Assignment

On
income tax theory, law and practice

Submitted By;
➢ V. Prabakar
➢ B. Com(G), 3rd year
➢ ATASC
➢ Thirukalukundram
 Income tax theory and law practice

1 . what is capital assets?

A capital asset is defined to include property of any kind held by an assesee, whether
connected with their business or profession or not connected with their business or
profession

2 . what is cost of acquisition?

Total cost of acquisition is a managerial accounting concept that includes all the costs
associated with buying goods, services, or assets

3.what is indexed cost?

Cost Inflation Index. ... Cost Inflation Index is a measure of inflation, used to calculate
longterm capital gains from sale of capital assets. Capital gains is the profit that you make
from selling an asset, which can be real estate, jewellery, stock, etc

4.what is capital gains? Difference between short term and long term capital Gains?
A capital gain refers to profit that results from a sale of a capital asset, such as stock, bond
or real estate, where the sale price exceeds the purchase price. The gain is the difference
between a higher selling price and a lower purchase price.

Long Term Capital Assets vs Short Term Capital Assets:

 Short term capital assets – Any asset owned by an individual (taxpayer) for less than
3 years since the date of transfer/ownership is referred to as a short term capital
asset. This duration should be less than 12 months in case of shares.
 Long term capital assets – Any asset owned by an individual (taxpayer) for more
than 3
 years since the date of transfer to his/her name is treated as a long term capital asset.
This duration is taken as 12 months or more in case of shares.

Short Term and Long Term Capital Gain:

 Capital gain earned by an individual in lieu of transfer of a short term capital asset is
termed as short term capital gain.

 Capital gain earned by an individual in lieu of transfer of a long term capital asset is
termed as long term capital gain.

Time Period:

 Short term capital gains – This refers to gains arising out of sale/transfer of assets
within three years of ownership (in case of gold, property, etc) and 1 year of
ownership in case of shares.

 Long term capital gains – This refers to gains arising out of sale/transfer of assets
after owning them for three years (in case of gold, property, etc) and more than 1
year in case of shares or mutual funds.

5.what are the deduction allowed for computing the capital gain?
Deductions Allowable from Capital Gains:

1. Expenditure incurred wholly and exclusively in connection with transfer of capital

asset
...Section 48(i)
Available to : All assessees

2. Cost of acquisition of capital asset and of any improvement thereto (indexed cost of
acquisition and indexed cost of improvement, in case of long-term capital assets)
...Section 48(ii)

Available to : All assessees

3. Investment of long-term capital gains, arising from sale of residential house* or land
appurtenant thereto, in purchase/construction of one new residential house (Subject
to certain conditions and limits). ...Section 54
* One residential house in India with effect from assessment year 2015-16.

Exemption : Amount invested in one new house or capital gain, whichever is lower.
Available to : Individual and HUF

4. Investment of capital gains, arising from transfer of land used for agricultural
purposes by an individual or his parents or a HUF, in other agricultural land (Subject
to certain conditions and limits). ...Section 54B
Exemption : Amount invested in agricultural land or capital gains, whichever is lower.
Available to : Individual and HUF

5. Capital gains on compulsory acquisition of land or building forming part of an

industrial undertaking invested in purchase/construction of other land/building for
shifting/reestablishing said undertaking or setting up new industrial undertaking
(subject to certain conditions and limits) ...Section 54D

Available to : Any assessee

6. Net consideration on transfer of long-term capital asset made before 1-4-2000

invested in specified bonds, debentures, shares of a public company or units of
notified mutual funds (subject to certain conditions and limits) ...Section 54EA

Available to : Any assessee

7. Long-term capital gains on transfer of any long-term capital asset made be-fore 1-
42000 invested in specified long-term assets (subject to certain conditions and limits)
...Section 54EB
Available to : Any assessee

8. Long-term capital gains invested in long-term specified asset (bond redeemable

after 3 years) (maximum investment in a financial year is ₹ 50 lakhs)* issued by
National Highways Authority of India; or by the Rural Electrification Corporation
Limited (subject to certain conditions and limits) ...Section 54EC

* With effect from assessment year 2015-16 limit of ₹ 50 lakhs applies to total amount
invested during financial year in which original asset is transferred and in subsequent
financial year.

Available to : Any assessee

 9. Long-term capital gains on transfer before 1-4-2006 of certain listed securities or
units invested in equity shares forming part of an eligible issue of capital (subject to
certain conditions and limits) ...Section 54ED

Available to : Any assessee

10. Long-term capital invested in long-term specified assets being units of such fund as
may be notified by Central Government to finance start-ups ...Section 54EE
Available to : Any assessee

11. Investment of long-term capital gains, arising from transfer of any long term asset
other than a residential house property, in one new residential house property,
provided that on the date of transfer the assessee should not own more than one
residential house property (Subject to certain conditions and limits). ...Section 54F
Exemption : Amount invested in one new asset X capital gains/ Net Consideration

Available to : Individual and HUF

12. Capital gain on transfer of machinery, plant, land or building used for the purposes
of the business of an industrial undertaking situate in an urban area (transfer being
effected for shifting the undertaking to a non-urban area) invested in new
machinery, plant, building or land, in the said non-urban area, expenses on shifting,
etc. (subject to certain conditions and limits) ...Section 54G

Available to : Any assessee

13. Capital gains on transfer of assets in cases of shifting of industrial undertaking from
urban area to any Special Economic Zone (subject to certain conditions and limits)
...Section 54GA

Available to : All assessees

14. Investment of long-term capital gains arising from transfer of long-term capital
asset, being a residential property, for subscribing the equity shares of an eligible
company and such company has, within one year from the date of subscription,
utilized this amount for purchase of specified new asset (subject to certain
conditions and limits). ...Section 54GB
6 . explain the type of capital assets?
1. Short term capital asset:

An asset which is held for a period of 36 months or less is a short-term capital asset. The
criteria of 36 months have been reduced to 24 months in the case of Unlisted Shares,
immovable property being land, building, and house property, from FY 2017-18.

However, following assets held for not more than 12 months shall be treated as short-term
capital assets:

• Equity or preference shares in a company which are listed in any recognized stock
exchange in India;

• Other listed securities;

• Units of UTI;
• Units of equity oriented funds; orZero Coupon Bonds.

2. Long term capital asset:

Capital Asset that is held for more than 36 months or 24 months or 12 months, as the case
may be, immediately preceding the date of transfer is treated as long-term capital asset.

7.what is casual income?

Income received from winning lotteries, crosswords, puzzles, card games, horse race,
gambling, betting or any other games is known as casual income. Casual Income is taxed at
a flat rate of 30%. No expenditure is allowed as a deduction from casual income.

8.write short notes on tax free securities?

A tax-exempt security is an investment in which the income produced is free from federal,
state, and/or local taxes. Most tax-exempt securities come in the form of municipal bonds,
which represent obligations of a state, territory or municipality
9.what is grossing up?
To increase a net amount to include deductions, such as taxes, that would be incurred by
the receiver. This term is most frequently used in terms of salary; an employee can receive
their salary grossed up, which means that they would receive the full salary promised to
them, without deductions for tax.

10.what is meant by Dividend?

A dividend is a payment made by a corporation to its shareholders, usually as a distribution
of profits. When a corporation earns a profit or surplus, the corporation is able to re-invest
the profit in the business (called retained earnings) and pay a proportion of the profit as a
dividend to shareholders.

11.what is income from undisclosed sources?

The Act on Personal Income Tax counts income from undisclosed sources as income which
is taxed with a flat income tax, setting the tax rate at 75% of income. This tax rate is the
highest among those foreseen in the Act on Personal Income Tax

12.what is tax free securities?

A tax-exempt security is an investment in which the income produced is free from federal,
state, and/or local taxes. Most tax-exempt securities come in the form of municipal bonds,
which represent obligations of a state, territory or municipality.

13.what are the deduction allowed while computing income from other sources?
As per the provisions of section 57(iii) of IT Act, any expenditure not being in the nature of
capital expenditure laid out or expended wholly and exclusively for the purpose of making or
earning such income under the head 'income from other sources' is allowable

14 . what are the income from other sources including items?

Income from other sources is a residual category used to classify income that is not
classified taxed under any other head of income. Income from other sources must be
calculated by the taxpayer based on the mercantile system used by the taxpayer, i.e cash
basis or accrual basis.
15.what is not included in Dividend?
Examples of dividends that are not "qualified dividends" include capital gain distributions
(such as a distribution when a company sells property), dividends from a tax-exempt
organization, dividends paid on bank and credit union deposits, and certain pass-through
dividends.