable trust.
3. Transfer of capital Asset to government or university of national museum.
Cost inflation index
it means the index as a central government may having regard to 75% of average rise in the consumer price
index for urban non manual employees for the immediate preceeding previous year.
Full value of consideration
• The price at which asset is sold (sales price)
• In case of exchange – fair market value of the property.
• For shares received under E S O P, gift etc - market value on the date of transfer transfer.
• Full value of consideration of land, building or both- if consideration a received is less than stamp
valuation duty fixed by the State Government for the property.
Full value of consideration = value assessed by the stamp valuation authority.
Cost of acquisition
• It means the value for which the asset is acquired by the assessee.
• Cost of acquisition = cost + expenses incurred to acquire the asset.
• Cost to the previous owner is deemed to be the cost of acquisition – will, gift ,succession,
distribution of asset total partially to HUF.
• Cost of acquisition of a capital Asset before 1.4.2001- actual cost or share market value on 1.4.
2001 which ever is higher.
• Cost of acquisition of a capital Asset after 1.4.2001- actual cost.
• Cost of acquisition of a right issue –
1. Sale subscribed on the basis of right ----- cost of acquisition = amount of purchase price
2. Renounced right in favour of another person -no cost of acquisition.
3. Purchased right to subscribe additional shares ----- cost of acquisition = Purchase price of
right + purchase price of shares
• Cost of acquisition on goodwill, trademarks, brand name, right to produce etc
1. Purchased from a previous owner - amount of purchase price.
2. Other cases – Nil
3. Case covered under section 49(1) - cost to the previous owner.
• Cost of share & equity oriented fund
Cost of acquisition = actual cost of acquisition of asset or The lower of market value of the asset
on 31-1-2018 Or total amount received anti time of selling of equity shares or equity mutual fund
whichever is higher.
• Cost of bonus share
1. Bonus share allotted on or after 1-4-2001 – Nil
2. Bonus share allotted before 1-4-2001
Cost of acquisition = Fair market value as on 31-1-2018
Cost of improvement
• it means capital expenditure incurred in making additions and alterations in a capital asset.
• Goodwill or right to manufacture -- no cost of improvement
• Any other capital Asset
1. Improvement before 1.4.2001 - no cost of improvement
2. Improvement after 1.4.2001 - actual cost of improvement
Selling expenses
It includes expenditure incurred wholly or exclusively in connection with transfer of a capital Asset.
Eg : advertisement expenses, commission to the broker, Registration fees, expenses on vacating tenant.
Capital gain computation in special cases
• Capital gain in case of damage or destruction of capital asset
Full value of consideration = Amount received from insurance company or fair market value of the
asset received.
• Transfer of securities held with depository – Beneficial owner us liable to pay tax and not the
depository.
• Transfer of capital asset to a firm AOP/BOI
Full value of consideration= Amount recorded in the books of AOP/BOI.
• Compulsory acquisition of an asset and enhanced compensation
1. Capital gain computed and taxable= When compensation first received.
2. Enhanced compensation= Taxable in the year of receipt
Computation of short term capital gain or loss.
Full value of consideration. xxxx
Less :
• Value of acquisition
(Deduct if any brokerage paid for purchase) xxxx
• Value of improvement. xxxx
• Selling expenses. xxxx
Short Term Capital Gain / Loss
Computation of Long term capital gain or loss.
Full value of consideration. xxxx
Less :
• Index Value of acquisition.
(Deduct if any brokerage paid for purchase) xxxx
• Index Value of improvement. xxxx
• Selling expenses. xxxx
Long Term Capital Gain / Loss
Difference Between LTCG & STCG
LTCG STCG
Arises out of transfer of long term capital asset
Arises out of transfer of short term capital
asset
Acquisition, improvement, selling expenses are Acquisition, improvement, selling expenses
indexed are not indexe
LTCL are set off against LTCG STCL can be set off against both
LTCG&STCG
Exemptions 54, 54B, 54D, 54EC, 54F can be Exemptions 54B, 54D, can only be deducted
deducted
Asset acquired before 1-4-2001 fair market value as No such option is available
on 1-4-2001 is acquisition cost
Deduction From Capital Gain
Section 54
Purchase of new residential
Capital Gain House within 2 years after
Residential House
the transfer or construction
of new residential House
after 3 years of transfer
Held by individuals Deposit Amount in Capital
or HUF Gain Account Scheme 1988
If new residential building
sold within in 3 years of
purchase or construction
exempted capital gain will
If the amount not utilised be treated as STCG
within 3 years of transfer it
will be taxable in the expiry
of 3rd year.
Section 54 B
Agricultural land in Urban Capital Gain Purchase of new
Areas agricultural land within
2 years after the
transfer
Deposit Amount in Capital
Gain Account Scheme 1988
Held by individual or HUF
more than 24 months
If new agricultural land sold
If the amount not utilised it within 3 years from the date
is taxable in the expiry of 2 of purchase exempted
nd year capital gain taxable as STCG
Section 54 D
Purchased/ Constructed
Land and Building for Capital Gain Land /Building within 3
industrial purpose years after the transfer
Deposit in capital gain
Account scheme 1988
Any assessee used for 24
months If new asset is sold within 3
years of
purchase/constructed
exempted capital gain is
taxable as STCG
If not utilised within 3 years
amount is taxable in the
expiry of 3rd year.
Capital Gain/ Loss = Full value of consideration – Written Down Value of the asset
Section 54 EC
Capital Bonds of NHAI or
Any long term capital
Gain Rural Electrification
Asset
Corporation (within 6
(Maximu months of transfer of
m 50 original asset)
lakhs)
Held by any assessee
If sold within 3 years
exempted capital gain will
be taxable as LTCG
Section 54 F
Any long term capital asset Capital Gain Purchase one
other than residential house residential house
in India
Amount invested in Capital
Gain Account Scheme,1988
If sold within 3 years
exempted capital gain will
Held by individuals or HUF
be treated as LTCG
If the amount is not utilised
after the expiry of 3rd year it
will be taxable
Exempted amount of capital gain = Capital Gain × Cost of new house /Net sales consideration
Net Sales Consideration = Full value of Consideration – Selling Expenses
