UCM15602 INCOME TAX LAW AND PRACTICE – II

UNIT - I
Income under capitals gains – short term, long term capital gains – Transfer of capital assets – Certain
transactions not included as transfer – Cost of acquisition – Cost of improvement – Indexation of cost – Capital
gains under different circumstances – Exempted capital gains – Computation of capital gains.
UNIT - II
Income from other sources – As a residuary head of in – Their computation – Grossing up – Deduction in
computing income under this head and other related provisions.
UNIT - III
Clubbing of income – Transfer of Income without the transfer asset – Circumstances under which the individual
is assessable respect of remuneration of spouse – Assessability of Income from assets transferred to spouse,
sons, wife, another person’s for the benefit of spouse – Assessability in respect of income of minor child – Set
off – Carry forward and Set off.
UNIT - IV
Permissible deductions from gross total income – Sec 80 C to 80 U.
UNIT - V
Assessment of Individuals – Partnership firms and association of persons.
 Unit I: INCOME UNDER THE HEAD ‘CAPITAL GAIN’ [SEC 45 TO 55]
Basis of Charge – Section 45(1)
Any profits or gains arising from the transfer of a capital asset effected in the previous year, shall be
chargeable to income‐tax under the head ‘Capital Gains’
It shall be deemed to be the income of the previous year in which the transfer took place unless such
gain is exempt u/s 54, 54B, 54D, 54EC, 54F, 54G, 54GA.
Definition of Capital Asset – Section 2(14)
It means property of any kind held by the assessee, whether or not connected with his business or
profession, but does not include:
1) Stock in trade
2) Personal effects i.e. movable property (including wearing apparel and furniture), held for personal use by the
assessee or any member of his family dependant on him. However, following assets are treated as capital
assets:
i. Jewellery, It includes ornaments made of gold, silver or platinum or any other precious
metal, precious or semi‐precious stones
ii. Archaeological collections
iii. Drawings
iv. Paintings
v. Sculptures or
vi. Any work of art
3) Agricultural land in India which is not situated in Urban area i.e. rural agricultural land
Rural agricultural land means an agricultural land in India
• if situated in any area which is comprised within the jurisdiction of a municipality and its
population should be less than 10000 or
• Situated at least 8 km away from the limits of municipality.
4) Gold Deposits Bonds issued under Gold Deposit Scheme, 1999
Transfer of Capital Assets ‐Section2 (47)
Transfer in relation to capital asset includes:
i. Sale, exchange or relinquishment of the asset
ii. Extinguishment of any rights therein
iii. Compulsory acquisition thereof under any law
iv. In a case where the asset is converted by the owner thereof into stock in trade, such conversion
TYPES OF CAPITAL ASSETS AND CAPITAL GAINS
i. Short Term Capital Asset‐ Sec 2(42A)
ii. Long Term Capital Asset‐ Sec 2(29A)
i. Short Term Capital Asset‐ Sec 2(42A)
A non-financial Capital Asset held by an assessee for not more than 36 months immediately preceding
the date of transfer is a short-term capital assets.
Immovable property being land and building or both held for not more than 24 months is short term.
Any financial assets held by an assessee for not more than 12 months immediately preceding the date of
transfer is a short-term capital assets.
Unlisted shares of a company held for a period of 24 months or less.
Note: Financial assets includes
a) Listed Equity or preference shares held in a company
b) Any other security listed in a recognized stock exchange in India
c) Units of UTI or Mutual Fund
d) Unlisted shares of a company: (Unlisted shares of a company held for a period of 24 months or less
is short term capital assets)
e) Zero Coupon Bonds
Zero coupon bonds means notified bond issued by any infrastructure capital company or public
sector company or schedule bank in respect of which no benefit is receivable before maturity.
ii. Long Term Capital Asset‐ Sec 2(29A)
A non-financial Capital Asset held by an assessee for more than 36 months immediately preceding the
date of transfer is a long-term capital assets.
Immovable property being land and building or both held for more than 24 months is long term.
Any financial assets held by an assessee for more than 12 months immediately preceding the date of
transfer is a long-term capital assets.
Unlisted shares of a company held for more than 24 months
Long Term Capital Gain‐ Sec 2(29B)
Gain arising on the transfer of Long term Capital Assets is Long Term Capital Gain
Short Term Capital Gain‐ Sec 2(42B)
Gain arising on the transfer of Short term Capital Assets is Short Term Capital Gain
 FORMAT FOR INCOME FROM CAPITAL GAINS (P.Y. 2018 – 2019)

Calculation of Short Term Capital Gains (STCG):

Sale consideration xxx

(-) Expenses incidental to transfer xxx

Net sale consideration xxx
(-) Cost of acquisition xxx
(-) Cost of improvement xxx xxx
Short Term Capital Gains xxx
(-) Exemptions u/s 54B, 54D, 54G and 54GA xxx
Net Short Term Capital Gains xxx

Calculation on Long Term Capital Gains (LTCG):

Sale consideration xxx
(-) Expenses incidental to transfer xxx
Net sale consideration xxx
(-) Indexed cost of acquisition (ICOA) xxx
(-) Indexed cost of improvement (ICOI) xxx xxx
Long Term Capital Gains xxx
(-) Exemptions u/s 54, 54B, 54D, 54EC, 54F, 54G and 54GA xxx
Net Long Term Capital Gains xxx

Indexed COA means:

Indexed COI means

1. Mr. Ashok had bought a residential house on 01.01.18 for ` 10,00,000 further he spent ` 1,00,000 to
repair the house on 10.10.18. He sold the property on 01.02.2019 for ` 15,00,000. He paid a brokerage
of ` 15,000. Compute the capital gain for the P.Y 2018-2019.
2. Mrs. Rajamani furnishes the following particulars:
Shares in ‘A’ Ltd (unlisted)
Date of purchase 1.2.18
Date of sale 5.10.18
Cost of purchase ` 25,000
Expenses on purchase ` 500
Sale value ` 50,000
Expenses on sales ` 1,000
Compute Capital Gain.
(STCG: 23,500)
3. Compute the capital gain on sale of the following assets for the assessment year 2019-20.
Particulars Unlisted shares of S Ltd shares of S Ltd (listed) Debentures Units of mutual fund (EQ)
Date of purchase 1.4.17 1.8.18 5.6.18 12.7.18
Cost of purchase 80,000 60,000 90,000 40,000
Expenses on purchase 2,000 3,000 200 500
Date of sale 1.2.19 4.3.19 10.119 28.2.19
Sales value 4,00,000 50,000 4,00,000 80,000
Expenses on sale 4,000 3,000 100 2,000

(STCG: 1. 3,14,000; 2. -16,000; 3. 3,09,700; 4. 37,500)

4. Determine the capital gains in each of the following situations separately.
a) Machine A purchased on 1-10.2012 at a cost of ` 5,00,000 written down value on 1.4.2018
` 50,000 and sold on 1.8.2018 for ` 3,00,000.
b) Furniture purchased on 1.10.2014 for ` 7,00,000 written down value on 1.4.2018 ` 5,00,000 and
sold on 1.9.2018 for ` 4,00,000.
c) There are four machines in a Block of 15% rate of depreciation. They were all purchased in
2015-16. The details are as follows.
W.D.V on 1.4.2018
Machine A 4,21,875
Machine B 10,54,687
Machine C 4,21,875
Machine D 2,10,937
What will be the capital gains in the following cases separately?
1. If Machine A is sold for ` 30,00,000
2. If Machine B alone is sold for ` 15,00,000
3. If all four machines are sold for ` 28,00,000
4. If all four machines are sold for ` 10,00,000
(STCG a. 2,50,000; b. – 1,00,000; c. 8,90,626, 5,17,968, 6,90,626, 11,09,374)
5. Mr. Paneerselvam owned tow motor cars which were mainly used for business purposes. The written
down value on 1.4.2018 of these cars is ` 1,81,000. The block of assets comprising of only these two
cars, was sold in June 2018 for ` 1,50,000. In September 2018, he sold 1,000 shares in X Ltd. (unlisted)
an Indian company, for ` 30,00,000. He had purchased the same during March, 2005 for ` 3,10,000. A
 house plot purchased in March, 2011 for ` 3,00,000 was sold by him for ` 9,35,000 on January 18,
2019. (CII 2010-11: 167, 04-05: 113, 18-19: 280)
(STCG: -31,000; LTCG 26,63,864)
6. Mr. X purchases a house property for ` 26,000 on 10th MAY 1962. He gets the first floor of the house
constructed in 1967-68 by spending ` 40,000. He dies on 12th September 2003. The property is
transferred to Mrs. X by his will. Mrs. X spends ` 80,000 and ` 26,700 during 2006-07 and 2008-09
respectively for reconstruction of the property. Mrs. X sells the house property for ` 95,00,000 on 15th
March 2019 (brokerage paid by Mrs. X is ` 41,500). The fair market value of house on 1st April 2001 is
` 4,60,000. CII For 2006-07 ` 122 for 2008-09 is 137 for 2018-19 ` 280 for 2001-02 ` 100 for 2003-04
is ` 109.
(LTCG 26,32,864)
7. X and Y transfer the following assets to a partnership as their share of capital during 2018-19.
Particulars X Y
Land acquired on 1-7-79:
Value recorded in books 8,00,000 -
Cost of acquisition 70,000 -
Fair market value on 1/4/01 60,000 -
Land acquired on 1-7-80:
Value recorded in books - 50,00,000
Cost of acquisition - 50,000
Fair market value on 1/4/01 - 1,00,000
Gold acquired on 31-3-2018 (cost) 3,00,000 4,00,000
Value recorded in books 5,00,000 6,00,000
Fair market value on 31/3/19 3,10,000 3,50,000
Compute the capital gains accruing to X & Y during 2018-19.
(47,20,000; 2,00,000)
8. Sri. Varadhan sells a residential house property in Madurai for ` 90,00,000 on May 20, 2018 which was
purchased by him on April 2501965 for ` 50,000. The fair market value on April 1 2001 was `
2,00,000. He purchases a new residential house property for ` 10,00,000 on 28 March 2019 house is not
fully constructed and deposited ` 5,00,000 on July 31 2019 (being the last date for furnishing return of
income for the assessment year 2019-2020) in a bank account specified for the purpose of section 54.
Assuming that Sri. Varadhan withdrawn from the deposit account and completes the
construction of a house property on Jan 2020, for ` 4,00,000; withdrew the unutilized amount in the
deposit account after May 20, 2021, compute the amount of capital gains chargeable to tax. (CII for 01-
02 is 100, 18-19 is 280.)
 9. Mr. Jayaprakash sells agricultural land located within the municipal limits of Chennai city for `
50,00,000 on August 4, 2018, which was purchased by him on Feb 2 2009 for ` 3,00,000. On June 2
2019, he purchased agricultural land outside the municipal limits of Chennai city for ` 5,00,000 and
deposit ` 5,00,000 in deposit account for availing deduction under section 54B. Determine the amount
of capital gain. (1) if the purchase another agricultural land which is situated within Chennai city on
August 3 2019 for ` 4,00,000 by withdrawing from the deposit account; (2) Withdraws the amount left
in the deposit account on August 5 2020; (3) Transfers the land in Chennai city purchased on 3.08.2019
in December 2021 for ` 20,00,000, CII for 2008-09=137 ; 2018-19=280.
10. A HUF sells a property on December 5 2018 for ` 18,00,000, (cost of acquisition on Feb 10 2012 `
1,00,000). Expenses on purchase and transfer are ` 1,000 and 10,000 respectively. On March 25 2019
the HUF acquired bound issued by the Rural Electrification Corporation Ltd. For ` 8,00,000 and also
acquired bonds issued by National Highway Authority of India for ` 7,00,000 on July 20 2019. Find out
the amount of capital gain chargeable to tax assessment year 2019-20.CII for 2011-12=184 ; 2018-
19=280.
11. Mr. R sold Urban Land for ` 5,00,000 on 1-10-2018 which had been acquired by him in Oct 2004, for `
50,000. He wants to utilise the said amount of sale consideration for purchase or construction of new
residential house. He has deposited ` 3,00,000 under the capital gains deposit A/c scheme with specified
bank on 30-4-2019. Ascertain the capital gains taxable in R’s hands for the A.Y 2019-20 and advise him
as to what further action he has to take to avail of the exemption? He had received ` 75,000 as advance
to sell the property during 2017-18 since the proposed buyer did not buy the property Mr. R forfeited the
advance.
12. From the following particulars compute the total income of Shri. Manoj for A.Y 2019-20.
S.NO PARTICULARS `
1 Sale price of jewelry in Oct 2018 (CII- 280) 75,00,000
2 Cost of acquisition in 2005-06 (CII-117) 3,00,000
Amount deposited in capital gain deposit scheme for
completing the construction of the house (Deposited on 27-
3 06-19 12,00,000

Compute deemed capital gain if he is able to invest ` 10,00,000 out of amount deposited in capital gain
deposit scheme before October 2021.