INCOME FROM CAPITAL GAINS SHIVARAJKUMAR J. Asst.

Professor Mcom,
MBA

Capital gains

It refers to the gain on transfer of capital asset

Basis of charge: period of holding of capital asset by assessee

Contents:
• Capital asset
• What is not a capital asset
• Transfer
• Transactions not regarded as transfer
• Types of capital asset  Types of capital gains
• Formats and provisions

Capital asset u/s 2(14)

It refers to every kind of property held by the assessee, whether movable or
immovable, tangible or intangible and whether used for business and profession or
not.

What are not capital assets

• Stock-in-trade
• Personal movable effects, other than jewellery
• Agricultural land situated in a rural area (Rural area is outside municipal limits
of at least 8 k.m.)
• Gold bonds (not exist now)
• Special bearer bonds
• Gold deposit certificates under Gold Deposit Scheme

Transfer u/s 2(47)

Transfer includes: 
Sale
• Exchange
• Extinguishments or relinquishment of rights
• Compulsory acquisition of an asset
• Conversion of capital asset in stock-in-trade
• Acquiring the possession of an asset due to non performance or part
performance of a contract

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INCOME FROM CAPITAL GAINS SHIVARAJKUMAR J. Asst. Professor Mcom,
MBA

• Enjoying the benefits of an immovable property by taking membership of a

society etc.

Transactions not regarded as transfer

• Will, gift
• Holding Co., to wholly owned subsidiary Co. (100% owned)
• At the time of amalgamation, transfer of assets to amalgamated co., is not a
transfer if the amalgamated co., is an Indian Company.
• Assets transferred to resulting co., if the resulting co., is an Indian Co.

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INCOME FROM CAPITAL GAINS SHIVARAJKUMAR J. Asst. Professor Mcom,
MBA

• Agricultural land transferred on/before 1/3/1970 is not transfer

Note:Compulsory acquisition of urban agriculture land is exempt from tax u/s 10 (37)
Types of capital assets:
Short term capital asset
Long term capital asset
Asset If asset is held for Types of capital asset
Financial assets (any Short term capital asset
shares, listed securities,
12 months
units of U.T.I. and Units of
Notified Mutual Fund u/s
Long term capital asset
10(23D) >12 months
Depreciable assets. (Unless NA Always regarded shortterm
it is used for business or capital asset.
profession it cannot be
depreciated.)
Other Assets (other than Short term capital asset
 36 months
above mentioned)
Long term capital asset
> 36 months
Note:
If an asset is acquired by the assessee u/s 49(1), for determining the nature of
capital asset, the duration between date of acquisition by previous owner and
date of transfer by the assessee must be considered. Sec.49 (1) = assessee gets
assets without incurring any expenses.

Types of capital gains:

Short-term capital gain: Gain arises out of transfer of short-term capital asset

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INCOME FROM CAPITAL GAINS SHIVARAJKUMAR J. Asst. Professor Mcom,
MBA

Long-term capital gain: Gain arises out of transfer of long-term capital asset

Format
COMPUTATION OF TAXABLE SHORT-TERM CAPITAL GAIN

Assessee… Assessment year: 2019-20

Status… Previous year: 2018-19
Sale Consideration   XXX
Less: Transfer Expenses   XXX
Net Sale Consideration   XXX
Less: Cost Of Acquisition XXX  
Cost Of Improvement XXX XXX
Gross Short Term Capital Gain    
Less: Exemption U/S 54B, 54D & 54G   XXX
TAXABLE SHORT TERM CAPITAL GAIN   XXX

COMPUTATION OF TAXABLE LONG-TERM CAPITAL GAIN

Assessee… Assessment year: 2019-20
Status… Previous year: 2018-19
Sale Consideration   XXX
Less: Transfer Expenses   XX
Net Sale Consideration   XXX
Less: Indexed Cost Of Acquisition XXX  
Indexed Cost Of Improvement XXX XXX
Gross Long Term Capital Gain   XXX
Less: Exemption U/S 54 , 54B , 54D , 54EC, 54ED ,54F
  XXX
& 54G
TAXABLE LONG TERM CAPITAL GAIN   XXX 

NOTE: Taxable capital gains =Taxable Short term capital gain (other than u/s 111 A) +
Taxable Short term capital gain u/s 111 A +Taxable long term capital gain)
Topics to be covered
1) Indexed cost of acquisition in case of LTCA

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INCOME FROM CAPITAL GAINS SHIVARAJKUMAR J. Asst. Professor Mcom,
MBA

2) Indexed cost of improvement in case of LTCA

1. Indexed cost of acquisition is calculated as Cost of acquisition / Cost inflation index
(CII) for the year in which the asset was first held by the seller, or 2001-02, whichever
is later X cost inflation index for the year in which the asset is transferred.

2. Indexed cost of improvement is calculated as:

Indexed cost of acquisition = Cost of acquisition * Cost Inflation Index (CII) of the
year in which the asset is transferred / Cost inflation index (CII) of the year in which
asset was first held by the seller or 2001-02 whichever is later.
Indexed cost of improvement = Cost of improvement * Cost inflation index of the year
in which the asset is transferred / Cost inflation index of the year in which
improvement took place.

COST INFLATIONL INDEX (C.I.I.)

Previous year Index Previous year Index

2001-02 100 2010-11 167
2002-03 105 2011-12 184 Only long-term capital
assets are indexed.
2003-04 109 2012-13 200
Debentures and bonds
2004-05 113 2013-14 220 (other than capital indexed
2005-06 117 2014-15 240 bonds) are not subject to
2006-07 122 2015-16 254 indexation

2007-08 129 2016-17 264

2008-09 137 2017-18 272
Change happened to current
2009-10 148 2018-19 280 year compared to base year

B). COMPUTATION OF DEPRECIATION & SHORT TERM CAPITAL GAIN IN CASE OF DEPRECIABLE ASSETS
Situation 1: on the last of the previous year, WDV of the block of assets is zero u/s 50(1)

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INCOME FROM CAPITAL GAINS SHIVARAJKUMAR J. Asst. Professor Mcom,
MBA

Step – 1 Sale consideration of assets transferred which fall within the same block of assets
Step – 2 o Transfer expenses
o W.D.V. of the block of assets as on beginning of the PY o
Actual cost of assets acquired during PY
If step – 1 is more than step – 2, the difference is taken as STCG. If step 1 is less than or equal to step 2, then
the capital gain is not chargeable to tax.*** (Unless the case comes under situation 2)

Situation 2: when block is empty u/s 50(2)

Sale consideration of assets transferred which fall within the same block of assets Less: XXX
a) Transfer expenses XXX
b) W.D.V. of the block of assets as on beginning of the PY XXX
c) Actual cost of assets acquired during PY fall within the same block XXX

XXX
Short term capital Gain / ( Loss)
xxxx

C). COMPUTATION OF CAPITAL GAINS IN CERTAIN SPECIAL CASES

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INCOME FROM CAPITAL GAINS SHIVARAJKUMAR J. Asst. Professor Mcom,
MBA

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INCOME FROM CAPITAL GAINS SHIVARAJKUMAR J. Asst. Professor Mcom,
MBA

Thankful to
K.S. Dayananda Sir. M.Com. M.Phil. MBA.

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INCOME FROM CAPITAL GAINS SHIVARAJKUMAR J. Asst. Professor Mcom,
MBA

*****

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