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head. It is deemed to be the income of the previous year in which the transfer takes place. A capital asset is defined to include property of any kind, whether fixed or circulating, movable or immovable, tangible or intangible. However the following assets are excluded from capital assets. a. Any stock-in-trade, consumable stores or raw material held in business or profession. b. Personal effects of the assessee, i.e. movable property including wearing apparel and furniture held for personal use or for the use of any member of his family, excluding jewelry, archaeological collections, drawings, paintings, sculptures or any work of art. c. Agricultural land in india not situated within the jurisdiction of any municipality or any notified area. d. 6 % or 7 % Gold Bonds, National Defence gold bonds, special bearer bonds or gold deposit bonds. Types of capital assets. Long term assets Assets held for more than 36 months on the date of sale or transfer. However in the following cases, holding more than 12 months makes it long term. a. Equity or preference shares held in a company (whether quoted or not) b. Securities listed in a recognized stock exchange in India c. Units of UTI d. Units of mutual funds specified u/s.10(23D) All other assets are called short term assets. The following transactions are not treated as transfers for the purpose of this head. 1) Distribution of assets in kind by a company in liquidation to its shareholders. 2) Distribution of assets in kind by a HUF to its members during partition. 3) Transfer of asset under a gift or will or irrevocable trust 4) Transfer of asset by a company to its wholly owned Indian subsidiary or vice versa 5) Transfer in a scheme of amalgamation by the amalgamating company to the amalgamated company if the latter is a Indian company 6) Transfer of assets in demerger provided the resulting company is an Indian company 7) Transfer of membership right in a stock exchange 8) Transfer of assets by a proprietorship/partnership/LLP concern succeeded by a company if all the assets are transferred, the proprietor/partners hold at least 50 % of total voting power and he/they do not receive any consideration or benefit other than shares of the new company etc. Computation of capital gains (Section 48)
Computation of short term capital gains 1. find out the value of consideration 2. deduct the following a) expenditure incurred for the transfer b) cost of acquisition c) cost of improvement 3. deduct exemptions u/s.54B, 54D 4. Remaining amount is short term capital gain Computation of long term capital gains 1. find out the value of consideration 2. deduct the following a) expenditure incurred for the transfer b) indexed cost of acquisition c) indexed cost of improvement 3. deduct exemptions u/s.54,54B, 54D, 54EC, 54ED, 54F and 54G 4. Remaining amount is long term capital gain
Cost to the previous owner (section 49(1)) In the following situations, cost to the previous owner is deemed to be the cost of acquisition 1) Acquisition of assets in total or partial partition of HUF 2) Acquisition of property under gift or will 3) Distribution of assets on liquidation of a company 4) Transfer to a revocable or irrevocable trust 5) Transfer from a wholly owned subsidiary to its Indian holding company or vice versa 6) Transfer in a scheme of amalgamation 7) Conversion of a company into LLP. If the asset has become the property of the assessee on or before 1/4/1981, or through any modes referred above and the previous owner acquired it on or before 1/4/1981, then the fair market value as on 1/4/1981 shall be deemed to be the cost of acquisition. In the case of depreciable assets, if the sale proceeds exceeds the W.D.V of the block, then it shall be treated as short term capital gains. Indexed cost of acquisition in the case of long term assets, the cost of acquisition or improvement is indexed as follows : Cost of acquisition/improvement X Index for the year of sale/transfer . Index for the year of acquisition/improvement INDEX
YEAR 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 INDEX 100 109 116 125 133 140 YEAR 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 INDEX 150 161 172 182 199 223 YEAR 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 INDEX 244 259 281 305 331 351 YEAR 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 INDEX 389 406 426 447 463 480 YEAR 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 INDEX 497 519 551 582 632 711 785
When a capital asset is converted into stock-in-trade of a business, the capital gains arising from such transfer will be chargeable to tax in the year when the stock-in-trade is sold. The fair market value on the date of conversion shall be treated as the full value of consideration for which such transfer is made. Exemptions from capital gains (section 54 to 54H) Section 54 transfer of a long term residential house. If the assessee has within one year before, or two years from the date of sale, purchased another residential house or within three years constructed a residential house using the capital gains from the sale, then the entire capital gains are exempted from tax. The new house should not be sold within 3 years. Section 54B transfer of land used for agricultural purposes for 2 years. If the assessee has purchased another agricultural land within 2 years using the capital gains, then the entire capital gains are exempted from tax. The new land should not be sold within 3 years. Section 54D Compulsory acquisition of land and building forming part of industrial undertaking for the past two years. If the assessee has purchased another land for re-establishing the industry within 3 years using the capital gains, then the entire capital gains are exempted from tax. The new establishment should not be transferred within 3 years. Section 54EC : transfer of any long term asset. If the Sale proceeds are invested within 6 months from the date of sale in specified bonds (NHAI Bonds, REC Bonds), then the capital gains are fully exempted. Maximum investment 50 lakhs It should not be transferred within 3 years.
Section 54F Transfer of a long term asset other than a house Available for individuals and HUF If the assessee has purchased a house within 2 years or constructed within 3 years using the Sale proceeds of the asset, then the entire capital gains are exempt from tax. Conditions : (1) assessee should own only one house at the time of sale of asset. (2) new house should not be sold or transferred within 3 years. Section 54G shifting of industrial undertaking from urban area within 3 years from the date of transfer. If the capital gain is less than the investment in new asset, then the entire capital gains are exempted from tax. Section 54GA : shifting of industrial undertaking from urban area to Special Economic Zone within 3 years. If the capital gain is less than the investment in new asset, then the entire capital gains are exempted from tax. The new asset should not be transferred within 3 years. Capital gains account in all the above cases, if the assessee is not in a position to make the new investment before filing of returns, then it should be deposited in capital gains account in any bank. Taxation : long term capital gains are taxable @ 20 % (plus education cess) No deductions u/s.80C to 80U can be claimed on such income. Long term capital gains covered by section 115AB, 115AC, 115AD or 115AE (investments made by non residents) are taxable @ 10 % (plus cess) INCOME FROM OTHER SOURCES This is the residual head of income in which all other incomes are charged. Dividends, winnings from lotteries, hire charges of machinery, interest, royalties, directors fees, ground rent, exam fees received by a teacher, insurance commission, annuities, family pension etc. are taxable under this head. Any gift or receipt without consideration exceeding 50,000 in any year from a person not related to the assessee shall be treated as income of the assessee under this head. Deductions all reasonable expenses for earning such income are deductible.
25/02/2012
JOHNY JOSEPH