INCOME UNDER THE HEAD CAPITAL GAINS

WHERE DO WE FIT IN?

For purpose of computation of Total Income,
Income shall be classified under 5 heads:
1. Income under head Salaries (Sec 15 to Sec
17)
2. Income under head House Property ( Sec 22
to sec 27)
3. Income under head Profits & Gains of
Business or Profession (Sec 28 to Sec 44D)
4. Income under head Capital Gains (Sec 45 to
Sec 55A)
5. Income under head Other Sources (Sec 56 to
Sec 59)
 Charging Section – Section 45(1)

Any profits or gains arising from the

transfer of a capital asset effected in the
previous year shall be deemed to be the
income of the previous year in which the
transfer took place.
It is taxable in the hands of Transferor
 QUICK REVISION OF PREVIOUS YEAR &
ASSESSMENT YEAR

Section 2(9) : Assessment Year

Assessment Year means the period of 12 months
commencing on the first day of April every year. It
is, therefore, the period from 1st April every year to
31st of March of next year.

Section 2 (34) : Previous Year

Previous year is defined under Sec 3, i.e.

Previous year means the financial year
immediately preceding the assessment year.

Can Previous Year be less than 12 months?

BREAK UP OF DEFINITION OF CAPITAL
GAIN

Any profits or gains arising from the

transfer of a capital asset effected in the
previous year shall be deemed to be the
income of the previous year in which the
transfer took place.

Questions:

Whether only Profits or Gains?

What is Transfer?
When is Transfer?
What is Capital Asset?
DEFINITION OF CAPITAL ASSET Sec. 2(14)

Capital asset means property/asset of any

kind
(Whether Movable/Immovable ,
Whether Personal/ Business
Whether tangible/intangible)
EXCEPT the following-
1. Any stock-in-trade (Finished goods, WIP, Raw
material & consumables)
However, securities held by Foreign
Institutional Investors( FIIs) if invested
according to SEBI guidelines, are capital
assets …..Section 2(14)(b)

2. Personal Effects

Movable property (including wearing

apparel & furniture)
for personal use of
assessee or for dependent family member.

Personal effects excludes the following

a. Jewellery
 ( Ellaboration:
Ornaments of Gold, Silver, Platinum or
Other precious Metal (With or without
precious/semi-precious stones
- whether or not worked into wearing
apparel Precious or Semi-precious stones)
Whether or not set in furniture, utensil or
other article and whether or not worked
into wearing apparel

b. Archaeological collections
c. Drawings
d. Paintings
e. Sculptures
f. Any work of art

3. Agricultural Land in India situated in RURAL

AREA (Rural Agricultural Land)
4. 6½ per cent Gold Bonds, 1977, or 7 per cent
Gold Bonds, 1980, or National Defence Gold
Bonds, 1980, issued by the Central
Government;
5. Special Bearer Bonds, 1991, issued by the
Central Government ;
6. Gold Deposit Bonds issued under the Gold
Deposit Scheme, 1999  [or deposit certificates
issued under the Gold Monetisation Scheme,
2015] notified by the Central Government.
 Sec 2(1A) : URBAN AREA

(a) Any area within the Jurisdiction of a

municipality /Municipal
corporation/cantonment board
and
which has a population of atleast 10,000 OR
(b) Any area within the distance, measured
aerially,
(I) Upto 2 kms from local limits of above
jurisdiction having population > 10,000 but
upto 1,00,000 or
(II) Upto 6 kms from local limits of above
jurisdiction having population > 1,00,000
but upto 10,00,000 or
(III) Upto 8 kms, from the local limits of
above jurisdiction having population of >
10,00,000.
"Population" means the population according to
the last preceding census of which the relevant
figures have been published before the first day of
the previous year.

Urban land, whether agricultural land or not, is

always a capital asset

Area Shortest aerial distance Population according to the Is the land

from the local limits of last preceding census of situated in
a municipality or which the relevant figures this area a
cantonment board have been published before capital asset?
the first day of the previous
year
i. A 1 kms 8,000 NO
ii. B 1.5 kms 14,000 Yes
iii. C 2 kms 12,00,000 Yes
iv. D 3 kms 80,000 No
v. E 4 kms 4,00,000 Yes
vi. F 5 kms 12,00,000 Yes
vii. G 6 kms 8,000 No
viii. H 7 kms 4,00,000 No
ix. I 8 kms 10,50,000 Yes
x. J 9 kms 15,00,000 No
 Area Shortest aerial distance Population according to the Is the land
from the local limits of a last preceding census of situated in
municipality or which the relevant figures this area a
cantonment board have been published before capital asset?
the first day of the previous
year
i. A 1 kms 8,000 NO
ii. B 1.5 kms 14,000 Yes
iii. C 2 kms 12,00,000 Yes
iv. D 3 kms 80,000 No
v. E 4 kms 4,00,000 Yes
vi. F 5 kms 12,00,000 Yes
vii. G 6 kms 8,000 No
viii. H 7 kms 4,00,000 No
ix. I 8 kms 10,50,000 Yes
x. J 9 kms 15,00,000 No

Decide whether Capital Gain would occur if Mr.

Sumit Sells land in the following manner:

Case 1:

Agricultural land situated in Rural Area

Case 2:

Agricultural land situated in Chennai

Case 3:
Agricultural land situated at 6 km from Delhi, but
has been declared as Urban Area by Government.

Case 4:

Non- Agricultural Land situated at 8 kms from

Surat

Case 5:

Non- Agricultural Land situated at 8 kms from

Nashik
Case 6:

Agricultural land 8 km away from Delhi but 2 km

away from Gaziabad and population as per last
census is
 WHETHER THE FOLLOWING CAN BE
TERMED AS CAPITAL ASSETS
1. House

2. Land

3. Personal computer

4. Jewellery
5. Diamonds
6. Equity shares
7. Goodwill of a business
8. Urban Agricultural land
9. Debentures of X Ltd.
10. Gold for a Jeweller
 11. Machine used in a cloth business
12. Personal music system
13. Mutual fund units
14 Silver Utensils
15 Siver Bars & Silver Coins

Commissioner Of Income-Tax vs Benarashilal

Kataruka (Calcutta High Court, 23 December,
1988)
H. H. MAHARAJ RANA HEMANT SINGHJI,
DHOLPUR Vs.
COMMISSlONER OF INCOME-TAX,
RAJASTHAN
17/02/1976

Where the assessee was in possession of a

large number of gold sovereigns, silver
rupee coins and silver bars, which were used
at the time of the puja of deities on special
religious festivals or rituals, they could not
be deemed to be 'effects' meant for
Personal use. They are capital assets and
not personal effects and so, when sold,
could not be excluded while computing the
capital gains liable to capital gains tax under
s. 12B, Income Tax Act,
1922.

SHORT TERM & LONG TERM CAPITAL

GAINS

SHORT TERM CAPITAL ASSET-

Exceptions:
  In the following cases the
period of holding will be 1
year for determination of
whether LTCG or STCG
(If period of holding is equal
to 1 year or less, then STCG,
otherwise LTCG)
a) Listed securities
(Shares Debentures or
other securities listed
on RSE)
b) Equity oriented
units of a Mutual
Fund
c) Units of UTI
d) Zero Coupon Bonds
 In the following cases the
period of holding will be 2
years for determination of
whether LTCG or STCG-
(If period of holding is
equal to 2 years or less,
then STCG, otherwise
LTCG)
a) Unlisted shares
(Equity or Preference)
b) Land or Building or
Both

1. Short Term Capital Gain (STCG): It arises

on transfer of Short Term Capital Assets. Sec
2(42A).
2. Long Term Capital Gain (LTCG) : It arises
on transfer of Long Term Capital Assets. Sec
2(29A).

Some Definitions:

PERIOD OF HOLDING = Date of Acquisition to

One day before the day of TRANSFER
Securities (SECURITIES CONTRACTS (REGULATION)
ACT, 1956)

“securities” include—
(i) shares, scrips, stocks, bonds, debentures,
debenture stock or other marketable securities
of a like nature in or of any incorporated
company or other body corporate;
The mutual fund industry in India started in 1963 with the formation of Unit Trust of
India, at the initiative of the Government of India and Reserve Bank of India. The history
of mutual funds in India can be broadly divided into four distinct phases

First Phase - 1964-1987

Unit Trust of India (UTI) was established in 1963 by an Act of Parliament. It was set up
by the Reserve Bank of India and functioned under the Regulatory and administrative
control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the
Industrial Development Bank of India (IDBI) took over the regulatory and administrative
control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At
the end of 1988 UTI had Rs. 6,700 crores of assets under management.

Second Phase - 1987-1993 (Entry of Public Sector Funds)

1987 marked the entry of non-UTI, public sector mutual funds set up by public sector
banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation
of India (GIC). SBI Mutual Fund was the first non-UTI Mutual Fund established in June
1987 followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund
(Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda
Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set
up its mutual fund in December 1990.
At the end of 1993, the mutual fund industry had assets under management of Rs.
47,004 crores.

Z ero coupon bond Section 2(48)

“Zero coupon bond” means a bond—
(a) issued by notified company.
(b) in respect of which no benefit is
received before maturity or redemption.
which the Central Government may, by
notification in the Official Gazette, specify in
this behalf.

The coupon of a bond (a loan) is the interest

that the bond pays.
Zero coupon thus means no interest is paid.

To compensate the investor for not paying

interest, these bonds are generally issued below
100%.

If an investor buys such a bond for example at

90% and the loan is paid back (at 100%), this
difference is the profit the investor makes and
thus the compensation for not getting any
interest.
 SUMMARY
ASSETS SHORT TERM LONG TERM
Listed share – Equity or Holding period upto 1 year Holding period more than 1
Preference year
Unlisted share – Equity or Holding period upto 2 years Holding period more than 2
Preference year
Listed debentures Holding period upto 1 year Holding period more than 1
year
Unlisted debentures Holding period upto 3 year Holding period more than 3
year
Equity oriented mutual Holding period upto 1 year Holding period more than 1
fund units year
Debt oriented mutual fund Holding period upto 3 year Holding period more than 3
units year
Land or Building or Both Holding period upto 2 years Holding period more than 2
year

S.No. Asset Holding Period Whether Whether Short

capital term or Long
assets term
(Yes or No) (ST or LT)
1. House 2.5 years Yes LT
2. Land 1.2 years Yes ST
3. Personal computer 2 years No -
4. Jewellery 2.9 years Yes ST
5. Diamonds 3.1 years Yes LT
6. Equity shares 10 months Yes ST
7. Debentures of X (Pvt.) 2.8 years Yes LT
Ltd.
8. Urban Agricultural 2 years Yes ST
land
9. Equity oriented 1.6 years Yes LT
Mutual fund units
10. Gold for a Jeweller 8 months No -

Whether period of holding is counted in

days?

No holding period is counted in Calendar Months.

Alkaben B. Patel vs The Income Tax Officer, Ward 14(2), Ahmedabad. (ITA
No.1973/Ahd/2012) dtd 25/03/2014
Revenue’s line of reasoning is that in these cases,
‘a month’ is understood as per the ordinary
sense i.e. the month is a period from a specified
date in a month to the date numerically
corresponding date in the following month.

So the logical conclusion is that in the absence of

any definition of the word ‘ month’ in The Act,
the definition of General Clauses Act 1897 shall
be applicable, which is British Calendar Month.
Basic Concept of Profit

Selling Price xxx

Less: Cost Price xxx
Profit xxx

Computation of Capital Gains Section 48

Computation of Short term capital gains

Full Value of Consideration xxx

Less:
- Cost of Acquisition xxx
- Cost of Improvement xxx
- Selling Expenses/ Expenses on transfer xxx
Short Term Capital Gain xxx
Computation of Long term capital gains
( 2nd Proviso to Section 48)

Full Value of Consideration xxx

Less:
- Indexed Cost of Acquisition xxx
- Indexed Cost of Improvement xxx
- Selling Expenses/ Expenses on transfer xxx
Short Term Capital Gain xxx

Cost Inflation Index (CII)

Cost Inflation Index is notified by Central Board of Direct Taxes (under Income Tax Department)
for a particular year after taking into account the inflation for previous year.
Cost Inflation Index was started in 1981-82 (benchmark year) for which value is assigned as 100.
Cost Inflation Index (CII) or Capital Gain Index is calculated by taking into account 75% of
average increase in Consumer Price Index (CPI) for urban non-manual employees for the
immediately preceding previous year.
CPI is carefully calculated by taking a weighted average of the prices of a mix of goods and
services. Hence we have CPI Urban, CPI Rural and CPI combined. Obviously the mix of goods
and services considered for Urban consumers is different from the mix of Rural consumers. It is
published by the Ministry of Statistics and Program Implementation.
The 75% of the average rise in the Consumer Price Index Urban for the last year is taken as the Change to
calculate the CII.

The CII is published by the Income Tax Department.

Indexed Cost of Acquisition

Indexed Cost of Acquisition =

Cost of Acquisition x CII of the year in which the asset was transferred
CII of the year in which the asset was first held

OR
Cost of Acquisition x CII of the year in which the asset was transferred
CII of the year in which the asset was purchased

Indexed Cost of Improvement=

Cost of improvement x CII of the year in which the asset was transferred
CII of the year when the improvement cost incurred
Sl. No. Financial Year Cost Inflation Index
(1) (2) (3)
1 2001-02 100
2 2002-03 105
3 2003-04 109
4 2004-05 113
5 2005-06 117
6 2006-07 122
7 2007-08 129
8 2008-09 137
9 2009-10 148
10 2010-11 167
11 2011-12 184
12 2012-13 200
13 2013-14 220
14 2014-15 240
15 2015-16 254
16 2016-17 264
17 2017-18 272
18 2018-19 280
19 2019-20 289
Mr. Arvindam purchased a residential house on
15.06.2017 for Rs. 25 lakhs. He constructed an
additional floor for Rs. 12 lakhs on 18.05.2018.
After this, on 15.12.2018, he spent Rs. 1.5 lakhs
on whitewashing the new room. Subsequently,
he sold this house to Mr. Ramesh for Rs. 53
lakhs on 02.05.2019. He had to pay 1%
brokerage for the same. Calculate the capital
gain of Mr. Arvindam.
Computation of Capital Gain of Mr. Arvindam (
A.Y. 2020-21, P.Y. 2019-20)
Full Value of 53,00,000
Consideration
Less: Cost of 25,00,000
Acquisition
Less: Cost of 12,00,000
improvement
Less: Expenses on 53,000
Transfers
( 1/100*53,00,000)
Short Term Capital Gain 15,47,000
It is important to note that as Capital Gains is a
revenue receipt, revenue expenditures such as
whitewash, painting, plumber work etc, should
not be considered under cost of Improvement.

Mr. Deven has purchased a residential house

on 20.09.2004 for Rs. 20,00,000/- . He made the
first improvement in the house on 15.10.2006 of
Rs. 4 lakh and second improvement of Rs. 7
lakh on 22.02.2018. He sold this house on
29.04.2019 for Rs. 79 lakhs, with 2.5%
brokerage. Compute his capital gains.
CII :2004-05 -113, 2006-07- 122, 2017-18- 272,
2019-20 - 289
Computation of Capital Gain of Mr. Deven
( A.Y. 2020-21, P.Y. 2019-20)
Full Value of 79,00,000
Consideration
Less: Indexed Cost of 51,15,044
Acquisition =
20,00,000x289/113
Less: Cost of 9,47,541
improvement1 =
4,00,000x289/122
Less: Cost of 7,43,750
improvement 2 =
7,00,000 x 289/272
Less: Expenses on 1,97,500
Transfers ( 2.5/100 x
79,00,000)
Long Term Capital Gain 8,96,165
Special Cases:

If an asset is acquired before 1/4/2001 then its

cost of acquisition shall be higher of the
following:
a) Actual cost of acquisition (ignoring cost of
improvement incurred before 1/4/2001); or
b) Fair market value of the asset as on 1/4/2001

Mr. Sandeep G. sold a house on 01.07.2019. for

rs 98 lakhs. He had purchased that house on
05.01.1992 for Rs. 7 lacs. Thereafter, he made
three improvements of Rs. 8 lac, 5lac and 11
lacs on 10.11.1998, 15.04. 2004 and 01.07.2018
respectively. Compute the capital gain if FMV as
on 1.04.2001 of the house was 18 lacs ( CII-
2001-02-100, 2004—05-113, 2018-19-280,
2019-20-289)
Computation of Capital Gain of Mr. Sandeep G
( A.Y. 2020-21, P.Y. 2019-20)
Full Value of 98,00,000
Consideration
Less: Indexed Cost of 52,02,000
Acquisition =
Higher of 7 lacs and 18 lacs ( FMV as on 01.01.2001)

18,00,000x289
100
Less: Cost of NIL
improvement1 =
Improvement before
01.01.2001
Less: Cost of 12,78,761
improvement 2 =
5,00,000 x 289
 113

Less: Cost of 11,35,357

improvement 3 =

11,00,000 x 289
280

Less: Expenses on 1,97,500

Transfers ( 2.5/100 x
79,00,000)
Long Term Capital Gain 21,83,882
INDEXATION OF DEBENTURES AND BONDS

Mr Samip purchased 1000 numbers of 12%

Debentures of M/s Tulip Limited at face value
of Rs. 100/- each on 21.04.2009. These
debentures were redeemed on 30.04.2019 at
its face value of Rs. 100 each. Calculate Capital
Gains of Mr. Samip if CII of 2019-20 =289 and
CII of 2009-10 is 148.

Computation of Capital Gain of Mr. Samip

( A.Y. 2020-21, P.Y. 2019-20)
Full Value of 1,00,000
Consideration
= 1000 x100

Less: Indexed Cost of 1,95,270

Acquisition =
(1000 x100)x289/148
Less: Cost of NIL
improvement1 =

Less: Expenses on NIL

Transfers
Long Term Capital 95,270
Gain/ LOSS

Not allowed, as he was earning 12% interest

also per year.
Hence, the Debentures and Bonds , even if
long term are not allowed indexation benefit.
Of course…there are exceptions to the rule.
Definition of Transfer – S. 2(47)
Transfer in relation to a capital asset includes:
(a) Sale, Exchange & Relinquishment of the
asset;
(b) Extinguishment of any right in an asset;
(c) Compulsory acquisition of an asset under
any law;
(d) Conversion of asset into stock-in-trade by
the owner;
(e) Any transaction of immovable property u/s
53A of the Transfer of Property Act, 1882;
(f) Any transaction which has the effect of
transferring or enabling the enjoyment of
any immovable property.
(g) Maturity or redemption of a zero coupon
bond
It also includes
● disposing of or parting with an asset or any
interest therein, or
● creating any interest in any asset in any manner
whatsoever,
directly or indirectly, absolutely or conditionally,
voluntarily or involuntarily, by way of an agreement
(whether entered into in India or outside India) or
otherwise, notwithstanding that such transfer of
rights has been characterised as being effected or
dependent upon or flowing from the transfer of a
share or shares of a company registered or
incorporated outside India
53A. Part performance.—Where any person contracts to
transfer for consideration any immoveable property by writing
signed by him or on his behalf from which the terms necessary
to constitute the transfer can be ascertained with reasonable
certainty, and the transferee has, in part performance of the
contract, taken possession of the property or any part thereof,
or the transferee, being already in possession, continues in
possession in part performance of the contract and has done
some act in furtherance of the contract, and the transferee has
performed or is willing to perform his part of the contract,
then, notwithstanding that 2[***] where there is an instrument
of transfer, that the transfer has not been completed in the
manner prescribed therefor by the law for the time being in
force, the transferor or any person claiming under him shall be
debarred from enforcing against the transferee and persons
claiming under him any right in respect of the property of which
the transferee has taken or continued in possession, other than
a right expressly provided by the terms of the contract:
Provided that nothing in this section shall affect the rights of a
transferee for consideration who has no notice of the contract
or of the part performance thereof.]

CAPITAL GAIN IN CASE OF INSURANCE CLAIM

[SEC. 45(1A)]
Ms. Rajita had purchased a residential house
for Rs. 25 lakhs on 01.07.2004. On 07.01.2019,
there was an accidental fire in her house due
to which the house was damaged. She
immediately filed for insurance claim with GIC,
which granted her insurance claim of Rs. 95
lakhs on 10.11.2019.
In the above scenario, whether capital gain
arises? If yes, when.

Covered under S. 45(1A)

full value of consideration = amount received
from insurance company.
If insurance company gives any asset, then full
value of the market value of the asset
received.
Capital Gain will arise in the year of receipt of
Insurance claim
What is covered under Capital Gain for
insurance claim?
Damages caused due to –
● Flood, typhoon, hurricane, cyclone,
earthquake or other natural calamities; or
● Riot or civil disturbance; or
● Accidental fire or explosion; or
● Action by an enemy and an action taken in
combating an enemy (whether with or without
a declaration of war)

Mr Xavier purchased a house on 1/6/2001 for

Rs 12 lacs. On 1/11/2013, he incurred Rs 5 lacs
on improvement. His house was damaged by
fire on 15/09/2018. He received Rs 50 lacs on
1/9/2019 from Insurance Company. Calculate
capital gain and ascertain the year when capital
gain will arise.

Computation of Capital Gain of Mr. Xavier

( A.Y. 2020-21, P.Y. 2019-20)
Full Value of 50,00,000
Consideration
= Amt. received from
insurance co.
Less: Indexed Cost of 33,60,000
Acquisition =
(12,00,000)x280
100
Less: Indexed Cost of 6,36,364
improvement1 =
5,00,000 x280
220
Less: Expenses on NIL
Transfers
Long Term Capital 10,03,636
Gain/ LOSS

CONVERSION OF CAPITAL ASSET INTO

STOCK IN TRADE - S 45(2)
 When the capital asset is converted into
stock in trade, then it is regarded as a
transfer of capital asset.
 The capital gain ARISES in the year when
such stock is actually sold.
 In the year of actual sale, there will be
 two incomes:
 (a) Profit & Gains from Business &
Profession
 (b) Capital Gain
 For the purpose of computing capital
gain, the full value of consideration will
be the fair market value of the asset on
the date of conversion.

Long term/Short term will be checked from the

date when capital asset is purchased till the
date when converted into stock.
If long term, then indexation will be done till
conversion.

Ms.Juhi, who had purchased diamonds

amounting to Rs. 5 lacs for her personal
collections on 12.01.2010 decided that the
diamonds be converted into stock in trade of
Ms. Juhi Enterprises on 22 May 2017. The fair
Market Value of the Diamonds was Rs 13 lakhs
as on 22.05.2017.
The diamonds were eventually sold by Ms.
Juhi Enterprises for Rs. 17 lacks on 15.06.2019.
Find out tax implications of the parties
involved.

Charge of
Cap Gain +
PGBP

Juhi
Juhi purchases 13 lakhs Enterprises
diamonds on FMV sales the
12.01.2010 diamonds on
Juhi converts 15.06.19
5 lakhs
diamond into 17 lakhs
transfer Stock in Trade Sale Con.
on 22.05.2017
 Mr Sudipto purchased a capital asset on
1/1/2011 for Rs 5 lacs. On 10/12/2016, he
converted this asset into stock in trade. FMV
as on 10.12.2016 is Rs 11 lacs. On 1/2/2020,
he sold this stock for Rs 20 lacs. Calculate
his income and ascertain the year when
capital gain will arise.

Computation of Capital Gain of Mr. Sudipto

( A.Y. 2020-21, P.Y. 2019-20)
Full Value of 11,00,000
Consideration
= FMV on the date of
transfer
Less: Indexed Cost of 7,90,419
Acquisition =
(5,00,000)x 264 (CII trf)
167 (CII Pur)
Less: Indexed Cost of NIL
improvement =

Less: Expenses on NIL

Transfers
Long Term Capital Gain/ 3,09,581
LOSS

Computation of Business Income of Mr.

Sudipto: ( AY 2020-21)
Sales 20,00,000

Less: Purchase 11,00,000

Profit/Gains from 9,00,000
Business/profession

Computation of Total Income of Sudipto( AY

2020-21)
Profit/Gains from 9,00,000
Business/profession

Long Term Capital Gain 3,09,581

GROSS TOTAL INCOME 12,09,581

Imp:
Indexation is allowed only till date of transfer.
PGBP and Capital Gains would only charged in
the eventual year of sale of capital asset.
FMV value on date of transfer is the FVC ( Full
Value of Consideration) for calculating Capital
Gains.
TRANSFER OF SECURITIES HELD IN A
DEPOSITORY [S 45(2A)]
India adopted dematerialized form of Security
sales through Depositories since 1996. This
was done to avoid problems like problems of
fake documents, stolen shares, forged &
mismatched signatures, mutilation and duplication
of share certificates and other transfer problems
which led to multiple arbitration cases and other
investor disputes.

Let us understand the unique situation created

due to sale of Securities in DEMAT form
though an illustration.
Mr. Modi, a salaried employee had purchased
100 shares of M/s Merico limited on
10.10.2012 @ Rs. 55/-. Later, he purchased 50
shares of M/s Merico limited on 05.12.2018 @
Rs. 98/-. He decided to sell 40 shares on
02.05.2019 at Rs. 113. What would be the
capital gain of Mr. Modi?
Company Purchase Price No Purcha Sale Sale Sal
Name date se date Price e
Price Qty
M/s 10.10.12 55/- 100 5500 02.05.19 113 40
Merico
limited
M/s 05.12.18 98/- 50 4900 02.05.19 113 40
Merico
limited
How to determine whether blue or red?
Hence, When shares and other securities are in
de-mat form, then on transfer of such securities
for the calculation of holding period and for
determining the cost of acquisition, F irst In
 F irst Out (FIFO) method is taken.

Mr. Randeep purchased shares of Godrej &

Boyce Ltd on the following dates:
Date No of shares Price /share
24.05.2015 2000 Rs. 600/-
15.11.2019 3500 Rs.950/-
On 21.02.2020, he decided to sale 2600 shares
of Godrej & Boyce Ltd @ Rs. 1100/- each.
Calculate his Capital Gains.
First, while sale, FIFO would be applied. So, 2000
shares purchased on 24.05.2015 would be
treated as sold first, and then rest 600 ( 2600-
2000), which were purchased on 15.11.2019
would be treated as sold.
Computation of Capital Gain of Mr. Randeep
( A.Y. 2020-21, P.Y. 2019-20)
LTCG STCG
FVC= 2000 x 1100 22,00,000 FVC=600 6,60,000
x1100
Less: Indexed Cost 13,65,354 Less: Indexed 5,70,000
of Acquisition = Cost of
(2000 x600)x 289 Acquisition
=600 x950
254
Less: Indexed Cost NIL Less: Indexed NIL
of improvement = Cost of
improvement =

Less: Expenses on NIL Less: Expenses Nil

Transfers on Transfers
Long Term Capital 8,34,646 Short Term 90,000
Gain/ LOSS Capital Gain