8

PROFITS AND GAINS OF

BUSINESS OR PROFESSIONN
Amendments w.e.f Assessment Year 2021-22
Section 35(1i), Deduction allowed 100% of the amount paid
Section 35(1A), Furnishing of statement to Income Tax Authorities
Section 35(2AA), Deduction allowed 100% of the amount paid
Sectjon 35(2AB), Deduction allowed 100% of expenditure incurred
Section 35(CC©), Deduction allowed 100% of expenditure incurred
Section 35(CCD), Deduction allowed 1009% of expenditure incurred
Section 43B, If employees contribution of PF, ESI, superannuation fund is not paid by employer
on or before due date, no deduction shall be allowed for employer's contribution.
Section 44AB : Enhanced limit for Tax Audit
Turnover limit for tax audit enhanced to7 10 crores (earlier it was 5 crores only)
The provisions regarding income chargeable under the head Profits and Gains of Business
or Profession' are contained in sections 28 to 44D of the Income Tax Act, 1961. Before studying
these provisions it is necessary to understand the meaning of certain terms.
Business Business means the purchase and sale or manufacture of a commodity with a view
to make profit. It includes any trade, commerce or manufacture or any adventure orconcernin the
nature of trade, conmmerce or manufacture. It is not necessary that there should be a series of
transactions in a business and that it should be carried on permanently, Neitherrepetition nor
continuity of similar transactions is necessary. Profit of an isolated transaction is also taxable under
this head, provided that it is a venture in the nature of business or trade. In this connection, it is
important that the intention of purchase or manufacture should be to sell at a profit. [Sec. 2(13)]
intellec
Profession: Profession means the activities for earning livelihood which requires are in
skill or manual skill, e.g., the work of a lawyer, doctor, auditor, engineer and
so on,
tual
the nature of profession. The profession includes vocation. Vocation means activities which are
insurance music, dancing, etc.
performed in order to earn a livelihood, e.g., brokerage, or vocationagency,
are the same, there is no
AS the rules for the assessment of business, profession
mportance of making any distinction between them for income tax purposes. [Sec. 2(36)]
relation to a company, demerger meansthe transfer bya demerged company
One or moreInundertakings to
S Demerger: any resulting company which fulfils the prescribed conditions.
(Sec. 2(19AA)
whose undertaking is transferred, pursuant to
Demerged Company: It means the company Sec. 2(19AAA)]
a demerger, to a resulting company.
or more companies (including a wholly owned
esulting Company: It means (i) one of the demerged company is transferred in a
H ary thereof) to which the undertaking Sec. 2(41A)]
demerger, in consideration of such
transfer of undertaking issues shares to
The resulting
the
eshareholders
company
of the demerged and
company;
sector company or a
company
public
or
establishudesany authority or body
or
local authority
shed, constituted or formed as a result of demerger
 INCOMETAX
208
GAINS OF
BUSINESS OR PROFESSION
(Sec. 28
PROFITS AND
to income tax under
the head Profits and c8
and
Gains
are chargeable
(1)
TheRevenue incomes
followingprofits from business or profession: The profits and gains of anyrevious
hi1oi year.
Business or Profession':
during the previo
iness o
assessee at any time
was carried
on by the
profession which o r received by:
(2) Any compensation
due to the whole ofthe affairs of an Ima
managing the whole or substantially or the modifioo
(a) any person, termination ofhis management cation
in connection with the
Company
of the terms and conditions
relating thereto; the whole of the affairs in Ina
the whole or substantially
(b) any person, managing in connection with the termination of his office O the
of any other company
conditions relating thereto;
modification of the terms and relating toth
agency in India for any part of the actavities
termination of an agency or th
an
(c) any person, holding
business or any person in connection with the e
conditions relating thereto
modification of the terms and Government, or in an
or in connection with the vesting in the
d) any person, for the Government, under any
law for the timae
corporation owned or controlled by
of the management of any property or
business.
being inforce, cancellation of consultancy agreement
received by the person on
The compensation
assessable u/s 28(i)(c).
is a capital receipt and not Ltd. (1999) 239 ITR 471 (Mad
[CIT vs. Seshasayee Bros. (P.) modification of
termination or the the terms
in connection with the
at business. (w.e.f.Assessment Year2019-20
or
(e) Any person
any contract relating to his
and conditions, of a trade, professional or similar
association ete. : Income derived by
(3) Income of trade services performed for its members;
association from specific
trade
(4) Receipts in connection with foreign under the Imports Control Order, 1955;
(a) Profit on sale of a licence granted person against exports
under any
(b) Cash assistance received or receivable by any
scheme of the Government of India;
excise duty to any person against exports.
(c) Repayment of any customs or Entitlement Pass Book Scheme, being Duty
(d) Any profit on the transfer of the Duty
Remission Scheme, under the export and import policy; the
the transfer of the Duty Free Replenishment Certificate, being
(e) Any profit on
and import policy;
Duty Remission Scheme, under the export value of any benefit or perquisite
whether
benefit or perquisite The
(5) Value of any exercise of a profession, eg
convertible into money or not, arising from business or the
where a lawyer in consideration of his services to a company gets free accommodatio
his income under the heau
the value will be assessable in the hands of the assessee as
Profits and Gains of Business or Profession'
(6) Receipts of a partner from the firm : Any interest, salary, bonus, commissi0n
remuneration due to or received by a partner of a firm from the firm provided tha
has been allowed as a deduction in computing the taxable profits of such firm.
(7) Interest on securities : nterest on securities, if the business of the assessee is to n
in securities, otherwise interest on securities shall be chargeable to income tax
the head Income from Other Sources'.
(8) Any sum received under a Keyman Insurance Policy including bonus. or
(8A) The fair market value of inventory as on the date on which it is converted in
treated as, a capital asset. (uw.e.f. Assessment Year 2019-20)
(9) Any sum, whether received or receivable in cash or kind, under an agreement 10
(a) not carrying out any activity in relation to any business or profession; or any

(6) not sharing any know-how, patent, copyright, trademark, licence, franchise orn
other business or commercial right of similar nature or information or techu i c e s .

of serv
likely to assist in the manufacture or processing of goods or provision
 PROFITS AND GAINS
OF BUSINESS OR
10) Any sum, wnether received or PROFESSION 209
assets (other than land or receivable, in cash or kind, on account of
goodwill or financial
destroyed, discarded or transferred, any capla
if the
instruments) being demolisneu
asset has been allowed whole of the expenditure on such
11) Income from deduction
as a
/s 35AD. capiua
speculative transactions.
However, any sum, whether received
right to manutacture, produce or or receivable, in cash or kind, on account of transrer
e
o esS or profession, which is process any article or thing or
right to carry On
income nder this clause. chargeable under the head 'Capital Gains' shall not be treaeu
as
For the purpose of (3)
above, trade association means an association of businessmen
arotection and
advancement of their common
interest, for the
e.g., a Chamber of Commerce. Section
ORii) does not
apply to other social associations, a
Where speculative transactions carried on e.g.,by an sports
assessee or cricket club and so on.
club,are of such a nature as
constitute a business, the business shall be called 'Speculation Business' and it shall be deemed
to be distinct and separate from any other business.
Speculative transactions' means transactions in which a contract for the purchase or sale
of any commodity including stocks and shares is settled otherwise than by the actual delivery
or transfer of the commodity or scrips. (Sec. 43(5)]
IMPORTANT RULES REGARDING ASSESSMENT OF PROFITS AND
GAINS OF BUSINESS OR PROFESSION
(1) Business or Profession earried on by the assessee : Tax is chargeable from the person who
carries on the business or profession. It is immaterial if the assessee (owner of the business) carries
onthe business through a manager or other servant or any other agent duly authorized by him.
(2) Tux is chargeable on the aggregate income from all businesses or professions carried
and gains of different businesses or professions carried on by
an
on by an assessee: The profits
one head on
separately but tax is chargeable under the aggregate
assessee are not taxable
the assessee.
income from all businesses or professions carried on by
: Profits and losses of a
(3) Profits and Losses of speculation business a r e kept separatei.e., if there is a loss in a
assessee are kept separate,
speculation business carried on by an business.
only against profits of speculation
speculation business it can be set-offcarried o n by a n for any time during the previous
(4) The business o r profession is
asessee
the
should have carried on the business or profession for any time during
year: The a s s e s s e e
only.
business year, i.e., whether for a
ful year or for a part of the previous year
business : Profits made in winding
o n the winding up ofa
(5) Profits on the sale of assets not taxable as business profit
lot
but as a capital
by the sale of assets in
one are
up of a business
actual profit
gain. or notional profits: Tax is levied on the
(6) No tar is payable on anticipated profits. business
fin a there is an expectation
and not on the anticipated on such profits.
levied
ofthe previous year in the near future no tax c a n be and sale is in
of earning some profits
transaction : An isolated
transaction of purchase
isolated in such a transaction, the
(7) Expenses of an the profit earned by the assessee of
determining the years prior to the year
the nature of trade. For of that t r a n s a c t i o n during

expenses incurred by him in respect business

account shall be allowed as a
deduction.
Tax i1s payable on
the income of every
income from an illegal
orprofession: earn
The expenses incurred to deduction out of the income
business
(8Ineome ofillegal illegal.
whether legal or business are to be allowed
as
Or profession to such infraction of law and expenses
Dusiness which are
incidental
However, penalties
levied for computed under
a n illegal
Lo88
rned illegal business. proceedings are not allowed.
from
of criminal legal
business.
admissible, In
curred in defence against the profits of : These expenses
a r e not

c a n n o t be set-off a business
a r e not
able but those
allowable
ess setting up
i n c u r r e d before betore incorporation allowable. However
) Bxpenses incurred
are
business
p e r s o n is
of
the case of a company
ny
expenses
the commencement
o r any
other resident
incorporation but before an
I n d i a n Company
r r e d after incurred by
expenses
preliminary
Cned
allowed under section 35D.
 210 INCOME TAX
(10) General commercial principles to be kept in view while determining the real ure
a business:It is essential to keep in view the general commercial principles while detero
the real profits of a business. mining
(11) Deductible Business Losses : Business losses which are not of a capital nature and mi.
have been sustained during the previous year and which are incidental to the business ea
on by the assessee are deductible while computing income under the head Business or Profese
(12) Sums previously allowed as deduction are tasable if recovered during the pre
year If an assessee receives during the previous year any sum connected with the busin
which during any preceding year was allowed as a deduction (being in the nature o f
expenditure or a liability) then whilecomputing the taxable profits of that year, it will be taxah
as a business income during the previous year in which they are recovered. axable
(13) Dharmada' collected from customers is not a trading receipt and hence not liable to payt
y tax
(14) The underwriting commission earned by the assessee on the shares subscribed by t
public is assessable as business income whereas the underwriting commission on sharesthe
subscribed by the underwriter himself reduces the cost of shares and is not taxable. es

COMPUTATION OF PROFITS OF BUSINESS OR PROFESSION

The profits and gains of business orprofession are computed in accordance with the
provisions contained in sections 30 to 43D. Sections 30 to 37 contain those deductions which ae
expressly allowed while computing profits of business or profession. Section 40 provides those
expenses which are expressly disallowed. Besides these, there are some other deductions which
are allawed on the basis of general commercial principles while computing profits of busines
or profession. It is necessary to know those principles before studying the deductions expresaly
allowed while computing profits of business or profession.
The general commercial principles are as under:
(1) Profits should be computed according to the method of accounting regularly employei
by the assessee provided that actual profit can be ascertained by this method.
(2) Only those expenses and losses are allowed as deductions which were incurred or
sustained during the relevant previous year.
(3) These losses and expenses should be incidental to the operation of the business. Ror
example, embezzlement by an employee during the course of business is a loss incidental to the
business. Similarly, loss from dacoity in a bank is also a loss incidental to the business of abank.
(4) Only the expenses incurred in connection with the business of the assessee are allowet
as deductions.
5)Ifabusiness has beendiscontinuedbefore the commencement ofthe previousyear, its expenses
cannot be allowed asa deduction against the income of any other running business of the assesse.
(6) There are some essential expenses though neither expressly allowed nor disallowed but
are deductible while computing the profits of business or profession on the basis of gener
commercial principles provided that these are not expenses or losses of a capital nature or
personal nature.
(7) Any expenditure incurred in consideration of commercial expediency is allowed
deduction.
(8) Adeduction can be made from the income of that business only for which the expenses we
incurred. The expenses of one business cannot be charged against the income of any other busine
RULES FOR ADJUSTMENT OF PROFIT AND LOSS ACCOUNT
PREPARED BY THE ASSESSEE
point

The Profit and Loss Account prepared by the assessee is not correct from the income tax et
of view as (i) several such expenses are charged to it which are wholly or partly inadmissible e
the Income Tax Act, (i) some admissible expenses are omitted from it, (i) some taxable ince
are not credited to it, and (iv) some such incomes are credited which are either not taxable f
the head Profits and Gains of Business or Profession' or are not taxable at all. Hence, this re
and Loss Account has got to be adjusted from the income tax point of view so that the profit ta t
the rule
under the head Business or Profession' is determined correctly. The following are
Account:
adjustment ofthe Profit and Loss
 PAOFITA AND GAINA OF AIGINE6A OR PAOFE66/0

ihe diaaudowand panvt ot tt ahall he nddul to tho proli.

whuni9
tanY AnAAhle expenaeH Are omltdod from the Profit Hnd Lasn Aum, thY
t deudwtd thom1 the nbove proit.
ehuniin
m a e (uNavle (neommes Are omltMel fvom the Proflt,and IaHs Acrnnt. thu:y
d ta the adove profit.
are
MNe aud iamea have heen orelited to tha Profi and Iams Arumnt. which
nt all, theY vfun
aNahle under the head 'HualnoaH or Profssalon'or are not. tnxatle
denduwted tkom thhe above proflta.
making
Ifaftar wnae ndjunanEsda " O
w hlendatall
N VYNEnd
be dedurted and thone too be deduotod ahall bo uddad,
mto lea, the aove rulea ehall be raverHedd for aubsecjuent ndljustments,
,
of the following ntatument
Te adve rulewcan well be illuatrated with tho holp
A/c
A lossen disallowed but chargod in P. & I.
ExponseN or
to the
lneonmeN taxable as businesa incomo but not eredited
& L, Ale
of the allowod amount charged in P. stock
''

ExpeNsON in exceNN
i over-valuation of opening
rU'ndenvalation of closing stock or

but not dobited to P. & IL. A/c

Les i Expenses or lossos allowed credited in
Inconmes not taxable as businoss income but
ii
P&L AVe credited in P. & L. Alc
ii) exempt from tax but
Incomes under-valuation of opening
stock and
iv) Over-valuation of closing
Business
stock Taxable Income from
rules will be reversed.
P. & L. Alc the above to find
For loss per and Expenditure Account
as
Nuds: 1. statement is prepared
2 T h e s a m e rules
will apply to Income the following
Account or Cash Book,
and Payments
S. In the c a s e of Receipts
from profession
out profits and gains
Incomes from Profession
admissible expenses relating to the profession Income from Profession
Less : Al
or Profession
Proflts or Losses of Business
Taxable Account is
of Computing the and Expenditure
Second Method Account or Income
fresh Profit and Loss method may be as
under:
In this method a
loss. The format of this to
determine the profit or under this head which related
prepared to incomes
all taxable
(1) Add together concerned which related to
the previous year under this head
a d m i s s i b l e expenses
(2) () Less all concerned
year
the previous business
losses Profession
(i) Less
admissible
or Losses
of Business or
Taxable Profits

generally usedin case

ofEprofessions.
method is DEDUCTIONS XPRESSLY ALLOWED
Note: The second
deductions are expressly
the following
profession
business or
profits of deductions a r e
allowed for
While computing
37: following
30 to (Sec. 30)
allowedbyseetions premises: The
respect of business
or
profession.
1. Expenses in of the business the assessee as a
tenant:
used for the purpose
by
premises a r e occupied
Where the premises premises.
(a) such
Rent paid for
i)
 *NN AND
QAINS OF AUSINE OR
DEDUCTIONS EXPRESSLY
1, Epenses in
PAROFEAAION
premiun
respert of buildinge ALLOWED AT AQLANCE
ront, ropaira, land
xpenses revenue, looal tANOR,
in respect af plant, 8 neo
S a
DepreeiaieN w ungidde macdinery furniture-Repalra and Inauranea
machinery and turniture. Asee "Tungible aaRela ara premiun
b) Depreeiatiem ow bulldinga, plant aa
copyrights, mdangidde Aswet Intangble aareta
4 Deduction tradenmarks, licences, franehiaes and know-how, palana,
are
regarding depasit Tba Development eommerelal righta.
in
or
or
Rubber Development
40% of the
Aceount, Collbe Development
Aceount-Dedhuction ahall be allowed on the amount Aceoun
protits of such business, whichever ia leaa. dapON)Lar
5. Deduction regarding deposit in a special account for proapeeting for, or
productian of petruleum
ahall be allowed onextraction or
or natural
deposited or 20% of the profits of suehgas-Deduetion
busineaa, whichever in lema.
the
amoun
6. Expenditure on Scientifie Research:
Revenue
ii) Sum paidexpenditure and capital expenditure.
for scientific
research-Deduction 100% of sum pald.
ii) Sum paid for social or statistical
iv) Expenditure on in-house researchresearch-Deduction 100% of aum paid.
and development-Deduction 100%h
diture. of the expen
7. Deduction regarding capital
tion services.
expenditure to obtain a lieonce to operate tolecommunicn-|
8. Expenditure on specified business.
9. Payment to Rural Development Fund, National Poverty Eradication Fund.
10. Expenditure on agricultural extensian prqject incurred by an
100% of the expenditure. ass08s0e-Doduction|
11. on any skill development project incurred by a company-Deduction
Expenditure
of expenditure.
100%
12. Deduction to an Indian company or resident in India regarding preliminary expen-|
ses-Deductible in five previous years up to a specified limit.
13. Deduction to an Indian company regarding expenditure for amalgamation or demerger
of an undertaking-Deductible in five equal installments annually.
14. Expenditure on voluntary retirement during any previous year-Deductible in five
installments annually.
15. Deduction to an Indian company or resident in India regarding expenditure on|
prospecting of minerals etc.--Deductible in ten
installments annually.
16. Other deductions:
stocks and stores
) Insurance premium regarding
health of employees.
i) Insurance premium for the
(i) Bonus or commission to employees.

iv) Interest on borrowed capital.

bond.
(v) Discount on zero coupon fund, approved superannuation fund,approved
(vi) Contribution to recognised provident
gratuityfund. or profession.
Loss regarding animals used for business
(vii)
(vii) Bad debts. for bad and
banks and financial institutions regarding provision
(ix) Deduction to
limit. or amount credited tol
doubtful debts up to a specified
entity deductible 20% of profits
(xReserve created by specifiedwhichever is less.
account,
the special r e s e r v e
 230 INCOME TAX
(xi) Expenditure on family planning by a company to promote family planning amo
itsemployees:
(a) Capital expenditure-deductible in five equal installments annually
mongat
(b) Revenue expenditure.
(xii) Expenses in connection with income tax proceedings.
(xii) Entertainment expenses.
xiv) Bankingpaid
(xv) Amount Transaction Taxofpaid.
in respect taxable securities transactions or commodities transa

tions. transac
(xvi) Contribution towards pension scheme on account of an employee.
17. General deduction-provided:
) it is not the personal expense of the assessee;
i) it is not in the nature of capital expenditure;
(ii) itis expended wholly and exclusively for the purpose ofbusiness or profession durin
ring
theprevious year.
DEDUCTIONS EXPRESSLY DISALLOWED: AT A GLANCE
(A) For all assessees
1. Expenditure on advertisement in any souvenir, etc. published by a political party
2. Payment out of India or in India to a non-resident or a foreign company-On which
tax is deductible at source but tax has not been deducted or after deduction has nat
been paid.
3. Any payment to residents on which tax is deductible at source but tax has not ben
deducted or after deduction has not been paid only 30% of such payment shall be
disallowed.
4. Income Tax.
5. Salaries payable outside India or to a non-resident on which tax has not been deducted
at source or after deduction not paid.
6. Tax paid by the employer voluntarily on the value of perquisites provided to employees
B) For Firms:
1. Salaries, bonus, commission or remuneration to working partners in excess of the
prescribed limit.
2. Interest on capital or loan to partners in excess of @ 12% p.a.
(C) For AOP or BOI: Payment of interest, salaries, bonus, commission or remunerationto
members of AOP or BOI is disallowed.

EXPENSES NOT DEDUCTIBLE IN CERTAIN CIRCUMSTANCES: AT A GLANCE

1. Payment to relative or associate concern in excess of the market rate.
2. Payment in cash exceeding 7 10,000/7 35,000-100% of the payment shall be disa
lowed. There are certain exceptions.
3. Provision for gratuity provided the gratuity fund is not an approved fund.
4. Contribution to any unapproved fund by the employer.
5. Expenses incurred on corporatesocial responsibility by companies.
Wlustration 2 me
State with reasons whether the following items are admissible under the Indian Incou
Tax Act, 1961
(a) Commission of 500 paid in order to secure orders for the business.
this
(6) The assessee was carrying on
money-lending business and in the course 01 te
business, he acquired certain property in lieu of debts owing from a debtor whi
kept as stock-in-trade. The property so acquired was destroyed in the war, theass
claimed this loss as a deduction in computing his taxable income under the head 'Busu
 CAPITAL GAINS

Assessment Year 2021-22

Amendments we.f (10D) o
unit linked insurance policy to which exemption under clause
Section 2(14), Any
section apply.
10 does not a
transfer of one or more undertaking, by any means for
Section 2(42C), Slump Sale means the liabilities.
Jump sum
without values
consideration assigned to the individual assets and
being
value of any money or capital asset received by Bpecified person
a
Section 45(4A), In case of
the amount chargeable to income tax as income.
from a specified entity, in Trade by a
of New Section 9B, Taxation of Transfer of Capital Asset or Stock
Insertion
Firm/AOP/BOI
before 1.4.2021,
an transfer of a residential property
Section 54GB, Capital Gains arising
invested in shares of eligible start-up.
shall be exempt if net consideration is
land or building or both, the fair market
Section 55(2(b)(i), In case of capital assets, beingexceed the value of such asset as on
of such an asset on 1st April, 2001 shall not stamp
value
1st April, 2001 where
such stamp duty value is available.
of income.
Capital Gains' is the fourth head [Sec. 45(1
BASIS OF CHARGE
arising from the transfer of a capital asset in
The basis of the charge is the profits gains
or
Gains'.
It is taxable under the head 'Capital
the previous year.
Thus, the essential elements of capital gains are:
Assets,
(A) Asset transferred should be Capital
a
the Assessee in previous year,
(B) If should be Transferred by
Gains as a result of transfer.
(C)There should be Profit and
(A) CAPITAL ASSET [Sec. 2(14)
connected with
assessee, whether
Capital asset (a) Propertyof any kind held bya an
means:
Institutional Investor which
or not. (b) Any securities held by Foreign under the Securities
1s business, profession in accordance with the regulations made
nas invested in such securities Any unit linked
1992. (c)
insurance policy to which exemption

and Exchange Board of India Act,

section 10 does not apply
e r clause (10D) of movable or immovable, tangible
or intangible, fixed or floating.

Capital asset may be building, plant, machinery, investments, goodwill, leasehold

land,
Capital asset includesmanufacturing licence, etc.
to an Indian company, including
shares, a rights of
EES, Jewellery,
right in or relation
in
Manoperty includes any whatsoever.
or any other rights
managemner or control
does not include
asset
ollowing:
the following:
mentioned in (hn
Ception: The term capital stock-in-trade lother than the securities
G) Commercial gods:Any or his business or profession
4 bheld for the purposes
materials
Consumable stores or raw
288 INCOME TAX

assets (including wearing clotha.

i) Movable assets for personal u s e : Movable
assessee or any member of his family den
furniture) held for personal use by the
on him. Thus, a car or any other vehicle,
refrigerator, television or laptond
or laptop other
appliances
electrical are included in this.
Exceptions : The following assets will not be treated
as a
nd
personal asset and iable to
ias

pay tax :
(b) drawings, (c) paintings, (d) sculptures, (e) any
ay wort
(a) archaeological collections,
for personal use.
of art, (f) jewellery
Jewellery includes or any other precious metal, wheth ther «
(A) Ornaments made of gold, silver, platinum
apparel.
not worked or sewn into any wearing not set in any furniture, utene
stones, whether or en
(B) Precious or semi-precious
worked
wearing apparel.
or s e w n into any
other article or it is not situated :
land: Agricultural land in India, provided
111) Agricultural a populai
municipality or a cantonment board, having lation
within
(a) the limits of any
or
of 10,000 or more; below,
measured aerially specified
(b) within the a r e a the local limits and which has a populatio
tion
than two kilometres from
(1) Not being m o r e
thousand but not exceeding
o n e lakh; or
of m o r e than ten limits and which has a population
than six kilometers from the local
(2) Not being m o r e
but not exceeding ten lakh;
or
of m o r e than one lakh kilometers from the local
limits and which has a
(3) Not being m o r e than eight
than ten lakh.
population of m o r e 1980 or National Defence Goli
612% Gold Bonds, 1977 or 7% Gold Bonds,
Civ) Gold Bonds: Central Government.
Bonds, 19980 issued by the
1991.
(v) Special Bearer Bonds, under the Gold Deposit Scheme, 199
Bonds: Gold Deposit Bonds issued notified by the
(vi) Gold Deposit Monetisation Scheme, 2015
or deposit certificate issued under the Gold
Central Government.
>Self-generated Assets
Some self-generated assets are treated as capital assets
business.
(1) Self-generated goodwill of a permits and loom hours.
tenancy rights, stage carriage
(2) Self-generated
any article or thing.
(3) Right to manufacture, produce process
or

business or profession.
(4) Right to carry on any
TYPES OF CAPITAL ASSETS
into twocategories
Capital assets are divided and (i) Long-term Capital Asset.
() Short-term Capital Asset,
Asset. [Sec. 2 (42A)] an6
Short-term Capital for not more tnau
a capital asset held by an a s s e s s e e
Short-term Capital Asset means
date of its transfer. -ter
the
months immediately preceding short-term capital asset is called Short
arising from the transfer of the
Capital gains tedin

Capital Gain.
financial being
asset (a) security (other than
a unit) i t
Exceptions: (1) In the case of a
of
(b) a unit of the Unit Trust ofIndia, or (c) a unit a e
in India, or
a recognised stock exchange
or uase
the short-term capital asset will m e a n security as
oriented fund or (d) zero coupon bond, instead of 36 months
for not m o r e than 12 months
the
coupon bond held by
a s s e s s e e (like

other assets. which is allotted without any payu

s s h a l

financial asset, as aforesaid, hola

In the case of a the period ofits
of any other financial asset,
shares) on the basis ofholding
bonus the allotment of such
financial asset.
be reckoned from the date of
 CAPITAL GAINS
ad
share (not listed in
(2) If unlisted 289
land building or both, 18 held by a
recognised stock exchange ini India) of a company or
the
diately
medin
preceding thedate of its assessee for not more
than twenty-four
n transfer, it will be
)Assets used for business or profession, on treated as Short-Term montns,
ethod is always treated as a short-term which Capital Asset.
depreciation is allowed on the basis of
Long-term Capital Asset. [Sec. 2(29AA) capital assets. S
Long-term Capital Assetdate
nmediately preceding the means a
capital tasset held by an
of transfer. by an assessee for more than 36 months
Capital gain arising from the
transfer of the long-term
Capital Gain. capital asset is called Long-term
Kaceptions : (1) In the case of listed securities or units of U.T.I. or
And or zero coupon bond held by the assessee, the units of equity oriented
held by the assessee for more than 12 months. long-term capital asset will mean such assets
(2)Ifunlisted shares of a company or land or building or both are held
long-term capital asset will mean such asset held by the assessee for more by the assessee, the
than 24 months.
(3) In case of Land or Building or both: (i) Transferred up to 31.3.2017-36 months. (ii) f
transferred on or atter 1.4.2017-24 months.
(B) TRANSFER OF CAPITAL ASSET Sec. 247
"Transfer'in relation to a capital asset includes
) the sale, exchange or relinquishment of the asset; or
(i) the extinguishment of any rights therein; or
(ii) its compulsory acquisition under any law; or
iv) where the asset is converted by the owner into stock-in-trade ofa business carried on
by him; or
(v) the maturity or redemption of a zero coupon bond; or
(vi) conversion of a business into a limited company; or
(vii) any transaction involving the allowing of the possession of any immovable property to
be taken or retained in part performance of a contract of nature referred to in the
Transfer of Property Act, 1882; or
shares in, a
(vii) any transaction (whether by way of becoming a member of, or acquiring
effect of transferring the enjoyment
co-operative society, a company, etc.) which has the
of any immovable property.

Certain transactions not regarded as transfer

transactions not regarded as a transfer for the purpose of capital gains
The following are
(Sec. 47)
tax of a Hindu Undivided Family.
on the total or partial partition
) Any distribution of capital assets under a gift or will or an irrevocable trust.
1i) Any transfer of a capital asset
Exception warrants, allotted by a company directly or indirectly to
its
If shares or debentures or
Scheme of the company are
Employees' Stock Option Plan or
employees under the be deemed to be a transfer.
irrevocabl trust, it will
transferred under a gift
or
a company to
its subsidiary company, if:
asset by
i ) Any transfer of a capital the share capital of the subsidiary
companv and
holds the whole of
(a) the parent company an Indian Company.
is
company to the holding company, if:
(b) the subsidiary asset by a subsidiary company is held by the holding
uAny transfer of a capital capital of the subsidiary company
share
(a) the whole of the
company; and
is an Indian company. above shall be treated as
transfe
sfer
company (i1)) or (iv)
0)the holding asset as per clause
transfer of a capital
Any made as
Stock-in-trade.

if the transfer is
 INCOMETAX
(v) Any transfer, in a scheme of an amalgamation, of a capital asset by the amalar
company to the amalgamated company if the amalgamated company is an Indianama
ian
(vi) Any transfer, in a scheme of amalgamation of a banking company with a ba
.

institution sanctioned and brought into force by the Central Government. of nki
fa capita
COmpaniy,
institution.
asset by the banking company to the banking
(vii) Any transfer ofshares of an Indian company by a foreign company to another foreign eo
in pursuance of a scheme of amalgamation between the two foreign companies, if. y
(a) at least 25% of the shareholders of the amalgamating company continue to re
shareholders of the amalgamated foreign company; and emain
transfer does not attract tax on which the
capital gains in the country in which.
(b)such
amalgamating company is incorporated.
of amalgamation, of a capital asset he
(vii) Any transfer by a shareholder, in a scheme being
a share or shares held by him in the
amalgamating company, if:
the allotment to him of any share or a
(a) the transfer is made in consideration of the shareholder itself is the
where
in the amalgamated company except ama.
gamated company; and
Indian company.
(6) the amalgamated company is an work of art, archaeological, scientiie r o

ix) Any transfer of a capital asset, being any

photograph or print, to the Government
collection, book, manuscript, drawing,National Archives or an
University or the National Museum, as Art Gallery, National
the Central Govenme
any
institution may be notified by
such other public m u s e u m or of renown throughout any Stata
national importance or to be
in Official Gazette to be of
Gandhi National Centre for Arts).
or States, (e.g., Indira debenture-stock or deposit certificats
() by way of conversion of debentures,
Any transfer of that company.
into shares or debentures
in any form, of a company Global Depository Receipts (specified in
transfer of foreign currency bonds or
(xi) Any non-resident toanother non-resident, where the transfer is
section 115AC) held by a
made outside India.
sanctioned uws 18 ofthe Sick Industrai
jundera scheme prepared and
(xii) Any transfer oflandProvisions) Act, 1985| by a Sick Industrial Company which is managsi
Companies (Special the land is transfered in
Co-operative. The exemption will be allowed if
by its Workers in which the company
becomes a Sick
the period commencing from the previous year
the entire net worthd
the previous year in which
Industrial Company and ending with
exceeds the accumulated losses.
the company becomes equal to or it as a resultd
Company in the business carried on by
(xii) Where a firm is
succeeded by a
asset or intangible asset
to tne
which the firm sells or otherwise
transfers any capital ae
transfer provided the prescribed conditions
company. It will not
be regarded as

satisfied. the course of corporatisation.

in
capital asset is transferred to a company
in India as a result of which an A
(xiv) Where any
demutualisation ofa recognised stock exchange
as transfèr provide
or BOI is succeeded by
such company, it shall not be regarded
carried out in accordance wi
demutualisation of the exchange is
corporatisation or anybr
scheme approved by the SEBI. co-operative association
into a public coup
changes a mutual or
that
Note: Demutualisation is a process ofa
members into shareholdings.
converting the interest of right held by a memDern
being
asset a membership
(xv) Any transfer of capital in India for the acquisition of shares and trading orc
a

recognised stock exchange accordance with a sc n o t

such member in that exchange in
rights acquired by by the SEBI, it sna
demutualisation or corporatisation which is approved DeSSc a r r i e d

regarded as transfer. the businesl9s

concern is succeeded by a company in
(xvi) Where sole proprietary
a
c o n c e r n sells or
otherwise transfers any capde
result of which the transfer prov
on by him as a it will not be regarded as
asset to the company,
or any intangible
are satisfied.
prescribed conditions
 TAL GAINSs
Any transter m a
arrangement scheme tor the lending of
The transter wich the assessee has enteredany seeurities under an
Boand of Indiashould be as per the into with the borrower otagrooment
Any
or the
Reserve Bank guidelines issued by the Seeuritiosauch soeurii
transter of India. and
Hxehan
company, if theof resulting
x a
capital aset in a demerger by the
i ) Any transter of company is an Indian demerged company to the oRI
foreign company shares
to
the
held in an Indian company
company in a demerger, by tho demergeu
athe shareholders holding resulting
not
foreign company, if:
company Continue to remain less than 75% in value of shares of the demerged
b) such transter does not shareholders of the torevgnu
attract tax on capital resulting foreign company; ana
demerged foreigm company incorporated.
is gains in the country, in whieh
( An transter or issue of shares by the
shareholders of the demerged company,resulting company, in a scheme of demerger to the
of demerger of the if the transfer or issue is made in consicleration
undertaking.
(xi) Any transfer of a capital asset by the
predecessor co-operative bank to the successor
co-operative bank in a business reorganisation.
(xxii) Any transfer of a capital asset being shares held by the shareholder in the
predecessor
co-operative bank in lieu of shares allotted to him in the successor co-operative bank
in a business reorganisation.
(xii) Any transter by way of conversion of bonds purchased in foreign currency into shares
or
debentures of any company.
(xxiv) Any transfer of a capital asset in a transaction of a reverse mortgage under a schemne
notified by the Central Government.
(xxv) Where a private company or unlisted public company is converted into a limited liability
partnership and asa result of which the company transfers its capital asset or intangible
asset to the partnership or shareholder transfers shares held in such company, it will
not be regarded as transfer provided the prescribed conditions are satistied.
xxvi) Any transfer of Government Security carrying a periodic payment of interest made
securities by a non-
outside India through a n intermediary dealing in settlement of
resident to another non-resident.
trust in exchange of
purpose vehicle to a business
(xxvii) Any transfer of a share of a specialtransferor.
units allotted by that trust to the Bank of India, by way of
transfer of Sovereign Gold Bond issued by the Reserve
XXvii) Any
redemption by a n individual. a unit or units held by him in
unit holder of a capital asset, being
xxix) Any transfer by a consideration of the allotment
mutual fund scheme, made in
the consolidating plan of a units in the consolidated plan
of that scheme
being a unit or
to him of a capital asset,
of the mutual fund. denominated bond of
outside India of a capital asset being rupee
XXx) Any transfer made outside India, by a non-resident
to another non-resident.
Indian company
issued shares of a company
into equity shares
an
of conversion of preference
CXXxi) Any transfer by way
of that company. GAINS (Sec. 48)
COMPUTATION
OF CAPITAL
under
(C) head 'Capital Gains'shall be
computed as

chargeable under the

The income
capital gains r e c e i v e d or accruing
as a result of the
of short-term
(a) Computation full value of the consideration
Deduct from the following
amounts:
asset the
trans
e r of the capital
acquisition of the
capital asset
and
t h e cost of thereto; c o n n e c t i o n with
such transfer,

and exclusively in
improvement

i) the cost of ny
i n c u r r e d wholly
expenditure
292 INCOME TAX

This may be explained in the form of the equation as under

Capital Gain Full value of consideration (Cost of acquisition
=
-
+ f
Cost of improvement,
impron

allowed as an
be
Selling
expe
securities transaction tax shall not
However, the amount paid as
Set-off of short-term capital loss : If there is a short-term capital loss on the tran educton
short-term capital asset, such loss can be set-off against any other short-term capita
capital gain t
long-term capital gain.
>(b) Computation of long-term capltal galns
Deduct from the full value of consideration:
i) indexed cost of acquisition of the asset;
of the asset; and
indexed cost of any improvement with the transfer of the asset.
(11)expenditure incurred in connection
However, the amount paid as securities transaction tax shall not be allowed as a dedue.
cost of acquisition and indexed en
Exception: The provisions relating to indexed
improvement will not apply to the long-term capital gains arising from the transfer oflono
tem
capital asset
(a) being bonds or debentures. However,
t h e benefit of indexation will be available on a
indexed bonds issued by the Government (ii) Sovereign Gold Bond.
(b) being an equity share in a company or a unit of an equity oriented fund or a unit
business trust referred to in Sec. 112A.
Set-off of long-term capital loss: I f there is a long-term capital loss on the transferofe
long-term capital asset, such loss can be set-off only against any other long-term capital gia
Explanation
(1) Indexed cost of acquisition shall be computed as under:

Cost of acquisition xCost inflation index for the year in which the asset is sold
Cost inflation index for the first year in which the asset was held
ost inflation index on 1.4.2001, whichever is later
(2) Indexed cost of improvement shall be computed as under
Cost of improvement x Cost inflation index for the
year in which the asset is sold
Cost inflation index for the year in which the
improvement to asset took place
Ifthe expenditure is incurred for improvement prior to 1.4.2001, it shall not be deductel
(3) "Cost inflation index in relation to previous year means the index as the enu
Government may, having regard to 75% of the average rise in the consumer pricein
(urban) for the immediate preceding previous year, notify in this behalf.
The Government have notified the following 'Cost Inflation Index
Sl. No. Financial Year Cost Inflation Index | Si. No. Financial Year Cost Inflation Inaer
. 2001-02 100 12. 2012-13 200

2. 2002-03 105 13. 2013-14 220

3 2003-04 109 14. 2014-15 240
2004-05 113 15. 254
2015-16
5. 2005-06 117 16. 2016-17 264
6. 2006-07 122 17. 272
2017-18
2007-08 129 18. 280
2018-19
8. 2008-09 137 19. 289
2019-20
9. 2009-10 148 20. 2020-21
301
2010-11 317
10. 167 21. 2021-22
11. 2011-12 184
 (c) Computation of Capital galns In case of depreciable assets on whlch
on the basis ofthe written-down method: depreclation is allowed
(Sec. 50)
1) The capital gains on depreciable assets shall be
4) Find out the written-down value on the first day computed as under
of the
depreciable assets on which the depreciation is allowed at theprevious year of all those
same rate. All such assets
are known as 'block of assets'
) If any new asset of the same block is purchased during the previous year, the cost of
such an asset should be included in (i).
Gii) If any asset is sold out of such block during the previous year, the net consideration
should be deducted from the balance under (i).
iv) On the balance under (ii) compute the depreciation at the prescribed rate and deduct
it from the balance under (ii).
The balance under (iv) shall be the written-down valueofthe block of assets'for the next year
(2) If the net consideration of an asset out of the block is less than the balance under (i),
there would be no capital gain. If the net consideration of an asset is more than the balance
under (ii) (the value of all assets in the block), the excess shall be deemed to be short-term capital
Oain. If all the assets of the block are sold in the previous year and the net consideration is less
than the balance under (i), the loss shall be deemed to be a short-term capital loss.
Consideration for transter of asset
Less: ) Expeneses in connection with transfer
i) W.D.V. on 1st April
Gii) Cost of the new asset purchased during the year
S.T.C.G. =

Consideration for transfer of all assets

(i) Expenses in connection with transfer
*****o*

Less
(ii) W.D.V. on 1st April
(iii) Cost of the new asset purchased during the year *******

Balance

If the balance is positive S.T.C.G.

If the balance is negative S.TC.L.
lustration 1 rate of
at the
1-4-2018 on which the depreciation is available same
Depreciable assets on

15% are as under: 1,00,000

Asset (1) 2,00,000
Asset (2) 3,00,000
Asset (3) Total 6,00,000

capital gains if: 2,50,000.

Compute capital loss or sold for F 1,20,000 andanew aset (4) is purchased forT sale.
is such
) in 2019-20 asset (1) and (4) are sold for F 6,00,000 and
spent7 5,000 on
(1) in 2020-21 assets (2),
(3) and spent7 5,000 on such sale.
and (4) are sold for F 4,00,000
(3)
i ) in 2020-21 assets (2), of Capital Gains or
Loss
Computation
Solution (for the
Assessment Year 2021-22)
6,00,000
1.4.2018 90,000
(2) and (8)
on
w.D.V. of assets (1),
Less: Depreciation@15%
5,10,000
assets 2,50,000
1.4.2019 of block of 2019-20
w.D.V. on purchased during Balance 7,60,000
Add: Cost of Asset
(4)
1,20,000
2019-20 6,40,000
sold during
Less Asset (1)previous year 2019-20 2 0 1 9 - 2 0 @ 15%
96,000
W.D.V. for the
for the
previous year
2019-20)
5,44,000
Depreciation previous year
ess: in the
o r gains
o Capital loss
 as on the date of transfer, caleulated ed in the
(i) fair market value of the capital assets the considerationa
to be the full value of
prescribed manner, shall be deemed
or accruing as a result of the
transfer of such capital
asset. receive
shall furnish in the prescribed formn
(3) Every assessee, in the case of slump sale, 1.4.2020 as file the required repr r t
an accountant Section 50B has been
amended w.e.f. to
the due date of furnishing the return of income indicating the computatilea
one month prior that the net O
as the case may be, and certitying
net worth of the undertaking or division,
as the case may be,
has been correctly arrived at in accorda
the undertaking division,
or
the provisions of this section.
with
or more lundertaking, by any means]
for a um.
Slump Sale': It means the transferof oneto the individual assets and liabilities in suhs
consideration without values being assigned sales.
Sec. 24201
Note: For this purpose, "transfer"shall have the meaning
assigned ws 247)

Explanation 1: "Net worth" shall be the aggregate value of total assets of the undertakin
division as reduced by its liabilities as
books of
appearing in account. However, any changeis
computing the net worrth
value ofthe assets on account of revaluation of assets shall beignored for
the aggregate value of total assets shall
Esplanation 2: For computing net worth,
(a) in the case of depreciable assets, the WD.V. of the block of assets determined us 4
item (d) (See Depreciation' W.D.V.);
(b) in the case of capital asset being goodwill of a business or profession which has pet
not
been acquired by the assessee by purchase froma previous owner, nil;
(c) in the case of capital asset in respect of which the whole of the expenditure has been
een
allowed as a deduction u/s 35AD-Nil; and
(d) in the case of other assets, the book value of such assets.

CAPITAL GAINS EXEMPT FROM TAX

Any profits or gains arising from the transfer of the following assets are exempt from ta
ie., they will not be included in the income of the assessee for tax purposes:
(1) Capital gains arising on the transfer ofproperty used for residenee : Any capital gain
arising on the transfer of a house or land appurtenant thereto is exempt subject to the following
conditions: (Sec. 54
) The building is owned by an individual or Hindu Undivided Family.
(i) Such property was being used as a residential house.
(ii) Theincome ofsuchhouse property is chargeable under the head Income from House Property
(iv) Theexemption will be available only in relation to house property which had been hed
by the tax-payer for a period exceeding 24 months before transfer.
(v)(a)The assessee has, within a period of one year before or two years after the dated
transfer purchased one residential house in India; or
(b) He has within a period of three years after the date of transfer
residential house in India.
constructea
Quantum ofexemption:
i) The capital gains arising from the transfer of such residential house is exempt the
extent of the cost of new residential house
purchased or constructed.
(ii) Where the amount of capital gain is not utilised isition
of

new house before the due date for

by the assessee for the acgu#its
furnishing the return of income ws Lovn
deposited by him on or before the due date of furnishing the return of incom ha
account opened under the Capital Gains Account
Scheme, 1988, with a speci w
authorised by the Central Government in accordance with the
entitled for exemption. Scheme,
Ins. by Finance Act, 2021 (w.e.f. 1.4.2021)
 TAL GAINS
Withdrawal
I of exemption and Tax
307

house the new house on Sale of

(purchased
new
se Or Construction the
or
constructed) is transferred within
i t sp u r c h a

exemption
and new capital gains (if
period of three year
given earlier will be withdrawn. a

any) arising on the transfer of The old exemp

eApitaeated as short-term capital gain and chargeable to tax the new residential
house
shallhich the new residential house is transferred
yeari n w h i c h as the income of
ot the previous

Tax on the unutilised amount

T a :

he amount deposited is not utilized

fully for acquiring the new
ated (i.e., 3 years from the date of transfer new house
house within the period
stP he treated as the long-term capital gain of theof original house) the amount not s0 ul
, The taxpayer shal be entitled to withdraw such previous year in which d specified
the perioa
exp amount in with the scheme. accordance
Effect of Capital Gains Account Scheme
The effect of the new scheme for deposits is that if the assessee cannot utilise the
for the acquisition of a newhouse on or before the due date for furnishing the capita
me, return of
he may deposit it
under this scheme up to the aforesaid date in order to avail this
mntion. After such deposit, he must utilise the deposit for acquiring the new. house within 3
ears from the date of transfer of the old house.
Amendment we.f. the Assessment Year 2020-21
If the amount of capital gain does not exceed two erore rupees, the assessee, may at his
0ption, purechase or construct two residential houses in India instead of one.
Ifthe assessee has exercised the aforesaid option during any assessment year, he shall not
he entitled to exercise the option for any other assessment year.
llustration 15
In the following cases determine the taxable capital gains u/s 54
3 crore
(a) (i) Indexed cost of residential house 7 crore
(i) House sold in previous year 2020-21 2020-21
(ii) Two new residential houses purchased in previous year 5 croreB
cost 3 crore and 2 crore
2.5 crore
(b) i) Indexed cost of residential house 4.5 crore
(i) House sold in previous year 2020-21 each.
in previous year 2020-217 0.75
crore
(ii) Two new residential houses purchased Gains
Computation of Taxable Capital
Solution 2021-22)
(for the Assessment Year 7 crore
(a) Consideration received 3 crore
Less: Indexed Cost LTCG 4 crore
3 crore
Less: Exemption /s 54 (Residential house purchased)
Taxable Capital Gains 1 crore
in respect of one residential house only
assessee is eligible for exemption
No
Ore:Capital Gains exceed 7 2 crore, hence
4.5 crore
2.5 crore
6) Consideration received
LTCG 2.0 crore
Less: Indexed cost 1.5 crore
purchased)
residential houses Taxable Capital Gains 0.5 crore
(Two
Less: Exemption / s 54 respect of both
the residentialhouses
S.
available in
is
exemption
2 crore hence,
Ote: Capital Gains do not exceed 7 2,96,000. He
in May 2009 for He
2,96,000,
for
lustration 16 he acquired ntial
whichHe purchases a residential house
hou at Kanpu
house at Agra
rgeable to
to tax for tax for
sells Mr1
residential 2020. gains chargeable
owns a August 18, capital of
sells the 0usefor F
35,00.000 on
Find out
the
amount

On Fa 20,00,000.
14, 2021 for 301 respectively
the Aary
SSessment Years 2021-22. 2020-21 is 148
and
foot i n f l n t i o n

in
2009-10 and
 INCOME TAX
320
the hands of the deconsod nor
in the hands ofsthe legal
amount is neither taxable in receive it as a partof the
estate.
1988, such
heirs. The legal heirs do not receive it as income but they (Clreular No. T43 dated devoli
8.5,
upon them.
in a company or unit
transfer of equity sharesAnmeasment Year 2020f an
T a x on Short-term capital gains
on
of a business trust (w.e.f
the
20-21)
equity oriented fund or units (Sec.
capital gaing ariadl
the total income of an assessee
includes the
short-term

equity oriented fund or-

arisingf
Where or units of an
of equity shares in a company @ Surchare of a
the transfer short-term capital gains tax, will be charged 15%,+ arge:
business trust, on such a Rate of Surcharge
Sr Particular on Income Ta
No. dividend or income under 10%
income by way of
(a) the total income (including exceeds 7 60 lakh but
does nott
Where the Income-tax Act)
sections 111A and 112A of
exceed 1crore.
dividend or income under 15%
income by way of
(b) Where the total income (including 1 crore.
Income-tax Act) exceeds 7
sections 111A and 112A of the
amountof income tax and surcharge if thefolla wing
Health & Education Cess:@4% on the
conditions aresatisfied: fund or unit of a businn.
shares in a company or
units of an equity oriented sines
(1) The equity
asset.
trust is a short-term capital Transaction Tax.
i) Such a transaction is chargeable to Securities
In respect of income other than aforesaid short-term capital
gains, income tax shall be charei
income only to be the total income.
the Act, assuming the other
as per the normal provisions of
Other Provisions: aforesaid short-term capital gains) of a resident
i) Where the total income (excluding the maximum amount which is not
individual and resident H.U.F. is less than
total income (including aforesaid short-tem
chargeable to income tax then from the
which is not chargeable to income tax shall be
capital gains) the maximum amount aforesaid rate.
deducted and on the balance tax shall be charged at the
of aforesaid
(ii) No deduction under sections 80C to 80U will be allowed in respect
Bhort-term capital gains
Exemption limit:
1. For senior citizen (resident in India, who is of the age of 60 years or more but less than
80 years during the previous year- 3,00,000.
2. Super senior citizen (resident in India, who is of the age of 80 years or more during
the previous year)-I 5,00,000
3. Other individuals and HUF-Z 2,50,000.
Tax on Long-term Capital Gains (we.f. the Assessment Year 2020-21) (Sec. 11
The tax on long-term capital gains is to be charged at the following rates
(1) In case of an individual or a Hindu undivided family who are resident in India
Where the total income (excluding long-term capital gains) of a residentindiviaua
esident H.U.P. is less than the maximum amount which is not chargeable to incomeTas
rom the total income (including long-term capital gains) the maximum amount whienJs
hargeable to income tax shall be deducted and on the balance, tax shall be charged@20
(2) In case of other assessees 20%.
e charget
cu
Tax on LTCGon the transer of hsted seurities (erxcluding units) or coupon bonds shallbe
zero
G)@ 10% of LTCG computed without indexing the cost of acquisition; or
Gi) @20% of LTCG computed after indexing the cost of acquisition,
whichever is lese.
It should be noted that debentures are never indexed.
 CAPITAL GAINS 321
Surcharg
co on
eo n income-tax : (For details
see page 5 of
Tn the case of a firm, co-operative the book)
society or local authority@ 12% if total income
In the case

i) one crore rupees.

exceeds
In the case of a domestic company
@7%, if total income exceeds one crore
but does not exceed ten crore
12% if total income exceeds ten crorerupeesrupees.
rup
1th & Education Cess:On the amount of income tax and
4%. surcharge, health & education cess
levied
shallbe od securities: It means a security which is listed in a recognised stock exchange 1n

India.
Securities" include:
G) 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
i) Government securities;
)Such other instruments as may be declared by the Central Government to be securities; and
iv) rights or securities.
interest in
Tn respect of income other than long-term capital gains, in all the above cases, income tax
shall be charged as per une normal provisions of the Act, assuming the other income only to be
sh
the total income.
No deduction under sections 80C to 80U will be allowed in respect of long-term capital gains.
Note: Provisions of Sec. 112 relating to non-residents and foreign companies have not been given.
Tax on LTCG from the transfer of an equity share in a company or a unit of equity oriented
fund or a unit of business trust (w.e.f the Assessment Year 2019-20) (Sec. 112A)
Rate of tas: ) on such LTCG, computed without indexing the cost of acquisition, on
exceeding one lakh@ 10%
lakh shall be exempt.
Itmeans such LTCG up to one

(i) on other income as per other provisions of the act.

Surcharge:
Rate of Sur
ST. charge on Income
Particulars Tac
No.
a) Where the total income (including income by way of dividend or income under 10%
Income-tax Act) exceeds 7 50 lakh but does not
Sections 111A and 112A of the
exceed 1 crore.
under 15%
b) income by way of dividend or income
where the total income (including Act) exceedsl crore
SeCTaons 111A and 112A of
the Income-tax

Health and Education Cess@ 4%

Other provisions:
) Payment of securities transaction tax
acquisition and transfèr of
such asset.
(a) share in a c o m p a n y : paid on
Onequity asset.
(6) on units: Paid on the transfer of such of such LTCG
to 80U in respect of such
80C to
(2) No deduct shall be allowed under section LTCG
uction o n such
3) N
(8) No rebate u/s 87A shall be allowed against
tax

(4) Relief to resident individual and HUF:

 INCOME TAX
322 ofa resident individual
capital gains)
a.

income (excluding long-term to income tax, t h r i

Where the total
maximum amount which is not chargeable en fromt
maximum amount which is not choOm
the
H.UF. is less than
total income (including
be
long-term capital gains)
deducted and
the
on the balance, tax
shall be charged at the aforesaideabie
esaid rat argeale
income tax shall
(5) Cost of acquisition
of aforesaid assets Sec. 55/2)
1st day of February, 2018,
shall be higher of
acquired before the
If,
of such asset; and
(i) the cost of acquisition
(ii) lower of:
and
(A) the fair market value of such asset;
received or accruing as a result of the transfer.
fer od te
(B) the full value of consideration
capital asset.
Explanation.
fair market value" means, :
i) in a case where the capital asset is listed on any recognised stock exchange as ns

31st day of January, 2018, the highest price of the capital asset quoted on
exchange on the said date :
Provided that where there is no trading in such asset on such exchange on the a
day of January, 2018, the highest price of such asset on such exchange on a i
immediately preceding the 31st day of January, 2018 when such asset was tradeia
such exchange shall be the fair market value;
(i) in a case where the capital asset is a unit which is not listed on a recognised stod
exchange as on the 31st day of January, 2018, the net asset value of such unit as
the said date;
(ii) in a case where the capital asset is an equity share in a company which is:
(A) not listed on a recognised stock exchange as on the 31st day of January, 2018, b
listed on such exchange on the date of transfer;
(B) listed on a recognised stock exchange on the date of transfer and which becamet
property of the assessee in consideration of share which is not listed on su
exchange as on the 31stday of January, 2018 by way of transaction not regardeds
transferunder section 47, anamount which bears tothe cost ofacquisitionthe sas
proportion as Cost Inflation Index for the financial year 2017-2018 bears to the
Inflation Index for the first year in which the asset
was held by the assessee 0r
the year beginging on the first
day April, 2001, whichever is later.
of
Miscellaneous IllustratigUA
 EXEMPTED CAPITAL GAINS: AT A GLANCE

2 3 4 6 9 10
Asset Use or Prescribed Treatment of
Who En- Invest Sales of New
Section Trans Holding New Asset Exemption Period for Unutilised
titled ment of Asset
ferred Period Investment Amount
54 Residen-| Indivi- Exceeding Capital One Residen- Capital Gains In- Within one Deposit in Ifsoldwithin 3
tialHouse dual or 24 months Gains tial House in vested year before or | Capital Gains years from the
HUF India two years A/c Scheme date of pur-
after transfer before due | chase/ con-
in case of pur- | date of fur- | struction,
chase or 3 nishing the capital gains
years after Return of In-| claimed as ex-
transfer in come. emption as
case of con- sessable to tax
struction. together with
additional |
capital gains|
in the year of
transfer of
new asset as
STCG.
Within two -Do -Do
54B Indivi Used by Capital | Agricultural Capital Gains
Agricul Land Invested years after
tural dual or him or his | Gains
transfer
HUF parent or
Land
HUF for 24
months Within 3 years -Do -Do
Capital Gains
54D L& B for Any Used for 24 Capital | L& B for Invested after Transfer
months Gains industrial
industrial Assessee
undertaking
under-
Ifsold within 3
amount of
Within
taking NHA | The years, ex
L.T.C.A. -Do- L.T.C.A. Capital | Bonds of months
54EC Gain of India or capital gain in- | empted capi-
bf
R a vested Maximum | transfer tal gain will be
r 7 50 original asset deemed to be
Electrification | exemption
Corporation | lakh income from
Ltd. or PFC LTCG of the
assessee in the
Ltd.
year of trans-

fer of the new

asset.
54EE -Do -Do -Do -Do Units of -Do -Do- Do-
notified fund
54F Any asset Indivi- Should be Net One Residen- | Proportionate Net Same as for -Do- Same as for
other dual or L.T.C.A. Consi tial House in In- sec. 54 Sections 54,
Consideration
than HUF deration India vested 54B, 54D ex-
residen- cept that
tial house under section
54F it will be
taxed as

LTCG.
54G P& MorL | Any May be Capital | P&Mor L&B Capital Gains Within o n e -Do- Same as for
&B used Assessee |L.T.C.A or | Gains for industrial | Invested year before or| sections 54,
for S.T.C.A. undertaking| within 3 years 54B and 54D.
industrial in non-urban after transfer.
under area or meet-
taking in ing expenses
urba n of shifting
area
54GA -Do -Do- -Do -Do P& M orL&B -Do -Do- -Do -Do
for industrial
undertaking in
Special Econo-
mic Zone or
meeting expe-
nses of shifting
54GB Residen- Indivi- LTCA Net Equity Shares Proportionate Net | Before due Deposit If in
equity-
tial Pro- | dual or Consi consideration in- | date of fur- Specified shares sold
perty HUF deration vested nishing the | Bank etc. within 5 years
return of in- from the date
come of acquisition
the exempted
capital gains
shall be asses-
sable to tax in
the PY. in
which shares
are trans-
ferred or sold.
Note :
year in
Under allwhich the prescribed
the above period expires.
seetions, amount deposited in Capital Gains Account Seheme if not utilised within the prescribed time, it will be taxed in the previous
Aadisional condition for Sec. 54:The assessee should not own more than oneresidential house
r e h a s e o r c o n s t r u t w i a s i n p r e s e r i b e d t i m e a n y r o s i d e n t i al h o u s e o t h e r t h a n t h e o n e w h i c h i
on the dato of transtor of original assot and should not,
tho now assot.