Income from Capital gains
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The document outlines the taxation of income from capital gains under the Income Tax Act of 1961, detailing requirements for capital assets, transfer conditions, and various exemptions available. It distinguishes between short-term and long-term capital gains and provides calculations for determining taxable gains. Additionally, it lists transactions that do not constitute a transfer and explains the indexed cost considerations for capital assets.
![INCOME FROM CAPITAL
GAINS
1
By,
MOHAMMED HAROON RASHEED
B.A.LL.B (Hons.), [BSW] & [LLM]
Advocate
Email ID: adv.mdharoon@gmail.com](https://image.slidesharecdn.com/capitalgain-150830174749-lva1-app6892/85/Income-from-Capital-gains-1-320.jpg)
![There must be a Capital Asset
[S.2(14)]
Capital assets is defined to mean propety of any kind, held by the
assesse, whether or not connected with his business or profession.
Property may be tangible or intangible.
4](https://image.slidesharecdn.com/capitalgain-150830174749-lva1-app6892/85/Income-from-Capital-gains-4-320.jpg)
![Capital Assets must be transferred
[S.2(47)]
The sale, exchange or relinquishment of the asset;
The extinguishment of any rights therein;
The compulsory acquisition of any capital assets by the
government;
Conversion of capital assets into stock in trade.
5](https://image.slidesharecdn.com/capitalgain-150830174749-lva1-app6892/85/Income-from-Capital-gains-5-320.jpg)
Income from Capital gains
- 1. INCOME FROM CAPITAL GAINS 1 By, MOHAMMED HAROON RASHEED B.A.LL.B (Hons.), [BSW] & [LLM] Advocate Email ID: [email protected]
- 2. Capital Gain Basis of Charge Profit or gain arising from the transfer of capital assets during previous year is chargeable under the head capital gains if following conditions are fulfilled; Their should be capital Assets. Their should be transfer of capital assets. Transfer should take place in previous year. Their should be profit or gains. Any Income derived from a Capital asset movable or immovable is taxable under the head Capital Gains under Income Tax Act 1961. 2
- 3. Capital Asset u/s. 2(14) "capital asset" means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include following - 1. Any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession; 2. Personal effects, that is to say, movable property (including wearing apparel and furniture) held for personal use by the assessee or any member of his family dependent on him, but excludes— a. jewellery b. archaeological collections c. drawings d. paintings e. sculptures or f. Any work of art. 3. Agriculture land in India provided that it is not situated a) in any area within the territorial jurisdiction of a municipality or a cantonment board, having a population of 10,000 or more ; or b) in any notified area. 3
- 4. There must be a Capital Asset [S.2(14)] Capital assets is defined to mean propety of any kind, held by the assesse, whether or not connected with his business or profession. Property may be tangible or intangible. 4
- 5. Capital Assets must be transferred [S.2(47)] The sale, exchange or relinquishment of the asset; The extinguishment of any rights therein; The compulsory acquisition of any capital assets by the government; Conversion of capital assets into stock in trade. 5
- 6. Transactions which do not constitute transfer (sec 47) 1. Distribution of capital asset on total or partial partition of HUF 2. Transfer of capital asset under a gift or will or an irrevocable trust 3. Transfer of capital asset by a company to its 100 percent subsidiary company. 4. Transfer of capital asset by a company to its 100 percent holding company. 5. Transfer of capital asset in a scheme of amalgamation 6. Transfer of capital asset by a demerged company to the resulting company 6
- 7. Not to be considered as transfer Transfer of any work of art, archaeological, scientific or art collection, book, manuscript, drawing, painting, photograph or print, to Government/University/National museum/National Art Gallery/National Archives or any other notified public institution/museum Conversion of bonds or debentures, debenture-stock or deposit certificates in any form, of a company into shares or debentures of that company. 7
- 8. Types of Capital Assets There are two types of capital assets; Short Term Capital Gains: It means a capital assets held by an assesse for not more than 36 months immediately prior to its date of transfer. Tax is calculated as per Income Tax Act. Long Term Capital Gains : AAsset is not a short term capital gain is long term capital gain. 20 % is taxable. 8
- 9. Computation of STCG Full value of Consideration XXX Less: Cost of acquisition XXX Less: Cost of improvement XXX Short Term Capital Gain XXX Less: Exemption U/S 52(B), 54(D) & 54(G) XXX Net Short Term Capital Gain XXX 9
- 10. Computation of LTCG Full value of Consideration XXX Less: Cost of acquisition XXX Less: Cost of improvement XXX Short Term Capital Gain XXX Less: Exemption U/S 54 – 54(H) XXX Net Short Term Capital Gain XXX 10
- 11. Meaning Full Value Consideration : It means what the transferor or is entitled to receive as consideration for the sale of property/Asset. This Value may be in cash or in kind i.e. in exchange for an asset. Cost of Acquisition : It is the price which the assesse has paid or the amount which the assesse has incurred for acquiring the property/Asset. Cost of Improvement : It is capital expenditure incurred by am assesse in making any addition/Improvements to the capital asset. 11
- 12. Indexed Cost of Acquisition ICOA : Cost of Acquisition*Cost of the year in which asset is transferred. Cost inflation index of the first year in which asset was first hold by the assesse or Cost inflation index of the year beginning on 1st april,1981.(which Every is later) 12
- 13. Indexed cost of Investment ICOI : Cost of Acquisition* Cost Inflation Index of the year in which asset is transferred. Cost inflation index of the year in which improvement took place. 13
- 14. Capital gains exempt from tax 1. Section 54 Capital gains arising from transfer of residential house. 2. Section 54B capital gains arising from the transfer of land used for agriculture purpose. 3. Section 54D Capital gains on compulsory acquisition of land and building forming part of industrial undertaking . 4. Section 54 EC Capital gains not to be charged on investment in certain bonds. 5. Section 54ED Capital gains on transfer of certain listed securities / units not to be charged to tax in certain cases.(up to assessment year 2007-08). 6. Section 54 F Capital gains on transfer of a long term capital asset other than a house property . 7. Section 54G capital gains on transfer of assets in case of shifting of industrial undertaking from urban area. 8. Section 54GA Capital gains on transfer of assets in cases of shifting of industrial undertaking from urban area to any special economic zones . 14
- 15. Sum X Transfers Gold on 10th May, 2011 Rs 3655000. Expenses on Trasfer Rs 55000. Gold purchased on 23rd June, 1982 Rs 3 Lakhs to get benefit u/s 54(F). X Purchases house property on 12th May, 2011 Rs 27 Lakhs at pune. Mr X Transfers pune property on 29th June, 2013 For Rs 30 Lakhs. Find out Capital gain chargeable to tax. Cost of investment for period 1982 is 109 & 2011-12 is 785. 15
- 16. Solution Sales Consideration 3655000.0 Less: Expenses 55000.0 3600000.0 Less: Index Cost Of Acquisition 1982 & 2011-12 is 109 & 785 respectively (300000*785/109) 2160550.0 1439450.0 Less: Exemption U/S 54(F) (2700000/3600000*1439450) 1079587.5 Income Under head Capital Gain 359862.5 16
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