Dr.

Gurumurthy K H
Asst. Prof. in Commerce and Management
& Coordinator for M.com
GFGC Magadi, 562120, Ramanagar (dt)
9448226676, [email protected]

CAPITAL GAIN (Sec. 45 to 55 A)

1.1 Meaning: Any profit or gain arising from transfer/sale of a capital asset is a capital gain.
This gain or profit is shall be charged to tax in the year in which transfer of capital assets
takes place.
No capital gain is applicable when an asset is inherited because there is no 'sale', only a
transfer. However, if this asset is sold by the person who inherits it, capital gains tax will
be applicable. The Income Tax Act has specifically exempted assets received as gifts by
way of an inheritance or will.
1.2 Conditions:
 There must be a capital asset
 The transfer must be of capital asset
 The transfer must have been taken place during the previous year.
 The transfer of such capital asset must give rise to profit or gain
1.3 Transfer Sec. 2 (47): It includes a sale, exchange or relinquishment of the asset or
extinguishment if any right or the compulsory acquisition under the law or conversion of
the asset in to stock in trade
The following are not consider as transfer (Sec 49(1))
 Transfer of asset in a scheme of amalgamation
 Transfer of agricultural land before 1/4/1970
 Transfer of debenture or bonds into shares
 Transfer of assets in kind at the time of liquidation
 Transfer of asset by a parent company to the own subsidiary company
 Transfer of asset under the gift or will
 Transfer of capital asset at the time of partition of HUF
1.4 Capital Assets Sec. 2(14): property any kind held be assessee whether connected or not
with his business or profession. It includes all kinds of property, movable or immovable,
tangible or intangible. For examples land, building, house property, vehicles, patents,
trademarks, leasehold rights, machinery, jewellery, shares, debentures, units, mutual
funds, securities held by FII as per SEBI etc.
The following are not considered capital assets:
 Stock in trade: Any stocks or consumables or raw material held for the purpose of
Business or Profession
 Personal effect: Personal goods such as wearing apparel, car, scooter, TV,
refrigerator, musical instruments, generator, furniture etc held for personal use.
 6½% Gold Bonds, 1977 or 7% Gold Bonds, 1980 or National Defence Gold
Bonds, 1980 issued by the Central Government
 Special Bearer Bonds 1991
 Gold Deposit Bond issued under the Gold Deposit Scheme, 1999

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  Agricultural land in a rural in India area: definition of rural area (from AY14-15)
 Any area which is within the jurisdiction of a municipality or
cantonment or board
 having a population of less than 10,000 is considered Rural Area,

 If situated outside the limit of municipality etc distance measured..

 Being more than two kilometres from the local limits of any
municipality, having population more than 10000 but not
exceeding 1,00,000 or
 Being than six kilometres from the local limit of any municipality,
having population more than 1,00,000 but not exceeding
10,00,000
 Being than Eight kilometres from the local limit of any
municipality, having population more than 10,00,000

1. Financial Asset: It is held for

less than 12 months or 1 year
like securities, bonds, shares
1.5 Types of Capital Asset Short Term: mutual funds
For determining the nature of 2. Other Asset: It is held for less
capital assets, the period of holding than 36 months or 3 year like
shall be counted from the date of Jewellery etc. & Less than 24
purchase to the date of sale of months for immovable
capital asset by the assessee. properties like land ,building,
house property
1. Financial Asset: It is held for
Long Term: more than 12 months or 1 year
2. Other Asset: It is held for more
than 36 months or 3 year &
more than 24 months for
immovable properties like land
,building, house property

1.6 Type of capital Gain:

a) Short term Capital Gain: Any gain arising from transfer of short term capital asset is
known as short-term capital gain eg. Equity funds are considered short-term when
held for 12 months or less.
 Tax on short-term capital gain when securities transaction tax is not
applicable: short-term capital gain is added to your income tax return and the
taxpayer is taxed according to his income tax slab
 Tax on short-term capital gain if securities transaction tax is applicable:
short-term capital gain is taxable at the rate of 15% +surcharge and cess

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 b) Long-term capital Gain: Any gain arising from transfer of long term capital asset is
known as long-term capital gain eg. House property held for more than 3 years is
termed as a long-term capital asset,
 Sale of equity share -10% tax of the gain amount exceeds Rs 1(one) lakhs
 Except for sale of equity – 20% tax rate
 Financial year -2001-2002 taken as base =100

1.7 Terms used:

1) Full value consideration/Sales: The consideration received or to be received by the

seller in exchange of his assets, which he has transferred. Capital gains are chargeable
to tax in the year of transfer, even if no consideration has been received.
2) Cost of acquisition: The value for which the capital asset was acquired by the seller.
3) Cost of improvement: Expenses incurred to make improvements to the capital asset
by the seller. Eg. Alteration, repairs etc. Note that improvements made before April 1,
2001 is never taken into consideration.
4) Selling/realization /expenditure in connection with such transfer: Eg. Brokerage,
commission, cost of stamp paper, registration, travelling, legal expenses etc incurred
for transferring the capital assets.

1.8 Calculation of Capital Gains

Particulars Rs Rs
Value Consideration/Sale Xx
 Less: Selling Expenses/expenditure in connection with such transfer X
Net sales consideration Xx
 Less: Indexed Cost of Acquisition Xx
 Less: Index cost of improvement xx Xx
Long term capital Gain xx
Less: Exemption U/S 54, 54B, 54D, 54EC, 54F, 54G, 54GA xx
Taxable Long term Capital Gain Xx

1.9 Calculation of Capital Gains for Depreciable Assets

Particulars Rs Rs
Value Consideration/Sale Xx
 Less: Selling Expenses/expenditure in connection with such transfer X
Net sales consideration Xx
 Less: Written Down Value as on 01/04/20 Xx
 Less: cost of new assets purchased during the year xx Xx
Taxable Capital Gain Xx
1.10 Calculation of Capital Gains for Self generated Assets

Particulars Rs Rs
Value Consideration/Sale Xx
 Less: Selling Expenses/expenditure in connection with such transfer X
Net sales consideration Xx
capital Gain xx
Note: in case self generated assets e.g. goodwill cost of acquisition is nil

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 1.11 Cost of acquisition of (a) original, (b) rights and(c) Bonus shares
Particulars Cost of acquisition
1. If (a) original, (b) Right and (a) Original Actual cost or Fair market value
(c) bonus shares are acquired (b) Right Whichever is High (WEH)
before 1/4/2001 (c) Bonus Share –Fair market Value
2. If (a) original, (b) Right and (a) Original Actual cost
(c) bonus shares are acquired (b) Right
after 1/4/2001 (c) Bonus Share –Nil

1.12 Indexed cost of acquisition/improvement

a. Indexed cost of acquisition (ICOA) / Cost inflation index (CII): Means inflating
the cost of an asset acquired to the present value. i.e. the year in which the asset
is transferred. Indexation benefits are available only long term capital assets.
However the Indexation benefit is not available in case of debentures even
though it is long term asset.
Calculation
 If the assessee acquired the property before 1/4/2001

ICOA= ×CII of the year in which asset sold

 If the assessee acquired the property After 1/4/2001

ICOA= ×CII the year in which asset sold

b. Indexed cost of improvement: the year in which the improvement took place and
cost inflation index for the year in which the asset is transferred. For short term capital
asset the actual cost of improvement is allowed as deduction, where in case of long
term capital asset it will be indexed and allowed as deduction
 If the improvement incurred before 1/4/2001 should be ignored
 If the improvement incurred After 1/4/2001

×CII the year in which asset sold

c. Why is cost of acquisition and improvement indexed? Indexation, done by

applying CII (cost inflation index), is made to adjust for inflation over the years. This
increases one's cost base and lowers the capital gains.
1.14 Capital Gains exempt from Tax
 Capital gain on transfer of units of US64 ( sec. 10(33)
 Capital gain on compulsory acquisition of agricultural land of an Individual or
Hindu undivided family which is not situated in rural area and the land was used
for agricultural purpose by the assessee at least two years immediately preceding
compulsory acquisition (sec. 10(37)

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 1.15 Exemptions from capital gains u/s 54,54B, 54D, 54EC, 54F, 54G and 54GA

U/S Allowed Conditions to be satisfied Quantum of exemption

Assessee
1. Transfer/sale of a “residential house Property”
(RHP) Actual amount invested
(i) Income of which is chargeable under House in new asset+ deposited
Property. in CG a/c in Bank
(ii) It must be a long-term capital asset. or
The capital gains
54 Individual 2. Investment/Purchase of another “RHP” whichever is less is
HUF (i) The seller (Assessee) should purchase exempt
another residential house either one (1)
year before the date of transfer
(ii) Two (2) years after the date of
sale/transfer.
(iii) In case constructing a new house within
three (3) years from the date of
sale/transfer.
(iv) In case of compulsory acquisition, the
period of acquisition or construction will be
determined from the date of receipt of
compensation.
3. The new residential house should be in India.
Assessee cannot buy a residential house abroad for
claim exempt.
4. The above conditions are cumulative. Hence, even
if one condition is not fulfilled, then the seller
cannot avail the benefit of the exemption under
Section 54
1 Transfer should be of “agricultural land”. Actual amount invested
(i) It must have been used in the 2 years in new asset+ deposited
54B Individual immediately preceding the date of transfer for in CG a/c
agricultural purposes either by the assessee or his or
parent. The capital gains
2 Investment in another “agricultural land” whichever is less
(i) Another agricultural land should be purchased
within 2 years after the date of transfer.
1. Transfer/ compulsory acquisition of an
“industrial undertaking”,
Any (i) The property should be land and building Actual amount invested
54D assessee forming part of an industrial undertaking. in new asset+ deposited
(ii) The assessee must have been used the in CG a/c
property for the purpose of the business in or
the 2 years immediately preceding the date The capital gains
of transfer whichever is less
2. Investment in “new industrial undertaking”
(i) Within a period of 3 years from the date
acquisition should be purchased or
constructed or set up new industries

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 1. Transfer of any long term capital assets Actual amount invested
Any (i) Transfer of any long- term capital asset in new asset+ deposited
54EC assessee 2. Investment in long term bonds issued by in CG a/c
NBARD or NHAl or RECL or
(i) Within a period of 6 months from the date The capitals gain or
of transfer, the CG must invest in specified maximum 50 lakhs
assets i.e. bonds redeemable after 3 years whichever is less
issued by NBARD or NHAl or RECL. then exemption would
(ii) Maximum amount which can be invested in be available as
any FY cannot exceed Rs. 50,00,000 computed in Sec. 54F
1. Transfer of Long term capital assets “other than
a residential house ”(RHP) If the cost of the new
(i) the asset transferred is a long term capital residential house is
asset other than a residential HP greater than the net
54F Individual 2. Invested in residential house property (RHP) consideration received
HUF (ii) within a period of one (1) year before the then the whole of the
date of transfer or capital gain is exempted
(iii) Two (2) years after the date of transfer or Otherwise,
(iv) Constructed within a period of 3 years from exemption=
the date of transfer. ×CG
(v) this exemption is not available, on the date
of transfer, the assessee owns any HP other
than the new RHP (asset)
1. Transfer/Shifting of industrial undertaking
from urban area to Rural area The cost of the new
54 G Any (i) Transfer of Machinery, plant, building, or assets and expenses
assessee land used for the business of an industrial incurred for shifting are
undertaking situated in an urban area greater. i.e
2. Investment in another Industrial undertaking Amount invested
in Rural area or
(i) Within a period of 1 year before the date of capital gain
transfer or whichever is less
(ii) 3 years after the date of transfer construct
building and completed shifting to any new
rural area
54GA Any 1. Transfer/Shifting of industrial undertaking
assessee from urban area to Special Economic Zone The cost of the new
(i) Machinery, plant, building, or land used assets and expenses
for the business of an industrial incurred for shifting are
undertaking situated in an urban area greater. i.e
should have been transferred. Amount invested
2. Invested to Special economic Zone (SEZ) or
(i) Shifting to any Special Economic Zone capital gain
whether developed in any urban area or whichever is less
any other area.
(ii) Within a period of 1 year before the
date of transfer or
(iii) 3 years after the date of transferor to the
new SEZ area

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 Notes in simple:
1) Capital Gain arising out of transfer of property
2) investment made in new property either purchase or construct within the
prescribed time limit or deposit in capital Gain A/c in any Bank
3) If the new asset is not acquired under sections 54, 54B, 54D, 54F, 54G and
54GA or the full amount could not be invested up to the due date, Capital
Gain exemption Scheme is not applicable.

Workout problems and solution (Under Section 54 Capital gain on transfer of residential
house property and invested in another residential house property)

Problem: 1 Mr X sells his villa (house property) for Rs 45, 00,000 in Aug 2018 which he
was purchased in Sept 2005 Rs 250000. With the proceeds of the sale, he purchases
another villa for Rs 60, 00,000 in Feb 2019 (CII 2018-19=280, 2005-06=117)
Solution 1 Assessee: Mr. X Ay 2019-20 , FY 2018-19
Computation of Capital Gain
Particulars (Rs.)

Full value of consideration transfer of Residential House 45,00,000

Less: Selling expense Nil

Net sales consideration 45,00,000

Less : Indexed cost of acquisition

(a) Actual cost of Acquisition 250000 WEH

(b) Fair market value (FMV) Nil

Indexed cost of acquisition (Rs. 250000 ×280/117) 5,98,290

(5,98,290)
Less: Indexed cost of improvement Nil

Long term capital gain 39,01,710

Less Exemption u/s 54

Invested in capital Assets 6000000

Deposited in Capital Gain A/c +0 600000 WEL

Or long term Capital gain 3901710 exemption 39,01,710

Taxable Long term capital Gain Nil

Conclusion: no capital gain tax u/s54

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 Problem: 2 Mr X sells his villa (house property) for Rs 45, 00,000 in Aug 2018 which he
was purchased in Sept 2005 Rs 250000. With the proceeds of the sale, he purchases
another villa for Rs 30, 00,000 in Feb 2019 (CII 2018-19=280, 2005-06=117)

Solution 2

Assessee: Mr. X Ay 2019-20 , FY 2018-19

Computation of Capital Gain
Particulars (Rs.)

Full value of consideration transfer of Residential House 45,00,000

Less: Selling expense Nil

Net sales consideration 45,00,000

Less : Indexed cost of acquisition

(a) Actual cost of Acquisition 250000 WEH

(b) Fair market value (FMV) Nil

Indexed cost of acquisition (Rs. 250000 ×280/117) 5,98,290

(5,98,290)
Less: Indexed cost of improvement NIL

Long term capital gain 39,01,710

Less Exemption u/s 54

Invested in capital Assets 3000000

Deposited in Capital Gain A/c +0 300000 WEL

Or long term Capital gain 3901710 Exemption 30,00,000

Taxable Long term capital Gain 9,01,710

Conclusion: after claiming capital gain exemption u/s54 there is a long term capital gain is Rs 901710.
The flat rate of tax is 20%+ HEC 4% LTCG Tax = (901710*.2)=1,80,342
Health and education cess (180342*.04)= 7,214
Long-term Capital gain tax payable is Rs 1,87,556

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 Problem: 3 Mr Y has sold residential house property in May 2017 long term capital gain
amounted to Rs. 30,00,000. In June 2017, Mr Y purchased a residential house property worth
Rs. 18,00,000/- Mr Y sells the new residential house property (Purchased in June 2017) in
December 2018 for Rs. 35,00,000/-
Based on the facts mentioned above, lets compute the taxable capital gains for Mr Y .
FY 18-19 (Property sold in May 2017) (CII 2017-18 =272, 2018-19= 280, 2001=100
Assessee: Mr. Y Ay 2018-19 , FY 2017-18

Particulars (Rs.)

Long term capital gain 30,00,000

Less Exemption u/s 54

Invested in capital Assets 1800000

Deposited in Capital Gain A/c +0 1800000 WEL

Or long term Capital gain 3000000 Exemption 18,00,000

Taxable Long term capital Gain FY 17-18 12,00,000

FY 2018-19 AY 2019-20

Sales consideration 35,00,000

Less: cost of acquisition (investment in new asset) 18,00,000

Taxable Short term capital Gain FY 2018-19 17,00,000

Add: Exemption claimed U/s 54 18,00,000

Total taxable short term capital Gain 35,00,000

WN:1 Given long term capital gain not sales proceeds

Note:2, the new property was sold in December 2018 (ie within 2 years from the date of
acquisition), the entire exemption claimed u/s 54 treated as short term capital gain, so the
total Taxable short term capital gain and is 35,00,000.

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 Problem: 4 Mr Z has sold a residential house property and the capital gains is Rs
25,00,000/- in June 2017. In October 2017, Mr Z purchased a new residential house property
of Rs 40,00,000/-In January 2019, Mr Z sold the new residential house Property for Rs
55,00,000/-Based on the capital gains mentioned above, let’s compute the taxable capital
gains for Mr Z
Solution: 4 FY 2017-18 AY 2018-19

Long term capital gain (WN:1) 25,00,000

Less Exemption u/s 54

Cost of acquisition 400000

Deposited in Capital Gain A/c +0 4000000 WEL

Or long term Capital gain 2500000 Exemption 25,00,000

Taxable Long term capital Gain FY 17-18 NIL

FY 2018-19 AY 2019-20

Sales consideration 55,00,000

Less: cost of acquisition (purchase of new property) 40,00,000

Taxable Short term capital Gain FY 2018-19 15,00,000

Add: Exemption claimed u/s 54 25,00,000

Total taxable short term capital gain 40,00,000

WN:1 Given long term capital gain not sales proceeds

Note: ; Note:2, the new property was sold in December 2018 (ie within 2 years from the
date of acquisition), the entire exemption claimed u/s 54 treated as short term capital gain,
so the total Taxable short term capital gain and is 40,00,000.

(U/s 54B Capital gain on transfer on agriculture land in urban area and invested in
agricultural land in urban or rural area)

Problems: 5 Mr. Shankar sell an agricultural land in Kanpur on 10/06/2018 for Rs 1500000
the land was purchased by him on 15/07/2005 for Rs 250000. He purchased another
agriculture land for Rs 1600000 on 31-03-2019 (CII 2005-06=117, 2018-19=280)

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 Solution: 5 U/S 54B
Assessee: Mr. Shankar FY 2017-18 AY 2018-19

Computation of capital gain (Rs.)

Full value of consideration 15,00,000

Less: Selling expense Nil

Net sales consideration 15,00,000

Less : Indexed cost of acquisition

(a) Actual cost of Acquisition 250000 WEH

(b) Fair market value (FMV) Nil

Indexed cost of acquisition (Rs. 250000 ×280/117) 5,98,290

(5,98,290)
Less: Indexed cost of improvement Nil

Long term capital gain 9,01,710

Less Exemption u/s 54B

Invested in capital Assets 1600000

Deposited in Capital Gain A/c +0 16,00,000 WEL

Or long term Capital gain 9,01,710 9,01,710

Taxable Long term capital Gain Nil

U/s 54D, (compulsory acquisition of L&B and investment in new L&B for new
undertaking)

Problem: 6 A building of Mr. Akash is compulsorily acquired by U.P Govt. Its cost of
acquisition to the assessee was Rs 1,72,000 in Aug. 2005. The U.P Govt. pays Rs 6,75,000
as compensation on 25/05/2018. Mr. Akash purchased another building for industrial
undertaking for Rs 2,80,000 on 24/06/2018. Mr. Akash sold the new building for Rs
3,50,000 on 31/08/2018. Compute the taxable capital gain for Ay 2019-20 (CII 2005-
06=117, 2018-19=280)

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 Solution: 6 , U/s 54D Assessee: Mr. Akash FY 2017-18 AY 2018-19
Computation of Taxable Capital Gain

Particulars (Rs.)

Full value of consideration (Compensation received in 2018) 6,75,000

Less: Selling expense Nil

Net sales consideration 6,75,000

Less : Indexed cost of acquisition

(a) Actual cost of Acquisition 172000 WEH

(b) Fair market value (FMV) Nil

Indexed cost of acquisition (Rs. 172000 ×280/117) 4,11,624

(4,11,624)
Less: Indexed cost of improvement Nil

Long term capital gain 2,63,376

Less Exemption u/s 54D

Invested in capital Assets 280000

Deposited in Capital Gain A/c +0 280000 WEL

Or long term Capital gain 263376 Exemption 2,63,376

Taxable Long term capital Gain Nil

Note: Since new building is sold within 3 years. It is taxed as short term capital gain in
the year in which it is sold

Full value of consideration (purchased new building) 3,50,000

Less: Selling expense Nil

Net sales consideration 3,50,000

Less : Cost of acquisition 2,80,000

Short term capital gain 70000

Add: Exemption given U/S 54D 2,63,376

Total taxable short term capital gain 3,33,376

Note: total short term taxable capital gain is 333376

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 U/S 54EC (capital gain on transfer of any long term capital asset and invested in the
bonds issued by NBARD, NHAI AND RECL)
Problem:7 Mr. Kamalesh Purchased Jewellery on 10/03/2006 for Rs 1,00,000 and he
sold it for consideration of Rs 2,80,000 on 2/11/2018. He incurred the expenses at the
time of purchase Rs 2,000 and at the time of sale Rs 4,000. He invested Rs 70,000 in
bonds with National Highway Authority of India (NHAI) on 3/01/2019 out of the sale
consideration. Compute the taxable capital gain (CII for 2005-06=117, 2018-19=280).

Solution: 7 Assessee: Mr. Kamalnath FY 2017-18 AY 2018-19

Computation of Taxable Capital Gain

Particulars (Rs.)

Full value of consideration 2,80,000

Less: Selling expense 4,000

Net sales consideration 2,76,000

Less : Indexed cost of acquisition

(a) Actual cost of Acquisition (100000+2000) 102000 WEH

(b) Fair market value Nil

Indexed cost of acquisition (Rs. 102000 ×280/117) 2,44,103

(2,44,103)
Less: Indexed cost of improvement Nil

Long term capital gain 31,900

Less Exemption u/s 54EC

Invested in capital Assets 70,000

Deposited in Capital Gain A/c +0 70,000 WEL

Or long term Capital gain 31,900 Exemption 31,900

Taxable Long term capital Gain Nil

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 Problem:8 Mr. Madhu Purchased a plot on 10/03/2006 for Rs 6,00,000 and he sold it
for consideration of Rs 15,80,000 on 2/11/2018 and incurred brokerage Rs 20,000. He
invested Rs 2,00,000 on bonds with NBARD and Rs 3,10,000 bonds Rural
electrification corporation Ltd. On on 3/01/2019 out of the sale consideration. Compute
the taxable capital gain (CII for 2005-06=117, 2018-19=280).

Solution: 8 Assessee: Mr. Madhu FY 2017-18 AY 2018-19

Computation of Taxable Capital Gain

Particulars (Rs.)

Full value of consideration 15,80,000

Less: Selling expense 20,000

Net sales consideration 15,60,000

Less : Indexed cost of acquisition

(a) Actual cost of Acquisition 600000 WEH

(b) Fair market value Nil

Indexed cost of acquisition (Rs. 600000 ×280/117) 14,35,900

(14,35,900)
Less: Indexed cost of improvement Nil

Long term capital gain 1,24,100

Less Exemption u/s 54EC

Invested in capital Assets (200000+310000) 5,10,000

Deposited in Capital Gain A/c +0 WEL

Or long term Capital gain 1,24100 Exemption 1,24,100

Taxable Long term capital Gain Nil

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 U/S 54F (capital gain on transfer of any long term capital asset other than residential
house and invested in the residential house
Problem:9 Mr. Amaresh sold his Jewellery on 16/06/2018 for Rs 10,10,000 and
brokerage paid on sale Rs 10,000. Cost of jewellery on 25/5/2005 was Rs 1,55,000. He
purchased a residential house for Rs 5,50,000 on 3/09/2018 out of the sale consideration.
Compute the taxable capital gain (CII for 2005-06=117, 2018-19=280).

Solution: 9 Assessee: Mr. Amaresh FY 2017-18 AY 2018-19

Computation of Taxable Capital Gain

Particulars (Rs.)

Full value of consideration 10,10,000

Less: Selling expense 10,000

Net sales consideration 10,00,000

Less : Indexed cost of acquisition

(a) Actual cost of Acquisition 155000 WEH

(b) Fair market value Nil

Indexed cost of acquisition (Rs. 155000 ×280/117) 3,70,940

(3.70,940)
Less: Indexed cost of improvement Nil

Long term capital gain 6,29,060

Less Exemption u/s 54F

Invested in capital Assets Rs 550000 which is less than sales proceeds then

× capital gain, × 6,29,060 Exemption 3,45,983

Taxable Long term capital Gain 2,83,077

Note: if investment is more than net sales consideration then no need to apply formula for
calculating exemption limit, the entire capital gain is exempted

If investment is less than net sale consideration then need to apply formula for calculating
proportion deduction

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 Exemption U/s 54G( capital gain on transfer of industrial undertaking from urban to
rural and investment on L&B, P&M on rural area)

Problem: 10, Scoop Limited sold Land ,building and Machinery for Rs 38,00,000, Rs
9,00,000 and Rs 3,00,000 Respectively on 25th Nov. 2018, while they were shifting the
industrial undertaking to a rural area. These assets were acquired during 2008-09,
Land cost was Rs 15,00,000, cost of building Rs 18,00,000 and the cost of Machinery was
Rs 8,00,000. The WDV of the building and Machinery as on 1-4-2018 were Rs 4,20,000
and Rs 2,80,000 Respectively. The company incurred the transfer expenses of 2% on the
sale consideration for each asset. The company deposited on 10th July 2019 in the capital
gain deposit scheme Rs 52,00,000 for the purpose of acquiring these assets. Your are
required to compute the taxable capital gain of the company for the AY 2019-20 (CII
for 2018-19=280, 2008-09=137)

Solution: 10 Assessee: Mr. Scoop Ltd FY 2017-18 AY 2018-19

Computation of capital gain (Rs.)

1. Land : Sale of Land (long term) 38,00,000

Less: Selling expense (3800000*.02) 76,000

Net sales consideration 37,24,000

Less : Indexed cost of acquisition

(a) Actual cost of Acquisition 1500000 WEH

(b) Fair market value Nil

Indexed cost of acquisition (Rs. 1500000 ×280/137) 30,65,700

(30,65,700)
Less: Indexed cost of improvement Nil

Long term capital gain on land 6,58,300

2. Building: Sale of Building (Short term) 9,00,000

Less: Selling expense (900000*.02) 18,000

Net sales consideration 8,82,000

Less : cost of acquisition being WDV as on 1-4-2018 4,20,000

Short term capital gain 4,62,000

Note: Cost of acquisition when WDV is given need to take WDV taken as the cost of acquisition

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2.Machinery: Sale of Machinery (Short term) 3,00,000

Less: Selling expense (300000*.02) 6,000

Net sales consideration 2,94,000

Less : cost of acquisition being WDV as on 1-4-2018 2,80,000

Short term capital gain 14,000

Note: Cost of acquisition, when WDV is given need to take WDV as the cost of acquisition and not
purchased cost

Total Long term capital gain Rs

Land (long term capital gain) 6,58,300

Building (short term capital gain) 4,62,000
Machinery (short-term capital gain) 14,000 11,34,300

Less Exemption u/s 54G

Invested in capital Assets 0 5200000

Deposited in Capital Gain A/c +5200000 WEL

Or long term Capital gain 1134300 Exemption 11,34,300

Taxable capital Gain Nil

Exemption 54 GA (Transfer to industrial undertaking from urban to SEZ)

Problem: 11 Sunlight limited sold land for Rs 88000, on 15th Oct. 2018 while they were
shifting the industrial undertaking from an urban area to SEZ. The land was acquired
on 10th Oct. 2012 for Rs 3500000. The company incurred 4% a transfer expenses. The
company purchased on 31st march 2019 a new land industrial undertaking in the SEZ
for Rs 2500000. Compute taxable capital gain.(CII for 2018-19=280, 2012-13 =200)

17
 Solution: 11 Assessee: Sunlight limited FY 2017-18 AY 2018-19
Computation of Taxable Capital Gain

Particulars (Rs.)

Full value of consideration 88,00,000

Less: Selling expense (880000*.04) 3,52,000

Net sales consideration 84,48,000

Less : Indexed cost of acquisition

(a) Actual cost of Acquisition 3500000 WEH

(b) Fair market value Nil

Indexed cost of acquisition (Rs. 3500000 ×280/200) 49,00,000

(49,00,000)
Less: Indexed cost of improvement Nil

Long term capital gain 35,48,000

Less Exemption u/s 54GA

Invested in capital Assets 25,00,000 25,00,000

Deposited in Capital Gain A/c +0 WEL

Or long term Capital gain 55,48,000 Exemption 25,00,000

Taxable Long term capital Gain 30,48,000

1.16 Treatment of Long-term capital gains arising from sale of listed securities or any
unit of UTI or mutual fund (whether listed or not), being covered under Section 112A
[with effect from Assessment Year 2019-20] shall be taxed at the rate of 10 per cent of
such capital gains exceeding Rs. 1,00,000
(a) Treatment of cost of acquisition of listed equity share before Feb 1 2018

(i) The actual cost of acquisition of such asset; or xx WEH

(ii) Fair market value (FMV) of such shares as on Jan, 31, 2018 xx

However, if there is no trading in such shares on January 31, 2018, the highest price of such
share on a date immediately preceding January 31, 2018 on which trading happens in that
share shall be deemed as its fair market value.
In case of units which are not listed on recognized stock exchange, the net asset value
(NAV) of such units as on January 31, 2018 shall be deemed to be its FMV

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 Problem-12 Mr. Janak is a salaried employee. In the month of January, 2015 he purchased
100 shares of X Ltd. @ Rs. 1,400 per share from Bombay Stock Exchange. These shares
were sold through BSE in April, 2019 @ Rs. 2,600 per share. The highest price of X Ltd.
share quoted on the stock exchange on January 31, 2018 was Rs. 1,800 per share. What will
be the nature of capital gain in this case?
Solution-12 Assessee: Janak FY 2018-19 Ay 2019-20

It is a long term assets: Shares were purchased in January, 2015 and were sold in April, 2019, i.e., sold
after holding them for a period of more than 12 months

Full value of consideration (Rs 2600*100 Shares) 2,60,000

Less : cost of acquisition

Actual cost of Acquisition (1400*100) 140000 WEH

Fair market value (FMV) (31/3/2018) ( 1800*100) 180000 1,80,000

Long term capital gain 80,000

Note : Rs 80000 does not exceed Rs 100000, hence nothing is taxable (80000)

Taxable long term capital gain on shares Nil

Problem-13, Mr. Saurabh is a salaried employee. In the month of July, 2017 he purchased
100 shares of XYZ Ltd. @ Rs. 2,000 per share from Bombay Stock Exchange. These shares
were sold through NSE in Sept, 2018 @ Rs. 4,900 per share. The highest price quoted on the
stock exchange on this share on January 31, 2018 was Rs. 3,800 per share. What will be the
nature of capital gain in this case?
Solution-13 Assessee: saurabh FY 2018-19 Ay 2019-20

It is a long term assets: Shares were purchased in January, 2016 and were sold in Sept., 2017, i.e., sold
after holding them for a period of more than 12 months

Full value of consideration (Rs 4900*100 Shares) 4,90,000

Less : cost of acquisition

Actual cost of Acquisition (2000*100) 200000 WEH

Fair market value (FMV) (31/3/2018) ( 3800*100) 380000 3,80,000

Long term capital gain 1,10,000

Note : Rs 110000 exceed Rs 100000, hence it is taxable (1,00,000)

Taxable long term capital gain on shares 10,000

Long term capital gain tax on share 10% + 4% (10000*.1)=(1000*.04)=40 (1000+40)=1040

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Problems-14 Mr. Kumar (a non resident) purchased equity shares (listed) of Shyamal Ltd. in
Jan 2001 for Rs. 28,100. These shares are sold (outside recognised stock exchange) in April,
2018 for Rs. 5,00,000. He does not have any other taxable income in India. What will be his
tax liability? (CII for 2001-02=100, 2018-19=280)

Solution-14 Assessee: Kumar FY 2018-19 Ay 2019-20

In this situation, Mr. Kumar has following two options:

Particulars Option 1 Option 2 (Do

(Avail not avail
indexation) indexation)

Full value of consideration 5,00,000 5,00,000

Less: Indexed cost of acquisition (Rs. 28,100 × 280/100) 78,680 ——-

Less: Cost of acquisition ——– 28,100

Long term Taxable capital Gain 4,21,320 4,71,900

Less: Exempted LCG on shares up to 1,00,000 (1,00,000) (1,00,000)

Taxable capital gain 3,21,320 3,71,320

Tax @ 20% on Rs. ( 321320*.2) 64,264 ——–

Tax @ 10% on Rs. ( 371320*.1) ——- 37,190

Note: if the exchange price quoted is not available in the given problem then assessee can
opt for any of the above option

Accordingly, From the above computation, it is clear that Mr. Kumar should exercise
option 2, since in this situation the tax liability (excluding cess as applicable) comes to Rs.
37,190 which is less than tax liability under option 1 i.e. Rs. 64,264.

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 Works out miscellaneous Problems
Example: 15 Mr. Chandu sold a house on 1/10/2018 for Rs 30,00,000. The house was
inherited by him during 2001-02 from his father , who has constructed it in 1995-96 for Rs
180000. Mr. chandu spent Rs 50000 on renovation of this house in 2008-09. Fair market
value of the house as on 1/04/2001 was Rs 480000. Compute the amount of capital gain for
the Ay 2018-19 (CII for 2001-02=100, 2008-09=137, 2018-19=280

Solution : 15 Assessee: Mr Chandu FY 2018-19 AY 2019-20

Computation of capital Gain

Particulars (Rs.)

Full value of consideration 30,00,000

Less: Selling expense Nil

Net sales consideration 30,00, 000

Less : Indexed cost of acquisition

Actual cost of Acquisition 0 WEH

Fair market value 1-4-01 4,80,000

Indexed cost of acquisition (Rs. 4,80,000 ×280/100) 13,44,000

(14,46,200)
Less: Indexed cost of improvement (Rs. 50,000 ×280/137) 1,02,200

Long term capital gain 15,53,800

Less Exemption u/s 54

Invested in capital Assets 0 0

Deposited in Capital Gain A/c +0 WEL

Or long term Capital gain 15,53,800 Exemption 0

Taxable Long term capital Gain 15,53,800

( capital gain on transfer of long term assets not invested hence no exemption claimed u/s 54-54GA)

21
Example: 16 Mr. Japan sold a plot on 1/11/2018 for Rs 80,00,000. The plot was purchased on
07/07/ 2008 for Rs 10,00,000 Mr. Japan spent Rs 50000 and 1.20,000 for brokerage on
purchase and sales respectively. Compute the amount of capital gain for the Ay 2018-19 (CII,
2008-09=137, 2018-19=280

Solution : 16 Assessee: Mr Japan FY 2018-19 AY 2019-20

Computation of capital Gain

Particulars (Rs.)

Full value of consideration 80,00,000

Less: Selling expense 1,20,000

Net sales consideration 78,80, 000

Less : Indexed cost of acquisition

Actual cost of Acquisition (1000000+ 50000) WEH

Fair market value 1-4-01 0

Indexed cost of acquisition (Rs. 10,50,000 ×280/137) 21,45,985

(21,45,985)
Less: Indexed cost of improvement Nil

Long term capital gain 57,34,015

Less Exemption u/s 54

Invested in capital Assets 0 0

Deposited in Capital Gain A/c +0 WEL

Or long term Capital gain 57,34,015 Exemption 0

Taxable Long term capital Gain 57,34,015

( capital gain on transfer of long term assets not invested hence no exemption claimed u/s 54-54GA)

22
Example: 17 Mr. Vijay purchased a residential house in Bangalore on 1-4-1999 for Rs
5,00,000 and added 1st floor in the year 2000 at a cost of Rs 1,00,000. On 1st December 2011 he
gifted the house to his son Mr. Kapur who added two rooms in June 2014 at a cost of Rs
40,00,000. On 1st Nov. 2018 Mr. kapur sold the property for Rs 2,00,00,000.. Compute the
amount of Taxable capital gain for the Ay 2018-19. If the FMV of the property as on 1-4-2001
was Rs 15,00,000 (CII, 2001-02=100, 2010-11= 167, 2014-15=240, 2018-19=280

Solution : 17 Assessee: Kapur FY 2018-19 AY 2019-20

Computation of capital Gain

Particulars (Rs.)

Full value of consideration 2,00,00,000

Less: Selling expense Nil

Net sales consideration 2,00,00,000

Less : Indexed cost of acquisition

Actual cost of Acquisition 0 WEH

Fair market value 1-4-2001 15,00,000

Indexed cost of acquisition (Rs. 15,00,000 ×280/167) * 25,14,970

(71,81,640)
Less: Indexed cost of improvement (Rs. 40,00,000 ×280/240) 46,66,670

Long term capital gain 1,28,18,360

Less Exemption u/s 54

Invested in capital Assets 0 0

Deposited in Capital Gain A/c +0 WEL

Or long term Capital gain 1,28,18,360 Exemption 0

Taxable Long term capital Gain 1,28,18,360

Note: the indexation base year 2001-02, prior to this date any transaction relating to
property should be ignored. In this problem Though the property gifted to his son
Kapoor in December 2011, the value of property is take into account FMV as on 1-4-2001
and for Indexation CII the year in which it is gifted (2011) must be consider.

23
Example: 18 Mr. Prasanna sold his residential house on 1-1-2019 for Rs 16,06,000 which he
has purchased in 2005-06 for Rs 2,00,000. He spent Rs 6,000 for sale of the house. He spent Rs
10, 50,000 on the construction of new house and deposited Rs 1, 00,000 under capital gain
account scheme on 28.03.2019. compute the capital gains for the AY 2019-20 (CII, 2005-
06=117, , 2018-19=280

Solution : 18 Assessee: Prsanna FY 2018-19 AY 2019-20

Computation of capital Gain
(capital gain on transfer of residential house and invested buy or construct another new residential house
(exemption u/s 54)

Particulars (Rs.)

Full value of consideration 16,06,000

Less: Selling expense 6,000

Net sales consideration 16,00,000

Less : Indexed cost of acquisition

Actual cost of Acquisition 2,00,000 WEH

Fair market value 0

Indexed cost of acquisition (Rs. 200000 ×280/117) 4,78,635

(4,78,635)
Less: Indexed cost of improvement (Rs.) 0

Long term capital gain 11,21,365

Less Exemption u/s 54

Invested in capital Assets 10,50,000 11,50,000

Deposited in Capital Gain A/c +1,00,000 WEL

Or long term Capital gain 11,21,365 Exemption 11,21,365

Taxable Long term capital Gain Nil

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Example: 19 Mr. Prasad sold the following assets
(a) Agriculture land situated at Mysore was sold for Rs 350000. It was purchases in 2008-09 for Rs 50000
(b) Personal car sold for Rs 40000 purchased in 2010-11 for Rs 210000, WDV as on 1-4-2018 Rs 30000
(c) Jewellery sold for Rs2700000, was purchased 15th Oct. 1995 Rs 120000 its FMV as on 1-4-01 250000
(d) Office furniture sold for Rs 5000 purchased in Dec. 2003 for Rs 20000 and WDV on 1-4-18, Rs 6000
(e) Listed debenture sold for Rs 50000 was purchased 15th Oct. 2006 for Rs 45000
(f) Shop located near Mangalore sold for Rs 500000 was purchased for Rs 200000 in Nov. 2003
The Assessee purchased a new Residential House for Rs 1000000. Compute the amount of taxable capital
gain for the Ay 2019-20 (CII, 2001-02=100, 2003-4=109, 2010-11=167, 2008-09=137, 2018-19=280)

Solution : 19 Assessee: Prasad FY 2018-19 AY 2019-20

( capital gain on transfer of any long term assets invested in residential house property (Exemption u/s 54F)

Particulars Ag. Land (Rs) Jewellery (Rs) Listed Deb Shop (Rs.)

Full value of consideration 3,50,000 27,00,000 50,000 5,00,000

Less: Selling expense Nil Nil Nil Nil

Net sales consideration 3,50,000 27,00,000 50,000 5,00,000

Less : Indexed cost of acquisition (W N 1) (1,02,200) (7,00,000) (45,000) (5,13,760)

Less: Indexed cost of improvement Nil Nil Nil Nil

Long term capital gain or Loss 2,47,800 20,00,000 5000 (13,760)

*Note: Sales consideration (350000+2700000+50000=Rs 31,00,000) Rs

Total Long term capital Gain (CG) (2,47,800+20,00,000+5,000) 22,52,800

Less Exemption U/S 54 (f) × Total C G ( × 22,52,800) (7,26,710)

Total Taxable Long term capital gain before adjusting any capital loss 15,26,090

Less: loss on sale of capital assets (long +short term loss) (13760+1000) 14,760

Taxable capital Gain 15,11,330

Agricultural Land (Rs. 50000 ×280/137)=1,02,200

Indexed cost of Jewellery Actual cost (120000 )or FMV (250000) WEH
acquisition (W N 1) (Rs. 250000 ×280/100)=7,00,000
Shop (Rs. 200000 ×280/109)=5,13,760
Debenture cannot be indexed as per law
Personal car sold is a personal effect hence it is ignore while calculating capital gain
Office furniture is sold Sales consideration 5000
WDV balance is given , Less: selling Expenses: Nil
hence it is consider as Net sales consideration 5000
short term capital gain Less: WDV (6000)
(WDV=cost-Dep.) Short term capital gain or (loss) (1000)

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Example: 20 Mr. Fun sold the following assets Compute the amount of taxable capital gain for the Ay 2019-20
(a) Agriculture land in Goa sold for Rs 10, 50, 000 in Aug 2018 by paying Rs 25000 brokerage. It was
purchases in 2003-04 for Rs 2, 25,000. He purchased another agricultural Another agricultural land in a
village for Rs 2,50,000 on 10th June 2018
(b) Household furniture and music system purchased on 1-1-2004 for Rs 22,000 is sold on 5-12-18
(c) Machinery purchased on 1-1-2008 for Rs 40,000 is sold for Rs 15,000 on 1-4-2018 the WDV of the
machinery on 1-4-2-18 was 25000
(d) Sold his residential house for Rs 38, 00, 000 on 31-3-2019. The house was gifted by his mother- in- law
in July 2000. The house was purchased by her in 1999 for Rs 3, 00,000 (FMV 1-4-2001 was 3, 25,000)
additions were made by him 1st jan2002 by spending Rs 30,000. The commission paid on sales is Rs
30000, he purchased another residential property Rs 2,25,000 and deposited Rs 7,50,000 under capital
gain A/c scheme on 30-6-2019
(e) Debenture purchased in Dec. 2017 for Rs 30000 are sold for Rs 55000 on 1-11-2018
(f) Sold 200 bonus share of company on 1-2-2019 for Rs 250 per share by paying a brokerage of 1% on
selling price. These shares were issued on 1-4-2008. Market price of these share on the date of issue were
Rs 100 per share, (CII, 2001-02=100, 2003-4=109, 2010-11=167, 2008-09=137, 2018-19=280)

Solution : 20 Assessee: Mr. Fun FY 2018-19 AY 2019-20 ( long-term capital gain)

Particulars Agricultural Residential Bonus share Total

Land (Rs) house (Rs) (Rs.)

Full value of consideration (Bonus 250/*200) 10,50,000 38,00,000 50,000 49,00,000

Less: Selling expense (given) (BS, 50000*.01 25,000 30,000 500 55,500

Net sales consideration 10,25,000 37,70,000 49,500 48,44,500

Less :Indexed cost of acquisition & ICI (WN1) (4,29,358) (9,94,000) (Nil) (14,23,358)

Long term capital gain 5,95,642 27,76,000 49,500 34,21,142

Less: exemption u/s 54 (RHP)

(a) Actual investment Rs 2,25,000
(b) Deposited in CG A/c Rs 7,50,000 - - (9,75,000)
Total Rs 9,75, 000 OR (9,75,000)
Capital gain 27,76,000 WEL

Less: exemption u/s 54B (Agricultural Land)

(a)Actual investment Rs 2,50,000 - -
(b) Deposited in CG A/c Rs 0 (2,50,000)
Total Rs 2,50,, 000 OR (2,50,000)
Capital gain 55,95,642 WEL

Total Long term capital gain 3,45,642 18,01000 49,500 21,96,142

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 (W N 1) Indexed cost of acquisition. (Rs. 225000 280/109) 4,29,358
Agricultural Land Indexed cost of Improvement (ICI) Nil
Total claiming for Exemption U/s 54B 4,29,358
ICA Actual cost (325000 ) or FMV (300000) WEH 9,10,000
Residential house (Rs. 325000 ×280/100)
(indexed cost of acquisition Indexed cost of Improvement (Rs. 30000 ×280/100) 84,000
(ICA) Total Claiming for exemption u/s 54 9,94,000
Bonus share -issued after 2-4-2001 no cost of acquisition as per law
House hold furniture and musical system sold is a personal effect hence it is ignore
Short-term capital gain: WDV is given the assets consider as short term
Particular Debenture(Rs) Machinery (Rs) Total (Rs)

Sales consideration 55,000 15000 70,000

Less: Selling Expenses Nil Nil Nil
Net sales consideration 55,000 15000 70,000
Less: cost of acquisition (WDV for Machinery) (30000) (25000) (55000)
Short term capital gain 25,000 (10000) 15,000

Problems 21:From the following particulars compute capital gain of Mr. Balaji for AY 2019-20

Assets Date of Purchase FMV as on Date of Sale price Selling

purchase cost 1-4-2001 sale expenses

House property 1-12-2003 75000 1-10-2018 1500000 20000

Personal 1-12-1998 12000 20000 1-11-2018 300000 4500

Jewellery

Debenture 1-12-2013 50000 1-2-2019 200000 1000

Personal car 1-12-2007 30000 1-1-2019 12000

Urban 1-12-1995 40000 40000 1-3-2019 500000 30000

agriculture. Land

He purchased a new agricultural land on 31-3-2018 for Rs 1000000

(CII 2018-19=280, 2013-14=220, 2007-08=129, 2003-04=109, 2001-02=100

27
 Urban
House Personal Listed
Solution 21 agricultural Total
propertyJewellery debenture
Land
Sales 1500000 300000 200000 500000 2500000
Less selling expenses 20000 4500 1000 30000 55500
Net sales consideration 1480000 295500 199000 470000 2444500
Less Indexed cost of acquisition:
House property=75000/109*280 192660 0 0 0 192660
Less Indexed cost of acquisition:
Personal Jewellery=20000/100*280 0 56000 0 0 56000
Less Indexed cost of acquisition:
Urban agricultural
land=40000/100*280 0 0 0 112000 112000
Long term capital gain 1287340 239500 199000 358000 2083840
Less: exemption u/s 54B
(Agricultural Land)
(a)Actual investment Rs 10,00,000
(b) Deposited in CG A/c Rs 0
Total Rs 1000,000 OR
Capital gain 3,58,000 WEL (358000) (358000)
Taxable Long term capital Gain 1287340 239500 199000 Nil 17,25,840

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