INCOME UNDER THE HEAD CAPITAL GAINS (SEC-45,54,54B,54F)

SEC-45 (BASIS OF CHARGE)

Condition 1-There should be a capital asset Condition 2- The capital is transferred by the assessee Condition 3- Such transfer takes place during the previous year Condition 4- Any gain arises out of such transfer Condition 5 Such gain is not exempt from tax u/s 54,54B,54D,54EC,54F If all the above conditions are satisfied, then capital gain is taxable in the A.Y. relevant to the P.Y. in which the capital asset is transferred.

EXCLUSIONS FROM THE WORD CAPITAL ASSET

1. Any stock of raw material or finished goods or WIP held for the purpose of business or profession. 2. Personal effects of the assessee 3. Rural Agricultural land in India where population is less than 10,000 situated in any area outside the territorial jurisdiction of the municipality 4. Gold bonds, Special bearer bonds , Gold Deposit bonds

TYPES OF CAPITAL ASSETS

Long-Term Capital Assets Where POH is more than 3 years Short-term Capital Assets Where POH is 3 years or less

UNDER FOLLOWING CASES, SUCH POH IS TAKEN AS 1 YEAR:1. 2.

3.

4.
5.

Equity or preference shares of a company Securities like debentures and Govt. securities Units of UTI Units of a mutual fund Zero coupon bonds

For e.g.,
Mr. X purchases a house property on March 10, 2009 and transfers it on June 6, 2011. State whether the property is short-term or long-term? Ans- POH is 2 years 2 months and 27 days. Since the POH is less than 3 years, it is a short-term capital asset.

NOW TRY THIS OUT!

Mr. Z acquires units of a mutual fund on July 7, 2010 and he transfers these units on July 10, 2011. State whether the asset is shortterm or long-term? Ans- Since the POH is 1 year and 3 days, it is a long-term capital asset.

HOW CAPITAL GAINS IS COMPUTED?

Computation of Short-term Computation of Long-term capital gain (STCG) Capital gain (LTCG) 1. Find out Full value of 1. Find out Full value of Consideration (FVOC) Consideration (FVOC) 2. Deduct: 2. Deduct: Indexed Cost of Acquisition Cost of Acquisition (COA) (ICOA) Cost of Improvement (COI) Indexed Cost of Improvement Expenses in connection with (ICOI) such transfer Expenses in connection with such transfer 3. Deduct: The exemptions provided by 3. Deduct: sections 54B, 54D ,54G,54GA The exemptions provided by ------------------------------------------ sections 54,54B, 54D,54EC,54G,54GA --------

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ICOA AND ICOI IN FOLLOWING CASES

Situation 1- Capital Asset acquired by the assessee before 1 April, 1981:ICOA = Fair market Value of the asset as on year in 1 April, 1981 or COA, whichever is higher X _____________________________________ CII for 1981-82 i.e. 100 ICOI = Cost of improvement (ignoring COI prior to April 1, 1981) X CII for the year in which asset is transferred CII for the

which asset is transferred

_____________________________________

Situation 2- Capital Asset acquired by the assessee on or after 1 April, 1981:ICOA = Cost of Acquisition in CII for the year which asset is transferred

_____________________________________ CII for the year in which asset is acquired ICOI = Cost of improvement incurred by the assessee in X _____________________________________ CII for the year in which improvement took place

CII for the year which asset is transferred

Situation 3- Capital Asset is acquired by the assessee before 1 April, 1981 in one of the circumstances specified by sec 49(1) and the same is originally acquired by the previous owner before 1 April 1981 ICOA = Fair market Value of the asset as on the year in 1 April, 1981 or COA to the X previous owner,whichever is higher _____________________________________ CII for 1981-82 i.e. 100 CII for which asset is transferred

ICOI = Cost of improvement incurred by the assessee (ignoring COI in prior to April 1, 1981) X

CII for the year which asset is transferred

Situation 4- Capital Asset is acquired by the assessee on or after 1 April, 1981 in one of the circumstances specified by sec 49(1) and the same is originally acquired by the previous owner before 1 April 1981 ICOA = Fair market Value of the asset as on CII for the year in 1 April, 1981 or COA to the X which asset is previous owner, whichever is higher transferred _____________________________________ CII for the first year in which the asset was held by the assessee ICOI = Cost of improvement incurred by the assessee and previous owner (ignoring COI CII for the year in prior to April 1, 1981) X which asset is transferred _____________________________________

Situation 5- Capital Asset is acquired by the assessee on or after 1 April, 1981 in one of the circumstances specified by sec 49(1) and the same is originally acquired by the previous owner on or after 1 April, 1981 ICOA = Cost of Acquisition to the previous owner in X _____________________________________ CII for the first year in which asset was held by the assessee ICOI = Cost of improvement incurred CII for the year in by the assessee and the previous X which asset owner is transferred ___________________________________ CII for the year in which improvement took place CII for the year which asset is transferred

SEC- 54 (INTRA-HEAD DEDUCTIONS)

Sec-54 Sec-54B Sec-54D Sec-54EC Sec-54F Sec-54GA Sec-54H

SEC-54 CAPITAL GAINS ARISING OUT OF TRANSFER OF LONG-TERM RESIDENTIAL HOUSE PROPERTY
Who can claim exemption Which specific asset is eligible for exemption An individual or HUF A long-term residential house property is transferred

Which asset the taxpayer should acquire to Another residential house-property is get the benefit of exemption purchased or constructed What is the time limit for acquiring the new asset Purchase- Residential house can be purchased within 1 year before transfer or within 2 years after transfer Construction- Residential house can be constructed within 3 years from transfer Deposit in CGAS (Capital Gains Accounts Scheme) before due date of filing return of income Investment in the new asset or capital gain, whichever is lower

How much is exempt

Is it possible to revoke the exemption in a subsequent year

If the new asset is transferred within 3 years of its acquisition, exemption will be taken back

SEC-54B CAPITAL GAINS ARISING FROM THE TRANSFER OF LAND USED FOR AGRICULTURAL PURPOSE
Who can claim exemption Which specific asset is eligible for exemption Individual Any short-term or long-term urban agricultural land

Which asset the taxpayer should acquire to Another Agricultural land in rural or urban get the benefit of exemption area What is the time limit for acquiring the new asset Within 2 years from the date of transfer Deposit in CGAS if the new agricultural land is not acquired upto the due date of filing the return of income Investment in the new asset or capital gain, whichever is lower If the new asset is transferred within 3 years of its acquisition, exemption will be taken back

How much is exempt Is it possible to revoke the exemption in a subsequent year

SEC-54F CAPITAL GAINS ON TRANSFER OF LONG-TERM CAPITAL ASSET OTHER THAN HOUSE PROPERTY
Who can claim exemption Which specific asset is eligible for exemption An individual or HUF Any long-term capital asset other than residential house property provided the tax payer does not own more than one residential house property on the date of transfer One residential house-property Purchase- Residential house can be purchased within 1 year before transfer or within 2 years after transfer Construction- Residential house can be constructed within 3 years from transfer Deposit in CGAS (Capital Gains Accounts Scheme) before due date of filing return of income Investment in the new asset/Net sale Consideration * capital gain If the new asset is transferred within 3 years of its acquisition, exemption will be taken back

Which asset the taxpayer should acquire to get the benefit of exemption What is the time limit for acquiring the new asset

How much is exempt Is it possible to revoke the exemption in a subsequent year