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CAPITAL GAINS |
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Preconditions for charge u/s. 45
Income under the head “Capital Gains” can be charged only if the following three conditions are satisfied:
There must be a “capital asset” [for definition of “capital asset” refer S. 2(14)];
There must be a “transfer” of such capital asset [for meaning of “transfer”, refer Ss. 2(47), 47 & 46(1)]; and
There must arise either profits or gains or loss out of such transfer.
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Year of Chargeability
Capital Gains are generally charged to tax in the year in which “transfer” takes place (For exception to this general rule, refer column (4) of Table 3)
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Mode of Computation
3.1 Income under the head capital gains is to be computed as follows:
a)
In respect of capital assets other than depreciable assets
:
as per S. 48
b)
In respect of depreciable assets other than mentioned in c
:
as per S. 50
c)
in respect of depreciable assets of an undertaking engaged in generation or generation & distribution of power
:
as per S. 50A
d)
In respect of slump sale
:
as per S. 50B
3.2 Capital gains u/s. 48 are computed as follows:
a)
Full value of consideration received or accruing as a result of the transfer of capital asset
[also refer column 5 of Table 3]:
a
b)
Less: Expenditure incurred wholly & exclusively in
connection with transfer [Expenditure by way of Securities Transaction Tax is not allowable.]:
b
c)
Less: Cost of acquisition & cost of improvement
(refer tree diagram below):
c
Income/Loss chargeable u/s. 45 r.w.s. 48
:
(a-b-c)
Exceptions to S. 48:
In case of a non-resident, Capital Gain on transfer of shares in or debentures of an Indian co. are to be computed firstly by converting cost of acquisition, full value of consideration and expenses incurred in connection with transfer into originally utilised foreign currency and reconverting the capital gains so computed into Indian rupees.
The benefit of indexation of cost will not be available for computation of Capital Gains on transfer of Bonds/Deb.
In case of long-term capital gains (other than those covered under (a) & (b) above) cost of acquisition and cost of improvement are required to be indexed at prescribed indices (refer Table 2):
3.3 Capital gains u/s. 50 are computed as follows:
a)
Opening W.D.V. of the Block of Assets
:
‘a’
b)
Less : Full value of consideration received or accruing as a result of transfer or transfers of asset falling within the concerned block of assets during the relevant previous year
:
‘b’
c)
Add : Expenditure incurred wholly and exclusively in connection with such transfer or transfers This deduction would not be available in a case where the entire block ceases to exist as such, for the reason that all the assets in that block are transferred during the year.
:
‘c’
d)
Add : Actual cost of any asset falling within the concerned block of assets acquired during the relevant previous year.
:
‘d’
Resultant figure
[a+d – (b-c)]
If the resultant figure is negative, the same is chargeable as deemed short-term capital gains u/s. 50.
If the resultant figure is positive and the entire block ceases to exist as such (for the reason that all the assets in that block are transferred during the year) the resultant figure indicates deemed short-term capital loss (refer CBDT Circular No. 469 dated 23-9-1986 — reported in 162 ITR (Stat) 21, 30).If the resultant figure is positive and the block continues to exist (For the reason that at least one asset in the block continues to be owned by the assessee) then there will be gains or loss and the assessee will be entitled to claim depreciation on the resultant figure.
3.4 Capital Gains u/s. 50B
Profit arising on slump sale of one or more undertakings would be chargeable to tax as Long-Term Capital Gain in the year of transfer if such undertakings have been owned and held by the assessee for at least 36 months before the date of transfer or as Short-Term Capital Gain if held for a shorter period.
The Networth (as defined) of the undertakings would be regarded as the cost of acquisition and improvement. No indexation would be allowed in respect of such cost.
3.5 In case the capital asset is a long-term capital asset, the cost of acquisition is to be increased by cost inflation index. The prescribed cost inflation index is given in column (2) of Table 2 below. Column (4) gives the multiplying factor in case of capital asset sold in financial year 2008-2009.
For example, if cost of acquisition of an asset acquired in F.Y. 1994-95 is Rs. 50,000, its indexed cost of acquisition in F.Y. 2008-2009 would be Rs. 1,12,355/- (i.e., 50,000 x 2.2471)
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Exempt Capital Gains
Refer section 10(38) - (click here), sections 54 to 54G and section 115F - (click here)
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Rate of Tax on Capital Gains
Refer “Rates of Tax” (click here)
S.No.
Capital Asset
Minimum Holding Period for
"Long-Term"1
Shares in a Company
12 months
2
Any other listed security
12 months
3
Units of Unit Trust of India
12 months
4
Units of a Mutual Fund specified u/s. 10(23D)
12 months
5
Any other Capital Asset
36 months
Financial year
Cost Inflation Index
as notifiedMultiplying factor for transfers during
F.Y. 2008-091981-82 100 5.82 1982-83 109 5.3394 1983-84 116 5.0172 1984-85 125 4.656 1985-86 133 4.3759 1986-87 140 4.1571 1987-88 150 3.8800 1988-89 161 3.6149 1989-90 172 3.3837 1990-91 182 3.1978 1991-92 199 2.9246 1992-93 223 2.6099 1993-94 244 2.3852 1994-95 259 2.2471 1995-96 281 2.0712 1996-97 305 1.9082 1997-98 331 1.7583 1998-99 351 1.6581 1999-00 389 1.4961 2000-01 406 1.4335 2001-02 426 1.3662 2002-03 447 1.302 2003-04 463 1.257 2004-05 480 1.2125 2005-06 497 1.171 2006-07 519 1.1214 2007-08 551 1.0563 2008-09 582 1,0000 2009-10 632* * * Please rework the multiplying factor for f.y. 2009-10 accordingly.
Capital Gains on Specific Transfers
Section
Particulars of transfer
Capital Gains assessable in the hands of
Year in which chargeable
Amount deemed to be the full value of consideration for the
purpose of S. 4845(1A)
Moneys/other assets received from insurance
co. towards damage/destruction of Capital Asset (C.A.).The person receiving the money/assets
Year in which moneys/other asset is received from insurance co.
Value of moneys/FMV of assets received from insurance co.
45(2)
Conversion of C.A. into stock-in-trade.
The owner of such asset
Year in which sale or transfer of stock-in-trade takes place
FMV of the asset on date of conversion.
45(2A)
Transfer of Securities made by depository.
The beneficial owner of the securities
Year in which such securities are transferred
Amount of consideration received.
45(3)
Transfer of C.A. by a person to firm/AOP/BOI as his
Capital Contribution or otherwise.The partner or the member so transferring
Year in which asset is so transferred
The amount recorded in the books of the firm.
45(4)
Transfer of C.A. by way of distribution thereof on
dissolution of firm/AOP/BOI or otherwise.The firm/ AOP/BOI
Year of distribution
FMV on the date of distribution.
45(5)
Transfer of C.A. by compulsory acquisition under any
law OR transfer where consideration determined/
approved by Central Govt./RBI.
(a) Initial compensation
The transferor
Year in which initial compensation is first received
Amount of initial compensation as
reduced by order of any Court/Tribunal/ other authority.
(b) Enhanced compensation
The transferor
Year in which enhanced compensation is first received
Enhanced amount (cost of acquisi-tion and improvement are deemed
to be NIL) as reduced by order of any Court/Tribunal or other authority.45(6)
Transfer of units referred to in S. 80CCB(2)
by way of repurchase.The transferor
Year in which repurchase takes place
The repurchase price.
46(2)
Distribution of assets of a Co. to its shareholders on
its liquidation.The shareholder
Year in which the shareholder receives any money or other assets
Moneys received from the Co. + Market value of other assets on the date of distribution less amount
assessed as deemed dividend u/s. 2(22)(c).46A
Purchase by a company of its own shares/specified
securities.The shareholder or the holder of the specified securities
Year in which such shares or other specified securities purchased by the company
Amount received from the company.
47(iii)
Shares, debentures, warrants allotted to employees under
employees stock option plan or scheme framed in
accordance with guidelines issued by the Central
Government transferred under a gift or an
irrevocable trust.The employee
Year in which shares, debentures, warrants are transferred under a gift or an irrevocable trust to the employee
FMV on the date of its transfer.
50B
Slump sale of Capital assets or business undertaking.
The Transferor
Year in which slump sale takes place
The value received/receivable as the sale.
50C
Transfer of land or building.
The Transferor
Year in which asset is transferred
Higher of sale consideration — or value adopted or assessed or assessable by State Government for the purpose of stamp duty.
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