S P Desai Chartered Accountants

Capital Gains
Gains arising on transfer of capital asset is capital gain, which can be either short
term or long term, as follows:-

1.) Gain arising on transfer of Long-term capital asset is Long Term Capital
Gain.
Notes :-
a.) In case of financial asset such as shares, debentures, mutual funds etc,
if the period of holding of such asset is one year or more, the same shall be
treated as long term capital asset.

b.) In case of capital asset being other than financial asset as discussed
above, if the period of holding is 3 years or more, the same shall be treated
as long term capital asset.

c.) Period of holding means, the period between the date of acquisition of
asset and ending with the date of transfer of asset.

d.) Gains arising on, transfer of short term capital asset is short term capital
gain.

e.) Short Term Capital asset means, other than long term capital asset.

2.) In case of long term capital asset, the indexation benefit is available in case
of cost of acquisition as well as cost of improvement.
However, no such benefit is available in case of short term capital gain.

3.) In case of Long term capital gain, such gains are taxable at special rates as
follows:-
a) Shares or securities which are transferred on recognized stock
exchange, where security transaction tax is paid on such transfer, such
long term capital gain is exempt from tax.

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b) In case of long term capital asset being other than as discussed above,
the special rate of tax shall be 20% irrespective of the rate of tax being
applicable for such assessee.
c) In case of short term capital gain, such gains are taxable at general rate
of tax as being applicable to such assessee except in case of short term
capital asset being shares or securities transferred on recognized stock
exchange, security transaction tax being paid on such transfer, the
special rate of tax being applicable is flat 15%, irrespective of the tax
being applicable.
4.) Computation of Long term capital gain is as follows:-

Rs. Rs.
Sales Consideration(Gross) XXX
Less:- 1.) Expenses on transfer XX
2.) Index Cost of acquisition XX
3.) Index Cost of improvement XX____ (XX)
Gross Capital Gain XXX
Less :- Deductions under Sec 54 (XX)
Taxable Long term capital Gain XXX

In case of short term capital gain, the above procedure shall be adopted
except no indexation benefit is available.

Notes:-
1.) Expenses on transfer means expenses incurred on transfer of legal title
in favor of the transferee such as brokerage, stamp duty, registration
charges etc on transfer.
2.) Cost of Acquisition means in case the capital asset being acquired by the
assessee after 1.4.1981, cost being paid for acquiring such asset.
3.) In case capital asset being acquired before 1.4.1981, cost of acquisition
shall be market value of such asset as on 1.4.1981.
4.) In case as capital asset being acquired under the modes such as gift, will,
inheritance etc. where the assessee has not paid any cost for acquiring

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such assets, and such assets is being transferred, cost of acquisition in

case of such assessee shall be cost as paid by the earliest owner who
had acquired such asset and in case if it is acquired prior to 1.4.1981, the
market value as on 1.4.1981.
5.) Cost of improvement means, capital cost incurred for improving such
capital asset such as in case of land the cost being paid for construction
of respective floors at the time of construction of building.

Cost of Improvement effected prior to 1.4.1981, should be ignored for

deduction.

6.) Indexed Cost of acquisition = Cost of Acquisition X CII of year of transfer

CII of year of acquisition

CII means Cost Inflation Index.

1.) Indexed Cost of improvement = Cost of Impt X CII of year of transfer

CII of year of improvement

CII means Cost Inflation Index.