Volume 1 - 100 Pages May-Nov 21

CA FINAL
DIRECT
TAX
Vol. 01
CA Bhanwar Borana
INDEX
1 Basic Concepts & Tax Rates for AY 2021-22 1
2 Capital Gains 37
3 Income from Other Sources 145
4 Taxation of Dividend, Deemed Dividend,
Liquidation & Buyback 160
5 Bonus Stripping & Bond Washing Transactions 187
6 Profit & Gain from Business or Profession 193
1
Basic Concepts & Tax Rates for Assessment
Year 2021-22
Sources of Income Tax Law

1. Income Tax Act, 1961
IT Act is the main source of Income tax law. It’s provide determination of Total Income, Tax Liability &
Procedure of assessment etc.
2. Income Tax Rules, 1962
IT Act empowered Central Board of Direct Tax (CBDT) to make rules. All Forms, procedure, principles of
Valuation of perquisites are provided in the Rules.
3. Finance Act
(a) Presenting the Bill: Every year, the Finance Minister presents a Finance Bill in the parliament,
which contains various amendments proposed to be made in the direct and indirect taxes. Finance
Bill, 2020 presented by Nirmala Sitharaman on 1st February, 2020.
(b) Approval & Assent of Bill: As soon as the Bill passed by both the houses of the parliament and
thereafter receives the assent of President, in becomes the Finance Act. Finance Bill, 2020 became
Finance Act, 2020 on 27th March, 2020 after receive assent of president.
(c) Amendments: The amendments proposed therein are then incorporated in the Income Tax Act. The
FA brings amendments to Direct Tax Laws & it provides Tax rates also.
4. Circulars/Notifications from CBDT
Circulars are issued by the CBDT to clarify the meaning & scope of certain provisions contained in the Act.
Notifications are issued by Central Govt./CBDT to give effect to the provision of The Act.
Circulars are binding to Assessing officer but not on Assessee and Courts. However Assessee can take
advantage of Circulars which are beneficial to them.
5. Supreme Court & High Court Decisions
Various issues which are arise out of the provisions of the Act are decided by HC/SC.
CA Bhanwar Borana 1
Basic Concepts & Tax Rates for Assessment Year 2021-22
Charge of Income Tax Sec: 4

- Income Tax is charged for every Assessment Year
- It is charge on every person as define u/s 2(31).
- It is charge on the total income earned by the person during Previous Year.
- The tax is levied at the rates prescribed by Finance Act.
Assessment Year Sec: 2(9)
A.Y. means the period of twelve months commencing on the 1st day of April every year. Income earned in
Previous year is taxed in Assessment year. The A.Y. 2021-22 is a period of 12 months commencing from the
1st April 2021 and ending on 31st March 2022.
Previous Year Sec: 3
P.Y. means the financial year immediately preceding the assessment year.
For A.Y. 21-22, the PY shall be period from 1st April 2020 to 31st March 2021 & the total income earned in
PY 20-21 is assessed in the AY 21-22.
Provided that, in the case of a business or profession newly set up, or a source of income newly coming into
existence, in the said financial year, the previous year shall be the period beginning with the date of setting up
of the business or profession or, as the case may be, the date on which the source of income newly comes into
existence and ending with the said financial year.
Person Sec: 2(31)
Person includes—
- Individual
- Hindu Undivided Family (HUF)
- Company
- Firm (Includes LLP)
- Association of Person or Body of Individual (AOP/BOI)
- Local Authority
- Artificial juridical person
Assessee Sec: 2(7)
It means any person who is liable to pay any tax or any other sum under IT Act, 61
It includes-
- Every person in respect of whom any proceeding under the Act has been taken for the assessment of:—
(a) his income; or
(b) the income of any other person in respect of which he is assessable ; or
(c) the loss sustained by him or such other person ; or
(d) the amount of refund due to him or to such other person.
- Every Person who is deemed to be assessee under any provision of this Act. (Trustee of Trust are
representative assessee
- Every person who is deemed to be an assessee-in-default under any provision.
2 CA Final Direct Tax - Vol. 01
Tax Rates for Assessment Year 2021-22

A. In case of every Individual, HUF, AOP, BOI, Artificial Juridical Person
1. In case of every Individual (other than the individual referred in 2 and 3) or in case of Hindu
Undivided Family, AOP, BOI, Artificial Juridical Person (Residential as well as non-residential):
Total Income Rates of Income-tax
Upto ` 2,50,000 NIL
> ` 2,50,000 upto ` 5,00,000 5%
> ` 5,00,000 upto ` 10,00,000 20%
> ` 10,00,000 30%
2. In case of every individual, being a resident in India, who is the age of 60 years or more but less
than 80 years at any time during the PY:
Upto ` 3,00,000 NIL
> ` 3,00,000 upto ` 5,00,000 5%
> ` 5,00,000 upto ` 10,00,000 20%
> ` 10,00,000 30%
3. In case of every individual, being a resident in India, who is the age of 80 years or more at any
time during the PY:
Upto ` 5,00,000 NIL
> ` 5,00,000 upto ` 10,00,000 20%
> ` 10,00,000 30%
ü Surcharge:
(a) 10% of the Income Tax, where taxable income is more than ` 50 lakhs and upto ` 1 crore.
(b) 15% of the Income Tax, where taxable income is more than ` 1 crore upto ` 2 crore.
(c) 25% of the Income Tax, where taxable income is more than ` 2 crore upto ` 5 crore.
(d) 37% of the Income Tax, where taxable income is more than ` 5 crore.
CA Bhanwar Borana 3
CIRCULAR: 28/2016, dated 27 July,2016

Issue: A Clarification regarding attaining prescribed Age of 60 years/80 years on 31st March itself, in
case of Senior/Very Senior Citizens whose date of birth falls on 1st April, for purposes of Income-tax
Act, 1961
Ø Higher tax exemption limits have been prescribed for resident senior citizen taxpayers who have
attained the age of sixty years. Even in such cases, the exemption limit is still higher for very senior
citizens who have attained the age of eighty years. A doubt has been raised about the attainment of
the aforesaid qualifying ages for availing higher exemption in cases of the persons whose date of
birth falls on 1st April of calendar year. In other words, the broader question under consideration is
whether a person born on 1st April of a particular year can be said to have completed a particular age
on 31st March, on the preceding day of his/her birthday, or on 1st April itself of that year.
Ø The matter has been examined. Although specific provision does not exist in this regard under the
Income-tax Act, 1961, the Hon'ble Supreme Court had an occasion to consider a similar issue in the
case of Prabhu Dayal Sesma v State of Rajasthan & another 1986, AIR, 1948 wherein it has dealt
with on the general rules to be followed for calculating the age of the person. In this judgment, Apex
Court observed that while counting the age of the person, whole of the day should be reckoned and it
starts from 12 o'clock in the midnight and he attains the specified age on the preceding, the
anniversary of his birthday.
Ø In view of the aforesaid judgment, the CBDT, in exercise of powers under section 119 of the Act,
hereby clarifies that a person born on 1st April would be considered to have attained a particular age
on 31st March, the day preceding the anniversary of his birthday. In particular, the question of
attainment of age of eligibility for being considered a senior/very senior citizen would therefore be
decided on the basis of above criteria.
B. In case of every Firms (including LLPs)/Local Authority ® 30% of the Total income.
ü Surcharge: 12% of the Income Tax, where taxable income is more than ` 1 crore.
C. In case of Co-operative societies
Upto ` 10,000 10%
> ` 10,000 upto ` 20,000 20%
> ` 20,000 30%
ü Surcharge: 12% of the Income Tax, where taxable income is more than ` 1 crore.
D. In Case of Domestic Company
(a) Where its Total Turnover or the gross receipts in the Previous Year 2018-19 doesn’t exceed ` 400
Crore rupees: 25% of Total Income
(b) Other than above: 30% of Total Income
(Amended by Finance Act, 2020)
ü Surcharge: 7% of such income tax, if the total income exceed ` 1 Crore but does not exceed ` 10
Crores. Where total income exceeds ` 10 Crores, surcharge shall be levied at 12% of such income tax

E. In Case of Foreign Company : 40% of the Total Income

ü Surcharge: 2% of such income tax, if the total income exceed ` 1 Crore but does not exceed ` 10
Crores. Where total income exceeds ` 10 Crores, surcharge shall be levied at 5% of such income tax
Health & Education Cess

In All the above cases Health and Education Cess @ 4% of the Total of Income Tax & Surcharge
Rounding off of Income and Tax

Any amount of Income and Tax rounded off to the nearest ` 10
Rebate in case of certain Individuals Sec. 87A
An assessee, being an individual resident in India, whose total income does not exceed ` 5,00,000 shall be
entitled to a deduction, from the amount of income-tax on his total income with which he is chargeable for
any AY of an amount equal to 100% of such income-tax or an amount of ` 12,500 whichever is less.
(Amended by Finance Act, 2019)
Marginal Relief
If there is marginal increase in income over 50 Lakhs/1 Crore/2 Crore/5 Crore (in case of Ind/HUF/AOP/
BOI/AJP) or 1 Crore (in case of Company/Firm/local Authority/Co. op. society) or 10 Crore (in case of
Company), surcharge is applicable on entire amount of income tax and as a result increase in lax is more than
the increase in income. In order to remove this defect, assessee shall be allowed relief to the extent increase in
lax is more than the increase in income and it is called marginal relief and it can be shown in the manner
given below:
Compute Tax liability of Shivani Ltd., a domestic company, assuming that the total
EXAMPLE 1: income is ` 1,01,00,000. T/o of PY 2018-19 is ` 380 Crore.
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CA Bhanwar Borana 5
Compute Tax liability of BB Ltd., a domestic company, assuming that the total income
EXAMPLE 2: is ` 10,01,80,000. T/o of PY 2018-19 is ` 480 Crore.
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Compute Tax liability of Ms. Preeti, an individual, assuming that total income is
EXAMPLE 3: ` 60,00,000
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Compute Tax liability of Mr. Virat, an individual, assuming that total income is
EXAMPLE 4: ` 1,02,30,000
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Compute Tax liability of Mr. Sharma, an individual, assuming that total income is
EXAMPLE 5: ` 5,07,30,000
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CA Bhanwar Borana 7
Compute Tax liability of Ms. Deepika, an individual, assuming that total income is
EXAMPLE 6: ` 2,04,40,000
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Compute Tax liability of Mr. Hashmukh, an individual, assuming that total income is
EXAMPLE 7: ` 4,30,000
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Compute Tax liability of Mr.BB, an individual, assuming that total income is `

EXAMPLE 8: 5,00,000 & ` 5,05,000
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CA Bhanwar Borana 9
Surcharge where Total Income include LTCG 112A & STCG 111A
Reliefs from enhanced surcharge to Individual, HUF, AOP, BOI and AJP assessees:
(i) No matter how high the total income level of assessee, the surcharge on capital gains under
section 111A & section 112A shall not exceed 15%.
(ii) Surcharge will be 10% on tax on capital gains under section 111A & section 112A where the
total income including such capital gains exceeds ` 50 Lakhs but not ` 1 cr., Surcharge on tax on
remaining total income will be 10%.
(iii) Surcharge will be 15% on tax on capital gains under section 111A & section 112A where the
total income including such capital gains exceeds ` 1 cr but not ` 2 cr., Surcharge on tax on
remaining total income will be 15%.
(iv) Surcharge will be 15% on tax on capital gains under section 111A & section 112A where the
total income including such capital gains exceeds ` 2 cr., Surcharge on tax on remaining total
income will be 15%.
(v) Where total income without considering capital gains under section 111A & section 112A
exceeds ` 2 cr but not ` 5 cr, then assessee will pay surcharge of 25% (enhanced surcharge) on
tax on such total income and he will pay surcharge of 15% on such capital gains.
(vi) Where total income without considering capital gains under section 111A & section 112A
exceeds ` 5cr, then assessee will pay surcharge of 37% (enhanced surcharge) on tax on such total
income and he will pay surcharge of 15% on such capital gains.
In other words,
Ø Assessee will never be hit with a surcharge of 25% on tax on his income other than capital gains u/s
111A & 112A merely because such capital gains push his total income into 'exceeding ` 2 cr. but
not ` 5 cr.' bucket and but other than such capital gains his total income is less than ` 2 cr.
Ø Assessee will be hit with a surcharge of 25% on tax on his total income other than such capital gains
only if total income other than such capital gains exceeds ` 2 cr. but not ` 5 cr.
Ø Likewise assessee will never be hit with a surcharge of 37% on tax on his income other than capital
gains u/ss 111A &112A merely because such capital gains push his total income into 'exceeding ` 5
cr' bucket and but other than such capital gains his total income is less than ` 5 cr.
Ø Assessee will be hit with a surcharge of 37% on tax on his total income other than such capital gains
only if total income other than such capital gains exceeds ` 5 cr.
Ø In no case will surcharge on such capital gains exceed 15%.
Summary “Amounts in Lakhs”
Sr. Total Income of Capital Total Income of Surcharge Surcharge
No. Individual/HUF/ gains u/s Individual/HUF/AO applicable on applicable on tax
AOP/BOI/AJP 111A/112A P/BOI/AJP assessee capital gains on total income
assessee before after including under section other than capital
including capital capital gains under 111A & section gains
gains u/s section 111A & 112A
111A/112A section 112A
(i) 20 25 45 NIL NIL
(ii) 45 50 95 10% 10%
(iii) 45 70 115 15% 15%
(iv) 45 300 345 15% 15%

(v) 45 600 645 15% 15%

(vi) 60 30 90 10% 10%
(vii) 60 70 130 15% 15%
(viii) 60 300 360 15% 15%
(ix) 60 700 760 15% 15%
(x) 150 45 195 15% 15%
(xi) 150 250 400 15% 15%
(xii) 150 500 650 15% 15%
(xiii) 300 100 400 15% 25%
(xiv) 300 250 550 15% 25%
(xv) 600 100 700 15% 37%
Example: 1
Mr. Hari is a resident, aged 42 years. His income details for PY 2020-21 are as follows:
(i) Capital gains u/s 112A - ` 25,00,000
(ii) Capital gains u/s 111A - ` 20,00,000
(iii) Other income - ` 70,00,000
Calculate his tax liability for AY 2021-22
Solution:
Particular Tax Rate Income Tax
LTCG 112A (in excess of 1,00,000) 10% 25,00,000 2,40,000
STCG 111A 15% 20,00,000 3,00,000
Balance NTI Normal Tax Rate 70,00,000 19,12,500
Total 1,15,00,000 24,52,500
Add: Surcharge on LTCG 112A & STCG 111A @15% 81,000
Add: Surcharge on Balance Tax @15% 2,86,875
28,20,375
Add: Health & Education Cess @ 4% 1,12,815
Net Tax Payable 29,33,190
CA Bhanwar Borana 11
Example: 2
Mr. Jay is a resident, aged 32 years. His income details for PY 2020-21 are as follows:
(i) Capital gains u/s 112A - ` 1,00,00,000
(ii) Capital gains u/s 111A - ` 2,00,00,000
(iii) Other income - ` 1,00,00,000

Solution:
LTCG 112A (in excess of 1,00,000) 10% 1,00,00,000 9,90,000
STCG 111A 15% 2,00,00,000 30,00,000

Balance NTI Normal Tax Rate 1,00,00,000 28,12,500
Total 4,00,00,000 68,02,500
Add: Surcharge on LTCG 112A & STCG 111A @15% 5,98,500
78,22,875
Example: 3
Mr. BB is a resident, aged 31 years. His income details for PY 2020-21 are as follows:
(i) Capital gains u/s 112A - ` 40,00,000
(ii) Capital gains u/s 111A - ` 60,00,000
Solution:
LTCG 112A (in excess of 1,00,000) 10% 40,00,000 3,90,000
STCG 111A 15% 60,00,000 9,00,000
Balance NTI Normal Tax Rate 3,00,00,000 88,12,500
Total 4,00,00,000 1,01,02,500

1,24,99,125
Net Tax Payable 1,29,99,090
Example:4
Mr. BB is a resident, aged 31 years. His income details for PY 2020-21 are as follows:
(i) Capital gains u/s 112A - ` 1,00,00,000
Solution:
LTCG 112A (in excess of 1,00,000) 10% 1,00,00,000 9,90,000
STCG 111A 15% - -
Balance NTI Normal Tax Rate 6,00,00,000 1,78,12,500
Total 7,00,00,000 1,88,02,500
2,55,41,625
Net Tax Payable 2,65,63,290
Example:5
Mr. Aadil is a resident, aged 26 years. His income details for PY 2020-21 are as follows:
(i) Capital gains u/s 112A - ` 90,000
(iii) Other income - ` 50,00,000
Solution:
LTCG 112A (in excess of 10% 90,000 -

1,00,000)
STCG 111A 15% - -
Balance NTI Normal Tax Rate 50,00,000 13,12,500
Total 50,90,000 13,12,500
Add: Surcharge on LTCG 112A & STCG 111A @10% -
14,43,750
Above amount restricted to Tax on 50,00,000 + (NTI - 50 Lakhs) 13,75,500
13,75,500
Add: Health & Education Cess @ 4% 55,020

Alternate Taxation Regime
Tax on income of certain Manufacturing Domestic Companies Sec: 115BA

(1) Notwithstanding anything contained in this Act but subject to the other provisions of Chapter XII [other
than those mentioned u/s 115BAA and 115BAB], the income-tax payable in respect of the total income of a
person, being a domestic company, for any PY relevant to the AY beginning on or after the 1st day of April,
2017, shall, at the option of such person, be computed at the rate of 25% , if the conditions contained in sub-
section (2) are satisfied.
(2) For the purposes of sub-section (1), the following conditions shall apply, namely:—
(a) the company has been set-up and registered on or after the 1st day of March, 2016;
(b) the company is not engaged in any business other than the business of manufacture or production of
any article or thing and research in relation to, or distribution of, such article or thing manufactured or
produced by it; and
(c) the total income of the company has been computed,—
(i) without any deduction under the provisions of section 10AA or 32(1)(iia) or section
32AC or section 32AD or section 33AB or section 33ABA or sub-clause (ii) or sub-clause (iia)
or sub-clause (iii) of sub-section (1) or sub-section (2AA) or sub-section (2AB) of section
35 or section 35AC or section 35AD or section 35CCC or section 35CCD or under any
provisions of Chapter VI-A under the heading "C.—Deductions in respect of certain incomes"
other than the provisions of section 80JJAA;
(ii) without set off of any loss carried forward from any earlier assessment year if such loss is
attributable to any of the deductions referred to in sub-clause (i); and
(iii) depreciation under section 32, other than clause (iia) of sub-section (1) of the said section, is
determined in the manner as may be prescribed.
(3) The loss referred to in sub-clause (ii) of clause (c) of sub-section (2) shall be deemed to have been already
given full effect to and no further deduction for such loss shall be allowed for any subsequent year.
(4) Nothing contained in this section shall apply unless the option is exercised by the person in the prescribed
manner on or before the due date specified under section 139(1) for furnishing the first of the returns of
income which the person is required to furnish under the provisions of this Act:
Provided that once the option has been exercised for any previous year, it cannot be subsequently withdrawn
for the same or any other previous year:
Provided further that where the person exercises option under section 115BAA, the option under this section
may be withdrawn.
Analysis
1. In case of domestic company tax @ 25% if following conditions are satisfied,
a. Company setup & registered on or after 01/03/2016.
b. Company engaged in the business of manufacture or production of any article or things.
c. Company should not claim benefit of section 10AA, 32AC, 32AD, Additional depreciation,
33AB, 33ABA, 35(1)(ii)/(iia)/(iii)/, 35(2AA),35(2AB), 35AC, 35AD, 35CCC, 35CCD & any
deduction in respect of Income u/c VI-A except 80JJAA.
2. Option has to be exercised upto due date of ROI u/s 139(1).
3. Once option exercised, assessee can not opt out for life time but if assessee exercise option u/s
115BAA then option under this section shall be withdrawn.
Tax on income of certain Domestic Companies Sec: 115BAA

(1) Notwithstanding anything contained in this Act but subject to the provisions of Chapter XII, other than
those mentioned u/s 115BA and 115BAB, the income-tax payable in respect of the total income of a person,
being a domestic company, for any PY relevant to the AY beginning on or after the 1st day of April, 2020,
shall, at the option of such person, be computed at the rate of 22%, if the conditions contained in sub-section
(2) are satisfied:
Provided that where the person fails to satisfy the conditions contained in sub-section (2) in any PY, the
option shall become invalid in respect of the assessment year relevant to that previous year and subsequent
assessment years and other provisions of the Act shall apply, as if the option had not been exercised for the
assessment year relevant to that previous year and subsequent assessment years.
(2) For the purposes of sub-section (1), the total income of the company shall be computed,—
(i) without any deduction under the provisions of section 10AA or section 32(1)(iia) or section
32AD or section 33AB or section 33ABA or sub-clause (ii) or sub-clause (iia) or sub-clause (iii) of
sub-section (1) or sub-section (2AA) or sub-section (2AB) of section 35 or section 35AD or section
35CCC or section 35CCD or under any provisions of Chapter VI-A under the heading "C.—
Deductions in respect of certain incomes" other than the provisions of section 80JJAA or section 80M;
(ii) without set off of any loss carried forward or depreciation from any earlier assessment year, if such loss
or depreciation is attributable to any of the deductions referred to in clause (i);
(iii) without set off of any loss or allowance for unabsorbed depreciation deemed so under section 72A, if
such loss or depreciation is attributable to any of the deductions referred to in clause (i); and
(iv) by claiming the depreciation, if any, under any provision of section 32, except clause (iia) of sub-
section (1) of the said section, determined in such manner as may be prescribed.
(3) The loss and depreciation referred to in clause (ii) and clause (iii) of sub-section (2) shall be deemed to
have been given full effect to and no further deduction for such loss or depreciation shall be allowed for any
subsequent year:
Provided that where there is a depreciation allowance in respect of a block of asset which has not been given
full effect to prior to the assessment year beginning on the 1st day of April, 2020, corresponding adjustment
shall be made to the written down value of such block of assets as on the 1st day of April, 2019 in the
prescribed manner, if the option under sub-section (5) is exercised for a previous year relevant to the
assessment year beginning on the 1st day of April, 2020.
(4) In case of a person, having a Unit in the International Financial Services Centre, as referred to in section
80LA(1A), which has exercised option under sub-section (5), the conditions contained in sub-section (2) shall
be modified to the extent that the deduction under section 80LA shall be available to such Unit subject to
fulfilment of the conditions contained in the said section.
manner on or before the due date specified under section 139(1) for furnishing the returns of income for any
previous year relevant to the assessment year commencing on or after the 1st day of April, 2020 and such
option once exercised shall apply to subsequent assessment years:
Provided that in case of a person, where the option exercised by it under section 115BAB has been rendered
invalid due to violation of conditions contained in sub-clause (ii) or sub-clause (iii) of clause (a), or clause (b)
of sub-section (2) of said section, such person may exercise option under this section:
Provided further that once the option has been exercised for any previous year, it cannot be subsequently
withdrawn for the same or any other previous year.
(Added by Taxation Law Amendment Act, 2019)

Analysis:
1. Tax @ 22% (effective rate is 25.168% - 22% + 10% Surcharge + 4% HEC) applicable in case of
domestic company if following conditions are satisfied ;
a. Company should not claim benefit of section 10AA, 32AD, Additional depreciation, 33AB,
33ABA, 35(1)(ii)/(iia)/(iii)/, 35(2AA),35(2AB), 35AD, 35CCC, 35CCD & any deduction in
respect of Income u/c VI-A except 80JJAA, 80LA & 80M.
b. The total income of company is calculated without adjusting b/f loss & depreciation from earlier
year (if such loss & depreciation pertains to any deduction under the aforesaid sections).
c. Where there is a depreciation allowance in respect of a block of asset which has not been given
full effect to prior to A.Y.2020-21, corresponding adjustment shall be made to the WDV of such
block of assets as on 1.4.2019 in the prescribed manner, if option for section 115BAA is
exercised for P.Y.2019-20 relevant to A.Y.2020-21.[For example, in case of an asset acquired
and put to use for less than 180 days in P.Y. 2018-19, the effect of balance additional
depreciation to be allowed in P.Y. 2019-20 will be made in the WDV of the block as on 1.4.2019,
if option for section 115BAA is exercised for P.Y.2019-20 relevant to A.Y.2020-21]
Note: If above conditions not satisfy in any P.Y. then option exercised would be invalid for that
PY and subsequent PY’s and normal provisions of IT, Act shall apply.
2. The beneficial provisions of this section would apply if option is exercised in the prescribed manner
on or before the due date u/s 139(1) for furnishing the return of income for any PY relevant to
A.Y.2020-21 or any subsequent A.Y.. Such option, once exercised, would apply to subsequent
assessment years. Further, once the option has been exercised for any previous year, it cannot be
subsequently withdrawn for the same or any other previous year.
3. Tax on other special rates of tax incomes (like 112A, 112, 111A): Taxable at such special rates plus
surcharge @10% & HEC @4%.
4. Tax rate on other Income (IFHP, IFOS etc): 25.168% (22%+10%+4%)
5. Company which opt for section 115BAA shall not be required to pay MAT. B/F MAT credit cannot
be set-off against income u/s 115BAA so if a company has b/f MAT credit, it can first exhaust the
MAT credit, and thereafter opt for section 115BAA in a subsequent PY.
6. If company opt section 115BAA then surcharge applicable @ 10% irrespective of Total income.
Tax on income of New Manufacturing Domestic Companies Sec: 115BAB

(1) Notwithstanding anything contained in this Act but subject to the provisions of Chapter XII, other than
those mentioned under section 115BA and section 115BAA, the income-tax payable in respect of the total
income of a person, being a domestic company, for any previous year relevant to the assessment year
beginning on or after the 1st day of April, 2020, shall, at the option of such person, be computed at the rate of
15% , if the conditions contained in sub-section (2) are satisfied:
Provided that where the total income of the person, includes any income, which has neither been derived
from nor is incidental to manufacturing or production of an article or thing and in respect of which no specific
rate of tax has been provided separately under this Chapter, such income shall be taxed at the rate of 22%
and no deduction or allowance in respect of any expenditure or allowance shall be allowed in computing such
income:
Provided further that the income-tax payable in respect of the income of the person deemed so under second
proviso to sub-section (6) shall be computed at the rate of 30%:
Provided also that the income-tax payable in respect of income being short term capital gains derived from
transfer of a capital asset on which no depreciation is allowable under the Act shall be computed at the rate of
22% :
Provided also that where the person fails to satisfy the conditions contained in sub-section (2) in any
previous year, the option shall become invalid in respect of the assessment year relevant to that previous year
and subsequent assessment years and other provisions of the Act shall apply to the person as if the option had
not been exercised for the assessment year relevant to that previous year and subsequent assessment years.
(2) For the purposes of sub-section (1), the following conditions shall apply, namely:—
(a) the company has been set-up and registered on or after the 1st day of October, 2019, and has
commenced manufacturing or production of an article or thing on or before the 31st day of March,
2023 and,—
(i) the business is not formed by splitting up, or the reconstruction, of a business already in
existence:
Provided that this condition shall not apply in respect of a company, business of which is
formed as a result of the re-establishment, reconstruction or revival by the person of the
business of any such undertaking as is referred to in section 33B, in the circumstances and
within the period specified in the said section;
(ii) does not use any machinery or plant previously used for any purpose.
Explanation 1.—For the purposes of sub-clause (ii), any machinery or plant which was used
outside India by any other person shall not be regarded as machinery or plant previously used
for any purpose, if the following conditions are fulfilled, namely:—
(A) such machinery or plant was not, at any time previous to the date of the installation used
in India;
(B) such machinery or plant is imported into India from any country outside India; and
(C) no deduction on account of depreciation in respect of such machinery or plant has been
allowed or is allowable under the provisions of this Act in computing the total income of
any person for any period prior to the date of the installation of machinery or plant by the
person.
Explanation 2.—Where in the case of a person, any machinery or plant or any part thereof
previously used for any purpose is put to use by the company and the total value of such
machinery or plant or part thereof does not exceed twenty per cent of the total value of the
machinery or plant used by the company, then, for the purposes of sub-clause (ii) of this clause,
the condition specified therein shall be deemed to have been complied with;

(iii) does not use any building previously used as a hotel or a convention centre, as the case may be,
in respect of which deduction under section 80-ID has been claimed and allowed.
(b) the company is not engaged in any business other than the business of manufacture or production of
any article or thing and research in relation to, or distribution of, such article or thing manufactured or
produced by it.
Explanation.—For the removal of doubts, it is hereby clarified that the business of manufacture or
production of any article or thing referred to in clause (b) shall not include business of,—
(i) development of computer software in any form or in any media;
(ii) mining;
(iii) conversion of marble blocks or similar items into slabs;
(iv) bottling of gas into cylinder;
(v) printing of books or production of cinematograph film; or
(vi) any other business as may be notified by the Central Government in this behalf; and
Explanation.—For the purposes of clause (b), the "business of manufacture or production of
any article or thing" shall include the business of generation of electricity.
(c) the total income of the company has been computed,—
32AD or section 33AB or section 33ABA or sub-clause (ii) or sub-clause (iia) or sub-clause
(iii) of sub-section (1) or sub-section (2AA) or sub-section (2AB) of section 35 or section
35AD or section 35CCC or section 35CCD or under any provisions of Chapter VI-A under the
heading "C.—Deductions in respect of certain incomes" other than the provisions of section
80JJAA or 80M;
(ii) without set-off of any loss or allowance for unabsorbed depreciation deemed so under section
72A where such loss or depreciation is attributable to any of the deductions referred to in sub-
clause (i).
Explanation.—For the removal of doubts, it is hereby clarified that in case of an amalgamation,
the option under sub-section (7) shall remain valid in case of the amalgamated company only
and if the conditions contained in sub-section (2) are continued to be satisfied by such
company; and
(iii) by claiming the depreciation under the provision of section 32, except clause (iia) of sub-
section (1) of the said section, determined in such manner as may be prescribed.
(3) The loss referred to in sub-clause (ii) of clause (c) of sub-section (2) shall be deemed to have been given
full effect to and no further deduction for such loss shall be allowed for any subsequent year.
(4) If any difficulty arises regarding fulfilment of the conditions contained in sub-clause (ii) or sub-clause (iii)
of clause (a) of sub-section (2) or clause (b) of said sub-section, as the case may be, the Board may, with the
approval of the Central Government, issue guidelines for the purpose of removing the difficulty and to
promote manufacturing or production of article or thing using new plant and machinery.
(5) Every guideline issued by the Board under sub-section (4) shall be laid before each House of Parliament,
and shall be binding on the person, and the income-tax authorities subordinate to it.
(6) Where it appears to the Assessing Officer that, owing to the close connection between the person to which
this section applies and any other person, or for any other reason, the course of business between them is so
arranged that the business transacted between them produces to the person more than the ordinary profits
which might be expected to arise in such business, the Assessing Officer shall, in computing the profits and
gains of such business for the purposes of this section, take the amount of profits as may be reasonably
deemed to have been derived therefrom:
Provided that in case the aforesaid arrangement involves a specified domestic transaction referred to
in section 92BA, the amount of profits from such transaction shall be determined having regard to arm's
length price.
Provided further that the amount, being profits in excess of the amount of the profits determined by the
Assessing Officer, shall be deemed to be the income of the person.
manner on or before the due date specified under section 139(1) for furnishing the first of the returns of
income for any previous year relevant to the assessment year commencing on or after 1st day of April, 2020
and such option once exercised shall apply to subsequent assessment years:
for the same or any other previous year.
(Added by Taxation Amendment Act, 2019)
Analysis:
1. Tax @ 15% (effective rate is 17.16% - 15% + 10% Surcharge + 4% HEC) applicable in case of new
manufacturing domestic company if following conditions are satisfied ;
(i) Company has been setup & registered on or after 1st Oct., 2019 & has commenced manufacturing
business upto 31st March, 2023.
(ii) It should not be formed by spitting up or reconstruction of existing business.
(iii) P&M should be New
Exception
(a) 20% of Total P&M can be second hand.
(b) Imported P&M shall be treated as new only for this section.
(iv) Company does not use any building previously used as Hotel or Convention Centre.
(v) The company is not engaged in any business other than the business of Manufacturing or
production of any article & research in relation to or distribution of such article.
Manufacturing does not include
ð Development of computer software in any form or in any media
ð Mining
ð Conversion of marble blocks or similar items into slabs
ð Bottling of gas into cylinder
ð Printing of books or production of cinematograph films
ð Any other business as may be notified by the Central Govt. in this behalf.
Note: Business of Generation of electricity is treated as manufacturing business.
(vi) Company should not claim benefit of section 10AA, 32AD, Additional depreciation, 33AB,
33ABA, 35(1)(ii)/(iia)/(iii)/, 35(2AA),35(2AB), 35AD, 35CCC, 35CCD & any deduction in
respect of Income u/c VI-A except 80JJAA & 80M.
(vii) The total income of company is calculated without adjusting b/f loss & depreciation from
earlier year (if such loss & depreciation pertains to any deduction under the aforesaid sections).
Note: If above conditions not satisfy in any P.Y. then option exercised would be invalid for that PY
and subsequent PY’s and normal provisions of IT, Act shall apply. Where option exercised under
section 115BAB is rendered invalid due to violation of conditions stipulated in point no. (iii) to (v)]
above, such person may exercise option under section 115BAA.
2. Where it appears to the AO that, owing to the close connection between the person to which this
section applies and any other person, or for any other reason, the course of business between them is
so arranged that the business transacted between them produces to the person more than the ordinary
profits which might be expected to arise in such business, the AO shall compute the income of
company. Excess profit computed by AO shall be taxable @ 34.32% (30% +10%+4%). If

transactions is more than ` 20 Crores then it will be covered under specified domestic transactions
and transfer pricing provisions shall apply.
3. Tax on other special rates of Tax income (like 112A, 112, 111A) : Taxable at such special rates +
10% surcharge & 4% HEC.
4. Tax Rates on other income (HP/IFOS) : 25.168% (22%+10%+4%) (However in respect of such
income, no deduction or allowance in respect of any expenditure or allowance shall be allowed in
computing such income.)
5. Tax on STCG derived from transfer of a capital asset on which no depreciation is allowable
under the Act: The applicable rate of tax is 25.168% (22%+10%+4%). There is, however, no
restriction regarding claiming of deduction or allowance in this regard.
6. Such company shall not be required to pay MAT.
7. If section 115BAB apply then surcharge rate is 10% on all types of income, irrespective of Total
Income.
Summary of Tax Rates u/s 115BAB

Income Tax Rate
Income from Manufacturing 15%
Income from Non-Manufacturing activity (If no specific rate is prescribed) 22%
STCG on transfer of Depreciable assets 15%
STCG on transfer of Non-depreciable assets 22%
Excess profit computed by AO u/s 115BAB(6) 30%
Special Tax rates Incomes u/c XII Special rate
Comparison of sections 115BA, 115BAA and 115BAB

S.N. Points of comparison Section 115BA New Section New Section
115BAA 115BAB
(1) Deals with Tax on income Tax on income of Tax on income of
of certain certain domestic new manufacturing
domestic companies domestic companies
manufacturing
companies
Benefit under the
When company must be set up
section is available
and registered to qualify for On or after On or after
(2) irrespective of date on
availing benefit under the 01-03-2016 01-10-2019
which company was
section
set up and registered
(3) Tax rate 25% 22% 15%
7% if company's
NTI > ` 1 Cr
(4) Surcharge applicable upto ` 10 Cr 10% 10%
12% if company's
NTI > ` 10 Cr.
Effective tax rate 26% or 27.82%

(5) including surcharge and or 29.12% 25.168% 17.16%
HEC depends on NTI
Whether condition regarding,
business of company not formed
(6) No No Yes
by splitting up existing business, is applicable
under the section
Whether stipulations regarding, non-use of
(7) second hand P&M, is applicable No No Yes
under the section
Whether stipulations regarding, non-use of
(8) building earlier used as hotel or No No Yes
convention centre, is applicable
(9) Exemption from MAT u/s115JB No Yes Yes
On or before the
due date u/s On or before the
139(1) for On or before the due due date u/s 139(1)
furnishing the date u/s 139(1) for for furnishing the
first of the return furnishing the return first of the return of
When option for benefits under
(10) of income which of income for any income which the
section should be exercised
the assessee is PY relevant to the assessee is required
required to AY commencing on to furnish under the
furnish under or after 01-04-2020. provisions of the
the provisions Act.
of the Act.
No, since option
to avail the No, since option to
section has to be avail the section has
exercised on or to be exercised on
before the due or before the due
Whether company can opt to
date specified date specified u/s
claim exemptions and pay tax at
u/s 139(1) for Yes. See point No. 139(1) for
pre-amended rate and can opt
(11) furnishing the (10) above in this furnishing the first
for the concessional tax regime
first of the return table of the return of
after expiry of their tax
of income which income which the
holiday/exemption period
the assessee is assessee is required
required to to furnish under the
furnish under provisions of the
the provisions of Act.
the Act.

(12) Whether existing company can Yes. Company which No. Company
migrate from section 115BA to — has opted for 115BA which has opted for
the new section can irrevocably opt 115BA can't opt for
for 115BAA and 115BAB.
thereupon withdraw
the option exercised
for 115BA.
(13) What happens to existing Company can Unutilised credit can No question of
unutilised MAT credit? carry forward be c/f and set off if unutilised MAT
and utilise it as company opts for credit as section
per sec. 115JAA section 115BAA applies to new
companies.
Assessee-company
can opt for 115BAA
Option cannot be
if option exercised
availed for the
for 115BAB
AY in which the
Consequences if option exercised rendered invalid due
breach takes place &
(14) rendered invalid due to breach — to non-compliance
also subsequent AY’s.
of conditions with conditions in
Assessment shall be
clause (b) or sub-
done as if option has
clause (ii)/(iii) of
not been exercised.
clause (a) of sub-sec
(2) of 115BAB
(15) Tax rate applicable for income See (5) above 25.168% 25.168%
neither derived from nor
incidental to manufacture or
production for which no specific
tax rate provided u/c XII
No exit option.
Company can opt out Company can opt
once the option
by claiming deductions out by claiming
has been exercised
/reliefs not to be deductions/reliefs
for any PY,
claimed. not to be claimed.
(16) Opting out it cannot be
Once company opts Once company opts
subsequently
out in this manner, it out in this manner,
withdrawn for
can never ever again it can never ever
the same or any
avail 115BAA. again avail 115BAB.
other PY.
Tax on income of Individual & HUF Sec: 115BAC

(1) Notwithstanding anything contained in this Act but subject to the provisions of Chapter XII, the income-
tax payable in respect of the total income of a person, being an individual or a Hindu undivided family, for
any previous year relevant to the assessment year beginning on or after the 1st day of April, 2021, shall, at the
option of such person, be computed at the rate of tax given in the following Table, if the conditions contained
in sub-section (2) are satisfied, namely:—
TABLE
Sl. Total income Rate of tax

No.
1. Upto ` 2,50,000 Nil
2. From ` 2,50,001 to ` 5,00,000 5%
3. From ` 5,00,001 to ` 7,50,000 10%
4. From ` 7,50,001 to ` 10,00,000 15%
5. From ` 10,00,001 to ` 12,50,000 20%
6. From ` 12,50,001 to ` 15,00,000 25%
7. Above ` 15,00,000 30%
Provided that where the person fails to satisfy the conditions contained in sub-section (2) in any previous
year, the option shall become invalid in respect of the assessment year relevant to that previous year and other
provisions of this Act shall apply, as if the option had not been exercised for the assessment year relevant to
that previous year:
Provided further that where the option is exercised under clause (i) of sub-section (5), in the event of failure
to satisfy the conditions contained in sub-section (2), it shall become invalid for subsequent assessment years
also and other provisions of this Act shall apply for those years accordingly.
(2) For the purposes of sub-section (1), the total income of the individual or Hindu undivided family shall be
computed,—
(i) without any exemption or deduction under the provisions of clause (5) or clause (13A) or prescribed
under clause (14) (other than those as may be prescribed for this purpose) or clause (17) or clause (32),
of section 10 or section 10AA or section 16 or clause (b) of section 24 (in respect of the property
referred to in sub-section (2) of section 23) or clause (iia) of sub-section (1) of section 32 or section
sub-section (1) or sub-section (2AA) of section 35 or section 35AD or section 35CCC or clause (iia)
of section 57 or under any of the provisions of Chapter VI-A other than the provisions of sub-section
(2) of section 80CCD or section 80JJAA;
(ii) without set off of any loss,—
(a) carried forward or depreciation from any earlier assessment year, if such loss or depreciation is
attributable to any of the deductions referred to in clause (i);
(b) under the head "Income from house property" with any other head of income;

(iii) by claiming the depreciation, if any, under any provision of section 32, except clause (iia) of sub-
section (1) of the said section, determined in such manner as may be prescribed; and
(iv) without any exemption or deduction for allowances or perquisite, by whatever name called, provided
under any other law for the time being in force.
(3) The loss and depreciation referred to in clause (ii) of sub-section (2) shall be deemed to have been given
full effect to and no further deduction for such loss or depreciation shall be allowed for any subsequent year:
Provided that where there is a depreciation allowance in respect of a block of assets which has not been
given full effect to prior to the assessment year beginning on the 1st day of April, 2021, corresponding
adjustment shall be made to the written down value of such block of assets as on the 1st day of April, 2020 in
the prescribed manner, if the option under sub-section (5) is exercised for a previous year relevant to the
assessment year beginning on the 1st day of April, 2021.
(4) In case of a person, having a Unit in the International Financial Services Centre, as referred to in sub-
section (1A) of section 80LA, which has exercised option under sub-section (5), the conditions contained in
sub-section (2) shall be modified to the extent that the deduction under section 80LA shall be available to
such Unit subject to fulfilment of the conditions contained in the said section.
(5) Nothing contained in this section shall apply unless option is exercised in the prescribed manner by the
person,—
(i) having income from business or profession, on or before the due date specified under sub-section (1)
of section 139 for furnishing the returns of income for any previous year relevant to the assessment
year commencing on or after the 1st day of April, 2021, and such option once exercised shall apply to
subsequent assessment years;
(ii) having income other than the income referred to in clause (i), alongwith the return of income to be
furnished under sub-section (1) of section 139 for a previous year relevant to the assessment year:
Provided that the option under clause (i), once exercised for any previous year can be withdrawn only once
for a previous year other than the year in which it was exercised and thereafter, the person shall never be
eligible to exercise option under this section, except where such person ceases to have any income from
business or profession in which case, option under clause (ii) shall be available.
(Added by FA 2020 w.e.f. AY 21-22)
Analysis:
1. Individual or HUF opting for taxation under the newly inserted section 115BAC of the Act shall not
be entitled to the following exemptions/ deductions:
(i) Leave travel concession u/s 10(5);
(ii) House rent allowance u/s 10(13A);
(iii) Allowance exempt u/s 10(14) (other than transport, conveyance, allowance to meet cost of travel
or daily allowance at place of duty);
(iv) Allowances to MPs/MLAs u/s 10(17);
(v) Allowance for income of minor u/s 10(32);
(vi) Deduction for SEZ unit u/s 10AA;
(vii) Standard deduction of ` 50,000, deduction for entertainment allowance and employment/
professional tax as contained in section 16;
(viii) Interest under section 24 in respect of self-occupied or vacant property u/s 23(2). (Loss under the
head income from house property for rented house shall not be allowed to be set off under any
other head and would be allowed to be carried forward as per extant law);
(ix) Additional deprecation u/s 32(1)(iia);
(x) Deductions under section 32AD, 33AB, 33ABA;
(xi) Various deduction for donation for or expenditure on scientific research u/s 35(1)(ii)/(iia)/(iii) or
35(2AA)
(xii) Deduction u/s 35AD or section 35CCC;

(xiii) Deduction from family pension u/s 57(iia);
(xiv) Any deduction under chapter VIA (like section 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E,
80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80-IB, 80-IBA,
etc). However, deduction u/s 80CCD(2) (employer contribution on account of employee in
notified pension scheme) and u/s 80JJAA (for new employment) can be claimed.
Following allowances notified u/s 10(14) of the Act to the Individual or HUF exercising option under the
proposed section:
(a) Transport Allowance granted to a divyang employee to meet expenditure for the purpose of
commuting between place of residence and place of duty
(b) Conveyance Allowance granted to meet the expenditure on conveyance in performance of duties of
an office;
(c) Any Allowance granted to meet the cost of travel on tour or on transfer;
(d) Daily Allowance to meet the ordinary daily charges incurred by an employee on account of absence
from his normal place of duty.
2.Further, such an Individual or HUF opting for the aforesaid concessional rate of tax would also be:
Ø not allowed to set off any loss or depreciation attributable to any of the deductions referred above;
Ø not allowed to set off of any loss from “income from house property” against any other head;
Ø Depreciation u/s. 32 (except additional depreciation under section 32(1)(iia) would have to be
claimed in such manner as may be prescribed; and
Ø He shall not be allowed to claim any exemption or deduction for allowances or perquisite provided
under any other law for the time being in force.
3. If subsequently, the individual or HUF not satisfied any of foregoing conditions, the option of
concessional rate shall become invalid and other provision of the Act shall apply.
An individual or HUF who does not have any business income would have an option to choose either
of the two tax regimes each year depending upon their tax liability under each one of them. However,
in respect of an individuals or HUFs having business income, the option once exercised cannot be
withdrawn. In such a case, an option once exercised would be applicable for all subsequent
assessment years and can be withdrawn only once for a previous year other than the year in which it
was exercised and thereafter, the individual or HUF shall never be eligible to exercise option under
this section, except where such individual or HUF ceases to have any business income.
4. Rebate u/s 87A is available even if assessee opt section 115BAC.
5. Tax on Special Rates Income (Like 112,112A) : Taxable at special rates only.
6. Surcharge : Surcharge applicability is depends on Total income of assessee. Surcharge @ 10%, 15%,
25%, 37% may apply depends on total income.
7. Health & Education cess : HEC @ 4% always apply.
8. If assessee opt section 115BAC then Alternate Minimum Tax (AMT) is not applicable. B/F AMT
credit cannot be set-off against income u/s 115BAC so if a assessee has b/f AMT credit, it can first
exhaust the AMT credit, and thereafter opt for section 115BAC in a subsequent PY.
9. CBDT Circular : C1/2020 – CBDT clarifies that an employee, having income other than the income
under the head "PGBP" and intending to opt for the concessional rate u/s 115BAC of the Act, may
intimate the deductor, being his employer, of such intention for each previous year and upon such

intimation, the deductor shall compute his total income, and make TDS thereon in accordance with
the provisions of section 115BAC of the Act. If such intimation is not made by the employee, the
employer shall make TDS without considering the provision of section 115BAC of the Act.
It is also clarified that the intimation so made to the deductor shall be only for the purposes of TDS
during the previous year and cannot be modified during that year. However, the intimation would not
amount to exercising option in terms of sub-section (5) of section 115BAC of the Act and the person
shall be required to do so along with the return to be furnished u/s 139(1) of the Act for that previous
year. Thus, option at the time of filing of return of income u/s 139(1) could be different from the
intimation made by such employee to the employer for that previous year.
Further, in case of a person who has income under the head "PGBP" also, the option for taxation
under section 115BAC of the Act once exercised for a previous year at the time of filing of return of
income u/s 139(1) cannot be changed for subsequent PY except in certain circumstances.
Accordingly, the above clarification would apply to such person with a modification that the
intimation to the employer in his case for subsequent previous years must not deviate from the option
u/s 115BAC of the Act once exercised in a previous year.
Tax on income of certain resident Co-operative Societies Sec: 115BAD

(1) Notwithstanding anything contained in this Act but subject to the provisions of Chapter XII, the income-
tax payable in respect of the total income of a person, being a co-operative society resident in India, for any
previous year relevant to the assessment year beginning on or after the 1st day of April, 2021, shall, at the
option of such person, be computed at the rate of 22%, if the conditions contained in sub-section (2) are
satisfied:
Provided that where the person fails to satisfy the conditions contained in sub-section (2) in computing its
income in any previous year, the option shall become invalid in respect of the assessment year relevant to that
previous year and subsequent assessment years and other provisions of the Act shall apply, as if the option
had not been exercised for the assessment year relevant to that previous year and subsequent assessment
years.
(2) For the purposes of sub-section (1), the total income of the co-operative society shall be computed,—
sub-section (1) or sub-section (2AA) of section 35 or section 35AD or section 35CCC or under any of
the provisions of Chapter VI-A other than the provisions of section 80JJAA;
(ii) without set off of any loss carried forward or depreciation from any earlier assessment year, if such loss
or depreciation is attributable to any of the deductions referred to in clause (i); and
(iii) by claiming the depreciation, if any, under section 32, other than clause (iia) of sub-section (1) of the
said section, determined in such manner as may be prescribed.
(3) The loss and depreciation referred to in clause (ii) of sub-section (2) shall be deemed to have been given
full effect to and no further deduction for such loss or depreciation shall be allowed for any subsequent year:
Provided that where there is a depreciation allowance in respect of a block of asset which has not been given
full effect to prior to the assessment year beginning on the 1st day of April, 2021, corresponding adjustment
shall be made to the written down value of such block of assets as on the 1st day of April, 2020 in such
manner as may be prescribed, if the option under sub-section (5) is exercised for a previous year relevant to
the assessment year beginning on the 1st day of April, 2021.
(4) In case of a person, having a Unit in the International Financial Services Centre, as referred to in sub-
section (1A) of section 80LA, which has exercised option under sub-section (5), the conditions contained in
sub-section (2) shall be modified to the extent that the deduction under the said section shall be available to
such Unit subject to fulfilment of the conditions contained in that section.
(5) Nothing contained in this section shall apply unless option is exercised by the person in such manner as
may be prescribed on or before the due date specified under sub-section (1) of section 139 for furnishing the
return of income for any previous year relevant to the assessment year commencing on or after the 1st day of
April, 2021 and such option once exercised shall apply to subsequent assessment years:
for the same or any other previous year.
Analysis:
1. Tax @ 22% (effective rate is 25.168% - 22% + 10% Surcharge + 4% HEC) applicable in case of
resident co-operative society if following conditions are satisfied ;
a. Assessee should not claim benefit of section 10AA, 32AD, Additional depreciation,
33AB, 33ABA, 35(1)(ii)/(iia)/(iii)/, 35(2AA), 35AD, 35CCC & any deduction in respect
of Income u/c VI-A except 80JJAA & 80LA.

b. The total income of company is calculated without adjusting b/f loss & depreciation from
earlier year (if such loss & depreciation pertains to any deduction under the aforesaid
sections).
c. Where there is a depreciation allowance in respect of a block of asset which has not been
given full effect to prior to A.Y.2021-22, corresponding adjustment shall be made to the
WDV of such block of assets as on 1.4.2020 in the prescribed manner, if option for
section 115BAD is exercised for P.Y.2020-21 relevant to A.Y.2021-22.
Note: If above conditions not satisfy in any P.Y. then option exercised would be invalid for that
PY and subsequent PY’s and normal provisions of IT, Act shall apply.
2. The beneficial provisions of this section would apply if option is exercised in the prescribed manner
on or before the due date u/s 139(1) for furnishing the return of income for any PY relevant to
A.Y.2020-21 or any subsequent A.Y.. Such option, once exercised, would apply to subsequent
assessment years. Further, once the option has been exercised for any previous year, it cannot be
subsequently withdrawn for the same or any other previous year.
3. Tax on other special rates of tax incomes (like 112A, 112, 111A): Taxable at such special rates plus
surcharge @10% & HEC @4%.
4. Co-operative society which opt for section 115BAD shall not be required to pay AMT. B/F AMT
credit cannot be set-off against income u/s 115BAD so if a assessee has b/f AMT credit, it can first
exhaust the AMT credit, and thereafter opt for section 115BAD in a subsequent PY.
5. If Co-operative society opt section 115BAD then surcharge applicable @ 10% irrespective of Total
income.
Example:
Bala (37 years) is a businessman. His income for the previous year 2020-21 from business is ` 14,00,000.
Besides, he has interest on savings bank account of ` 21,000. He annually contributes ` 1,50,000 towards
public provident fund. X wants to know whether he should opt for alternative tax regime from the assessment
year 2021-22.
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Example:
X (44 years) is a businessman. His business income as per profit and loss account for the year ending March
31, 2021 is ` 71,88,000. Debit side of profit and loss account includes the following-
- Contribution given to National Laboratory (for claiming deduction under section 35 (2AA)] : `
40,000.
- Revenue expenditure on scientific research related to the business of X [for claiming deduction under
section 35(1)(i) : ` 30,000
- Cash payment of a bill: ` 35,000.
Credit side of the profit and loss account includes the following-
- Dividend from Indian companies: ` 95,000.
- Refund of income-tax pertaining to the assessment year 2017-18 (without interest): ` 2,000.
X is entitled to claim the following deductions (which are not debited to profit and loss account) under
the existing tax regime of the current year-
- Additional depreciation: ` 60,000.
- Donation given to Prime Minister’s Relief Fund: ` 20,000.
- Deduction available under section 80JJAA: ` 80,000.

- Deduction under section 80C, 80D, 80E, and 80EEB : ` 1,70,000

X wants to know whether he should opt for alternative tax regime from the assessment year 2021-22.
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Example:
X (32 years) is a salaried employee, employed by A Ltd. as finance advisor. His income and tax incentives for
the previous year 2020-21 are as follows –
`
Basic Salary 40,00,000
House rent allowance [Out of ` 90,000, ` 60,000 is exempted u/s 10(13A)] 90,000
Leave travel concession (LTC) [out of ` 1,95,000, ` 1,80,000 is exempt u/s 10(5)] 1,95,000
NPS contribution by A Ltd. (12% of basic salary) 4,80,000
Payment of professional tax 2,000
Income from Property A (self-occupied) (-) 1,05,000
Income from Property B (let out) 60,000
Income from Property C (let out) (-) 80,000
Savings bank account interest received by minor son of X 800
Savings bank account interest received by minor daughter of X 2,000
Interest on saving bank account of X 28,000
Interest on public provident fund credited on March 31, 2021 3,55,000
Interest credited to Sukanya Samriddhi Account in the name of minor daughter 29,000
Deduction under section 80D, 80E, 80EEA and 80EEB and 80G 2,81,000
NPS contribution by X 4,00,000
PPF contribution by X 20,000
X wants to know whether he should opt for alternative tax regime from the assessment year 2021-22.

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Example
BB Ltd is incorporated on October 10, 2019 to commence manufacture of smart phone in Telangana.
Manufacturing activity is started on December 2, 2019. For the year ending March 31, 2021, income of BB
Ltd. is as follows –
`
Income from manufacturing of smart phones (computed as per provisions of section115BAB)
90,95,000
Bank interest (it is interest on deposit made with SBI on direction of local municipal
corporation to obtain the license to run power back-up system in the factory)
3,00,000
Short-term capital gain on transfer of land (land was purchased for construction of factory,
later on it is transferred because land was not suitable for factory construction)
18,00,000
Short-term capital gain on transfer of a truck (it was purchased on October 20, 2019,
depreciation rate: 45 per cent, later on transferred during March 2020, no other asset in the
block) 20,000
Besides, BB Ltd. gets rental income of Rs. 6,00,000 from letting out of a building. BB ltd has donated Rs.
50,000 to a political party. BB Ltd. has opted for lower tax regime of section 115BAB. Necessary option was
uploaded at the time of submission of first income-tax return of the assessment year 2020-21. Find out the tax
liability of BB ltd.
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2
Capital Gains
Charging Section Sec. 45(1)

Section 45(1) is the charging Section of capital gains and it provides as under:
“any profits and gains arising from transfer of a capital asset effected in the PY shall be chargeable to
income-tax under the head capital gains in the PY in which transfer took place.”
An income is chargeable to tax under this head of income only if following conditions are satisfied:
ü There must be a “CAPITAL ASSET”
ü The capital asset must be “TRANSFERRED”
ü Such capital asset must be transferred “DURING THE P.Y.”
Definition of Capital Asset Sec. 2(14)

“Capital asset” means—
(a) property of any kind (movable/immovable/tangible/intangible) held by an assessee whether or not
connected with his business or profession,
(b) any securities held by a Foreign Institutional Investor (FII) which has invested in such securities in
accordance with the regulations made under the Securities and Exchange Board of India Act, 1992.
but does not include (Exceptions) –
(1) any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession
[other than securities referred to in sub-clause (b)];
(2) personal effects, that is to say, movable property (including wearing apparel and furniture) held for
personal use by the assessee or any member of his family dependent on him, but excludes—
(a) jewellery;
(b) drawings;
(c) paintings;
(d) sculptures;
(e) archaeological collection; or
(f) any work of art.

Capital Gains
Explanation: For the purposes of this sub-clause, “jewellery” includes –

(a) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or
more of such precious metals, whether or not containing any precious or semi-precious stone, and
whether or not worked or sewn into any wearing apparel;
(b) precious or semi-precious stones, whether or not set in any furniture, utensil or other article or
worked or sewn into any wearing apparel;
(3) agricultural land in India (Rural Agriculture land in India),–
It means land outside the followings:
(a) in any area which is comprised within the jurisdiction of a municipality (whether known as
municipality, municipal corporation, notified area committee, town area committee, town committee,
or by any other name) or a cantonment board and which has a population 10,000 or more; or
(b) in following area within the distance, measured aerially,-
i Shortest aerial distance from the local Population according to the last
limits of a municipality or cantonment preceding census of which the relevant
board referred to in item (a) figures have been published before the
first day of the PY.
(1) ` 2 kilometers > 10,000 ` 1,00,000
(2) ` 6 kilometers > 1,00,000 ` 10,00,000
(3) ` 8 kilometers > 10,00,000
Explanation: “Population” means population according to last preceding census of which the relevant
figures have been published before the first day of the PY.
(4) 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.
Explanation – For the removal of doubts, it is hereby clarified that “Property” includes and shall be
deemed to have always included any right in or in relation to an Indian company, including right of
management and control or any other right whatsoever. (Added by Fin. Act, 12 to override SC
judgement in case of VODAFONE)

Capital Gains
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NOTES:
± Personal effects are articles having some personal connection with the assessee, such as clothing,
furniture, utensils, vehicle, mobile etc. held for personal use of assessee or any dependent member of
family.
± The following has been excluded from personal effect and shall be regarded as capital asset :
(1) Jewellery
(2) archaeological collections,
(3) drawings,
(4) paintings,
(5) sculptures,
(6) any work of art
Accordingly these are capital assets and capital gains shall arise on sale of these assets. Therefore, if
an assessee sells jewellery, then capital gains shall arise on the sale of the same.
± Items of silverware including dinner plates of different size, finger bowls, jugs were held to be
personal effects [Benarshilal Kataruka (Cal)]. But at the same time, a large number of the same type of
silver articles cannot be treated as having been held for personal use and the assessing authority has to
find out as to what are the articles which should reasonably be held by assessee for personal use.
[Ramanathan Chettair (Mad)]
± Silver Bars, sovereign, bullion and silver coins were held not to be effects meant for personal use even
if they are placed before Goddess Lakshmi at the time of Puja. [Maharaja Rana Hemanth Singhji (SC)]
± Loose diamonds held by an assessee are not personal effects.
± Business assets are capital assets but stock-in-trade, consumable stores or raw materials held for the
purpose of business or profession are not capital assets. Car used in the business is treated as capital asset.
± Agriculture Land is situated in Urban Area or outside India shall be treated as Capital asset, even if it is
used for Agriculture purpose or not.
± Immovable Property in which the assessee resides is not a personal effect even though the assessee
uses the immovable property for his personal purposes. It shall be treated as a capital asset since personal
effects include only moveable property.
Definition of Transfer Sec. 2(47)

“Transfer”, in relation to a capital asset, includes,
(1) the sale, exchange or relinquishment of the asset; or
(2) the extinguishment of any rights therein; or
(3) the compulsory acquisition thereof under any law; or
(4) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-
trade of a business carried on by him, such conversion or treatment; or
(5) any transaction involving the allowing of the possession of any immovable property to be taken or
retained in part performance of a contract of the nature referred to in Section 53A of the Transfer of
Property Act, 1882; or

Capital Gains
(6) any transaction (whether by way of becoming a member of, or Acquiring shares in, a co-operative
society, company or other association of persons or by way of any agreement or any arrangement or in
any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of any
immovable property.
(7) the maturity or redemption of a Zero Coupon bond
Explanation: For the removal of doubts, it is hereby clarified that “transfer” includes and shall be
deemed to have always included 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.
(Explanation Inserted by Finance Act, 2012, this explanation added for override S.C. Judgement in case of
VODAFONE)
Notes:
± Registration of immovable property in the name of buyer is not necessary, transfer takes place on the date
on which possession of immovable property is given in pursuance of agreement to sale.
± In case of Co-op Society and company a member can transfer the right to use and enjoy the property by
changing the membership of co-op society or by transferring the share in company.
± Capital gain on sale of immovable property was chargeable to tax in the year in which actual physical
possession of property is given to buyer even though the agreement is entered into in earlier year.
± Relinquishment means withdrawn from, abandoning or giving up anything. By relinquishment a person
ceases to own the asset concerned through some act on his part. In other words, the owner withdraws
himself from the property and abandons his right hereto. The property however, continues to exist and
will become the property of someone else.
Types of CAPITAL Assets

Short Term Capital Asset: Section 2(42A) defines a short term capital asset to mean a capital asset held by
an assessee for not more than 36 months immediately preceding the date of its transfer
Provided that in the case of a security (other than a unit) listed in a recognized stock exchange in India or a
unit of the Unit Trust of India or a unit of an equity oriented fund or a zero coupon bond, the provisions of
this clause shall have effect as if for the words "thirty-six months", the words "twelve months" had been
substituted
Provided also that in the case of a share of a company (not being a share listed in a recognised stock
exchange in India) or an immovable property, being land or building or both, the provisions of this clause
shall have effect as if for the words "thirty-six months", the words "twenty-four months" had been
substituted.
Long Term Capital Asset: As per section 2(29A), any asset, which is not a STCA is called Long term
capital Asset. In other words if a capital asset is held for a period of more than 36 months, then it called
“Long Term Capital Asset”
Capital Gains
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Capital Gains
Computation of Capital Gains Sec. 48

The income chargeable under the head “Capital Gains” shall be computed as under:
Sale Consideration received or accruing as a result of transfer of capital asset. (FVOC) XXX
Less: Expenditure incurred wholly and exclusively in connection with such transfer XXX
(Transfer Expenses)
Less: The Cost of Acquisition of the asset (COA) XXX
Less: The Cost of any improvement to the asset (COI) XXX
Capital Gain / Loss XXX
First proviso to Sec. 48: Capital Gains in case of non-residents

In case of an assessee who is a non-resident, the capital gains arising from the transfer of shares or
debentures in an Indian company, shall be computed by converting
(1) the cost of acquisition of the asset
(2) the expenditure incurred wholly and exclusively in connection with such transfer and
(3) sale consideration received or accruing as a result of transfer of capital asset
into the same foreign currency as was initially utilised in the purchase of such shares or debentures. The
capital gains so computed in the foreign currency shall be reconverted into Indian currency.
i The above-said manner of computation of capital gains shall apply to capital gains arising
from every reinvestment thereafter in and the sale of, shares or debentures in Indian
company.
Rule 115A: Methods of Conversion

(a) COA Average of TTBR and TTSR on the date of acquisition
(b) Expenditure Average of TTBR and TTSR on the date of transfer
(c) Sale Consideration Average of TTBR and TTSR on the date of transfer
(d) CG into Indian Company TTBR on the date of transfer
Capital Gains
TEST YOURSELF
Sunny, a non-resident purchases shares of MB Ltd. On 01.01.2006 by remitting US$. The following data is
given:
COA : ` 5,50,000
Date of sale : 14.02.2021
Sale price : ` 21,00,000
Date of expenditure : 12.02.2021
Expenditure on transfer : ` 7,500
Exchange rates on various dates are as under:
1 US $ = ` TTBR TTSR
01.01.2006 38 40
12.02.2021 52 54
14.02.2021 56 58
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Capital Gains
Second proviso to Sec. 48: Indexation

(1) This proviso is not applicable where the first proviso applies.
(2) Where the capital gains arises from the transfer of a long term capital asset, then for the purposes of
computing capital gains:
(a) “Indexed Cost of Acquisition” shall be taken instead of “Cost of Acquisition” and
(b) “Indexed cost of any improvement” shall be taken instead of “cost of any improvement”.
Formulae for Indexation

(1) Indexed Cost of Acquisition
CII of the year in which asset was transfarred
= Cost of acquisition ×
CII for first year in which asset was held by assessee OR üï
ýWhichever is Later
The year beginning on 01/04/2001 ïþ
(2) Indexed Cost of any Improvement

CII of the year in which asset was transferred
= Cost of improvement ×
CII for the year in which the improvement to the asset took place
Cost Inflation Index (CII)

Financial Financial Financial
C.I.I. C.I.I. C.I.I.
Year Year Year
2001-02 100 2009-10 148 2017-18 272
2002-03 105 2010-11 167 2018-19 280
2003-04 109 2011-12 184 2019-20 289
2004-05 113 2012-13 200 2020-21 301
2005-06 117 2013-14 220
2006-07 122 2014-15 240
2007-08 129 2015-16 254
2008-09 137 2016-17 264
CBDT on Shifting of Base Year

"As the base year for computation of capital gains has become more than three decades old, assessees are
facing genuine difficulties in computing the capital gains in respect of a capital asset, especially immovable
property acquired before 01.04.1981 due to non-availability of relevant information for computation of fair
market value of such asset as on 01.04.1981."
Capital Gains
Third proviso to Sec. 48 : NO 1st and 2nd Proviso in case of sec 112A
First and second proviso shall not apply to the capital gains arising from the transfer of a long-term capital
asset being an equity share in a company or a unit of an equity-oriented fund or a unit of a business trust
referred to in section 112A.
Fourth proviso to Sec. 48 : NO Index in Case of Debentures & Bonds

± The indexation under the second proviso to section 48 shall not apply to the capital gains arising
from the transfer of bonds and debentures.
± However, benefit of indexation is available for capital indexed bonds issued by the central government
or Sovereign Gold Bond issued by the Reserve Bank of India under the Sovereign Gold Bond Scheme,
2015.
i Benefit of indexation is available in respect of units of UTI and Units of Mutual Funds.
CBDT on Sovereign Gold Bonds (Memorandum Explaining)

The Government of India has introduced the Sovereign Gold Bond Scheme with the aim of reducing the
demand for physical gold so as to reduce the outflow of foreign exchange on account of import of gold. The
Gold Bond is a mode for substitution of physical gold and also provides security to the individual investor
who invests in Gold for meeting their social obligation. Accordingly, with a view to provide parity in tax
treatment between physical gold and Sovereign Gold Bond, section 47 of the Income-tax Act has been
amended so as to provide that any redemption of Sovereign Gold Bond under the Scheme, by an individual
shall not be treated as transfer and therefore shall be exempt from tax on capital gains.
Further, section 48 of the Income-tax Act has also been amended so as to provide indexation benefits to long
term capital gains arising on transfer of Sovereign Gold Bond to all assessees.
These amendments take effect from 1st of April, 2017 and will, accordingly, apply from assessment year
2017-18 and subsequent assessment years.
Fifth proviso to Sec. 48: Foreign Exchange Fluctuation Gain on RDB

Provided also that in case of an assessee being a non-resident, any gains arising on account of appreciation
of rupee against a foreign currency at the time of redemption of rupee denominated bond (RDB) of an
Indian company held by him, shall be ignored for the purposes of computation of full value of consideration
under this section. (Amended by FA 2017)
The above proviso has been amended with effect from assessment year 2018-19 by substituting the word
"held" in place of the word "subscribed". Thus, the benefit of the said proviso shall be available to any person
who holds the bonds, that is, even a secondary holder also.
CBDT on RDB (Memorandum Explaining)
The Reserve Bank of India permitted Indian corporates to issue rupee denominated bonds outside India as a
measure to enable the Indian corporates to raise funds from outside India. Accordingly, with a view to
provide relief to non-resident investor who bears the risk of currency fluctuation, section 48 of the Income-
tax Act has been amended to provide that the capital gains, arising in case of appreciation of rupee between
the date of issue/purchase and the date of redemption against the foreign currency in which the investment is
made shall be exempt from tax on capital gains.
Capital Gains
This amendment takes effect from 1st of April, 2017 and will accordingly apply in relation to assessment
year 2017-18 and subsequent assessment years.
EXAMPLE:
BB ltd (Indian company) issued RDB @ ` 10000 per bond on 14/02/2020. The Bounds redeemed at par on
13/1/2021. Mr. Sunny (NR) subscribed 100 bonds. He invested foreign currency.
Exchange Rate on 14/02/2020 13/01/2021
$1 ` 70 ` 62
COA (in Foreign Currency) = $14285.71
Redemption Price (In Foreign Currency) = $16129.03
Gain = $ 16129.03 - $14285.71 = $ 1843.32
The Gain of $ 1843.32 arising on account of appreciation in rupee is not taxable.
Suppose in above example if bonds redeemed at 10% premium @ ` 11000 per bond
Redemption Price $ 17,741.94
Cost of Acquisition $ 14,285.71
Gain $ 3,456.23
$1612.91 $1843.32
Ignore
Short Term Capital Gain Taxable Rupee Appreciation Not Taxable
Notes
1. For computation of capital gain First Proviso to Sec 48 applies.
2. If there is a loss due to rupee depreciation, then it shall be allowed as capital loss.
3. Exemption is not available if RDB is transferred before maturity.
Sixth proviso to Sec. 48: FVOC in Case of ESOP shares

Provided also that where shares, debentures or warrants referred to in the proviso to clause (iii) of section
47 are transferred under a gift or an irrevocable trust, the market value on the date of such transfer shall be
deemed to be the full value of consideration received or accruing as a result of transfer for the purposes of this
section.
Seventh proviso to Sec. 48: STT Not Allowed

No deduction shall be allowed in computing the income chargeable under the head “Capital Gains” in
respect of any sum paid on account of securities transaction tax.
Accordingly the securities transaction tax (STT) paid on sale of shares/units shall not be reduced from the
sale price and the STT paid on purchase of shares/units shall not be added to the cost of acquisition.

Capital Gains
Cost of Acquisition Sec. 55

(1) In relation to a capital asset being
ð Goodwill of a business, or (Not Profession)
ð Trade mark or brand name associated with a business, or
ð Tenancy rights, or
ð Stage carriage permits (Route Permits), or
ð Loom hours, or
ð A right to manufacture, produce or process any article or thing, or
ð A right to carry on any business or Profession
Cost of acquisition means
(a) In case such asset is acquired by the assessee: the amount of price paid and
(b) In any other case (Self-Generated): Nil
i In case of Intangible Assets the option to take cost of acquisition as Fair market value as on
01-04-2001 is not available even if such assets were acquired before 01.04.2001. This will
apply irrespective of the fact whether such assets are self-generated or have been purchased from
someone.
(2) In case of share/security
Capital Asset Cost of Acquisition Period of Holding
From the date of purchase or

Original Shares/ Securities Purchase Price
allotment
Right Shares/ Securities Price actually paid under the

From the date of allotment
right issue
Renouncement of right to
subscribe shares/ securities
§ in the hands of the person who From the date of offer (always
NIL
renounces the right short-term)
§ in the hands of the purchaser Price paid to the person who

of right. renounced the right and
From the date of allotment
amount paid to the company to
acquire the right shares
Bonus Shares/ Securities NIL From the date of allotment
i The option to take FMV as on 1-4-2001 is available.
Capital Gains
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(3) Under a scheme for demutualization or corporatization approved by the SEBI in relation to a capital
asset, being:
Capital Asset Cost of Acquisition
Equity share or shares allotted to a member of a Cost of acquisition of his original membership
recognized stock exchange in India of the exchange
Trading or clearing rights of the recognized stock

NIL
exchange acquired by a shareholder
i The option to take FMV as on 1-4-2001 is Not available.
(4) in relation to other capital assets

1. Where the capital asset is acquired by the assessee or the previous owner before 1-4-2001:
(i) Cost of Acquisition to the assessee or the previous owner
(ii) FMV as on 01/04/2001
Whichever is higher
2. Where the capital asset is acquired by the assessee or the previous owner on or after 1-4-2001:
Cost of acquisition to the assessee or the previous owner.

Capital Gains
Provided that in case of a capital asset, being land or building or both, the fair market value of such
asset on the 1st day of April, 2001 for the purposes of the said sub-clauses shall not exceed the stamp
duty value, wherever available, of such asset as on the 1st day of April, 2001.
Explanation.—For the purposes of this proviso, "stamp duty value" means the value adopted or assessed
or assessable by any authority of the Central Government or a State Government for the purpose of
payment of stamp duty in respect of an immovable property. (Added by FA 2020 w.e.f. AY 21-22)
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Cost of Improvement Sec. 55

(a) Cost of improvement of the following shall be taken to be NIL:
(1) Goodwill of business
(2) Right of manufacture, produce or process any article or thing
(3) Right to carry on any business or Profession
(b) In other capital asset, capital expenditures by assessee in PY on or after 01.04.2001
i Expenditure incurred before 01.04.2001 shall be IGNORED.
QUESTION 1
Mr. Bhavin purchased 100 shares of Hari Pvt. Ltd. on 1.1.1999 for ` 30 each. On 1.1.2000 Hari Pvt. Ltd.
announces the right shares. Mr. Bhavin applied for 100 shares and 100 Right shares were allotted to him for
` 40 each on 28.1.2000. On 1.12.2000 Hari Pvt. Ltd. announces bonus of 2:1. 400 Bonus shares have been
allotted to Mr. Bhavin on 1.1.2001. In the year 2008, Hari Pvt. Ltd. again announced the right shares. Mr.
Bhavin has applied for the right shares and has been allotted 400 Rights shares on 1.1.2008 for ` 60 each. In
the year 2010, Hari Pvt. Ltd. announces bonus of 1:1.
Mr. Bhavin has been allotted 1000 Bonus shares on 30.6.2010. Mr. Bhavin sold all shares of Hari Pvt. Ltd.
on 14.2.2021 for ` 950 per share. Compute Capital Gains in the hands of Mr. Bhavin. Fair Market value as
on 1.4.2001 is ` 85 per share.
Capital Gains
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Capital Gains
QUESTION 2
Mr. Raj sells the goodwill on 20-01-2021 for ` 38,00,000. It was self generated by him on 02.01.2002 and he
incurred Cost of improvement thereof for ` 5,55,000 on 01.04.2005. Compute the taxable capital gain.
Also Compute capital gain in case goodwill was purchased by Raj on 20.01.2002 for ` 5,20,000
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Capital Gains on conversion of Capital Assets into Stock-in-trade Sec. 45(2)

Section 2(47): Transfer include conversion of a capital asset into stock in trade of the business carried on
by the assessee.
Section 45(2): Notwithstanding anything contained in section 45(1), the capital gains arising from the
transfer by way of conversion of a capital asset into stock-in-trade shall be charged to tax in
the PY in which the stock-in-trade is sold or otherwise transferred by the assessee. For the
purposes of computing the capital gains, the fair market value of the asset on the date of
conversion shall be deemed to be the sales consideration for the purposes of section 48.
Notes:
1. If any part of stock in trade is sold then only part capital gain shall arise in the year in which part
stock in trade is sold.
2. In case of conversion of capital asset into stock in trade and subsequent sale of stock in trade, the
period of 6 months shall calculate from the date of sale of stock in trade for the purpose of claiming
exemption u/s 54EC (CBDT Circular)
Capital Gains
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Capital Gains
QUESTION
A building has been acquired by the assessee on 1.06.2000 for ` 2,00,000. The assessee converts the building
into stock in trade of his property dealing business on 1.01.2008 when the fair market value of the building is
` 19,00,000. The stock in trade is sold by the assessee on 14.02.2021 for ` 29,00,000. (FMV as on 1.04.2001
was ` 2,70,000).
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QUESTION
Hema purchased a land at a cost of ` 10 lakhs in the financial year 1992-93 and held the same as her capital
asset till 31st March, 2010. Hema started her real estate business on 1st April, 2010 and converted the said
land into stock-in-trade of her business on the said date, when the fair market value of the land was ` 150
lakhs. She constructed 20 flats of equal size, quality and dimension. Cost of construction of each flat is ` 8
lakhs. Construction was completed in December, 2020. She sold 15 flats at ` 20 lakhs per flat between
January, 2021 and March, 2021. Remaining 5 flats were held in stock as on 31st March, 2021. Compute the
amount of chargeable capital gain and business income in the hands of Hema arising from the above
transactions for Assessment Year 2021-22 indicating clearly the reasons for treatment for each item. FMV as
on 01.04.2001 of Land is ` 20,00,000
Capital Gains
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Capital Gains
Conversion of Stock in trade into Capital Asset (Added by FA 2018)

Section 28 of PGBP
(via) The fair market value of inventory as on the date on which it is converted into, or treated as, a
capital asset determined in the prescribed manner
Section 2(24) Income
(xiia) the fair market value of inventory referred to in clause (via) of section 28
Section 49(9) Cost of Acquisition
Where the capital gain arises from the transfer of a capital asset referred to in clause (via) of section 28,
the cost of acquisition of such asset shall be deemed to be the fair market value which has been taken
into account for the purposes of the said clause.
Section 2(42A) Period of Holding
(ba) in the case of a capital asset referred to in clause (via) of section 28, the period shall be reckoned
from the date of its conversion or treatment;
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Capital Gains
EXAMPLE
Yatish trading company acquired 10,000 shares BB Ltd. @20 each on 14/05/2018 as stock in trade. SIT not
sold upto 31/03/2019 and NRV on 31/03/2019 is 22 per share. Inventory of 10,000 shares converted into
Capital asset on 10/07/2019 and FMV on such date is 26 per share. Assessee transfer 2,000 shares on
19/03/2020 @ 45 each & balance 8,000 shares on 14/08/2020 @ 36 per share. Compute PGBP and Capital
Gain.
Solution
Computation of PGBP for PY 18-19 AY 19-20
Particular ` `
Opening stock -
Add: Purchase of Stock 2,00,000
Less: sale -
Closing Stock (10,000 × 20) 2,00,000
(Cost-20 or NRV-22, Lower)
PGBP Nil
2,00,000 2,00,000
Computation of PGBP for PY 19-20 AY 20-21
Particular ` `
Opening stock 2,00,000
Add: Purchase of Stock -
Less: FMV of stock on the date of conversion into
As per section 28(via) 2,60,000
Closing Stock -
PGBP 60,000
2,60,000 2,60,000
Computation of Capital Gain (assume shares are unlisted) PY 19-20 PY 20-21
AY 20-21 AY 21-22
Period of Holding (10/7/19-18/3/20) (10/7/19-13/8/20)
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Full value of Consideration 90,000 2,88,000
-COA (FMV on the date of conversion into capital asset) (52,000) (2,08,000)
STCG 38,000 80,000
Note: In this case the PGBP taxable in the year of conversion of SIT into Capital asset and capital gain
taxable in the year in which capital asset transferred but in section 45(2) conversion of capital asset into
stock in trade, capital gain and PGBP both taxable in the year in which stock sold.

Capital Gains
Rule: 11UAB: Determination of FMV of Stock in Trade

(a) Immovable Property: SDV (Stamp Duty Value) as per CG or SG authority on the date of
conversion.
(b) Jewellery, archaeological collections, drawings, paintings, sculptures, any work of art, shares
and securities: Value as per Rule 11UA on the date of conversion.
(c) Any other asset: Price in open market on the date of conversion.
Capital Gain on transfer by way of Compulsory Acquisition of Assets Sec. 45(5)

Notwithstanding anything contained in section 45(1), where a capital asset is compulsorily acquired under
any law or where the consideration for transfer of a capital asset is to be determined or approved by the
Central Government or Reserve Bank of India, then the capital gains arising from the transfer of the capital
asset shall be dealt with as under:
(a) The capital gains computed with reference to the original compensation (Initial) shall be chargeable
to tax as the income of the PY in which such compensation or part thereof is first received by the
assessee.
(b) The amount by which the compensation is enhanced (i.e. enhanced compensation) by the Court,
Tribunal or other authority shall be deemed as the income under the head Capital gains of the PY in
which such amount is received by the assessee.
Provided that any amount of compensation received in pursuance of an interim order of a
court, Tribunal or other authority shall be deemed to be income chargeable under the head
“Capital gains” of the previous year in which the final order of such court, Tribunal or other
authority is made.
Where in the assessment for any year, the capital gain arising from the transfer of a capital asset is computed
by taking the compensation referred to in clause (a) or, as the case may be, enhanced compensation referred
to in clause (b), and subsequently such compensation is reduced by any court, Tribunal or other authority,
such assessed capital gain of that year shall be recomputed by taking the compensation as so reduced by such
court, Tribunal or other authority to be the full value of consideration. [Rectification u/s 155(16)]
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Capital Gains
NOTES ± For determining nature of capital gains, the period shall be taken from the date the asset was
acquired by the assessee to the date on which asset was acquired under any law or
transferred.
± The nature of capital gains computed with reference to the enhanced compensation shall be
the same as the nature of capital gains computed with reference to the original
compensation.
± For the purpose of computing the capital gains with reference to the enhanced
compensation, the cost of acquisition and the cost of improvement shall be taken to the NIL.
However, legal expenses incurred to obtain the enhanced compensation are deductible from
the enhanced compensation and balance shall be the capital gains.
± Any interest received on compensation is taxable under the head Income from Other
Sources in the year in which it is received and 50% deduction is allowed in the year in which
interest is received.
± CBDT clarified that compensation received in respect of award or agreement which has
been exempted from levy of income-tax vide Section 96 of the (Right to Fair Compensation
and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013)
RFCTLARR Act shall also not be taxable under the provisions of Income-tax Act, 1961
even if there is no specific provision of exemption for such compensation in the Income-tax
Act, 1961.
Capital Gains on Insurance Claim for damage or destruction of capital assets

Sec. 45(1A)
Notwithstanding anything contained in sub-section (1), where any person receives at any time during any PY
any money or other assets under an insurance from an insurer on account of damage to, or destruction of, any
capital asset, as a result of
(1) flood, typhoon, hurricane, cyclone, earthquake or other convulsion of nature, (act of God) or
(2) riot or civil disturbance, or
(3) accidental fire or explosion; or
(4) action by an enemy or action taken in combating an enemy (whether with or without a declaration of
war),
then any profits or gains arising from receipt of such money or other assets shall be chargeable to tax under
the head “Capital gains” and shall be deemed to be the income of such person of the PY in which such money
or other asset was received and for the purposes of section 48, value of any money or the fair market value of
other assets on the date of such receipt shall be deemed to be the full value of the consideration received or
accruing as a result of the transfer of such capital asset.
Capital Gains
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Notes ± Section 45(1A) is not attracted if an asset is destroyed and no insurance compensation is
received. Such a destruction of asset shall not be treated as transfer and thus there will be no
capital gains. The cost of the asset destroyed shall be a capital loss i.e. dead loss which has no
tax treatment.
± As per section 45(1A), the capital gains shall not be taxable in the year in which the asset is
destroyed but shall be taxable in the year in which the insurance money is received or an asset
is received from the insurance company. It is for this reason that section 45(1A) overrides
section 45(1) which provides that the capital gains shall be taxable in the year of transfer.
± Destruction of an asset resulting in receipt of insurance claim will now amount to a transfer
and for the purposes of computing the nature of capital gains, the date of transfer of the capital
asset destroyed should mean the date of destruction.
± The fair market value of such asset on the date on which it was received should be taken as its
cost of acquisition of that assets.

Capital Gains
QUESTION
An assessee purchased a land on 1.1.2002 for `1 lakh. The land is acquired by the Government on 1.1.2012
and the original compensation awarded is ` 12 lakhs which is received as under:
On 14.2.2013 ` 3 lakhs
On 14.2.2015 ` 6 lakhs
On 14.2.2016 ` 3 lakh.
On an appeal made by the assessee, the Court awards additional compensation of 20 lakhs on 31.12.2014
which is received as under:
On 1.1.2016 ` 2 lakhs
On 1:1.2017 `10 lakhs
On 1.1.2018 ` 4 lakhs
On 1.1.2019 ` 4 lakhs
The Court also awards interest @ 12% per annum for the period 1.1.2012 to 31.12.2016 amounting to
`3,80,000 which is received on 1.3.2021. Compute capital gain of the assessee.
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Capital Gains
QUESTION
Mr A is an individual carrying on business. His stock and machinery were damaged and destroyed in a fire
accident. The value of stock lost (totally damaged) was ` 6,50,000. A certain portion of the machinery could
be salvaged. The opening written-down value (WDV) of the block as on April 1, 2020, was ` 10,80,000.
During the process of safeguarding machinery and in the fire-fighting operations, Mr A lost his gold chain
and a diamond ring, which he had purchased in April 2005 for ` 1,20,000. The market value of these two
items as on the date of the fire accident was ` 1,80,000.
Mr A received the following amounts from the insurance company:
(i) towards loss of stock, ` 4,80,000;
(ii) towards damage of machinery, ` 6,00,000;
(iii) towards gold chain and diamond ring, ` 1,80,000.
You are requested to briefly comment on the tax treatment of the above three items under the provisions of
the Income-tax Act, 1961.
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Capital Gain in Case of Joint Development Agreement Sec. 45(5A)

Notwithstanding anything contained in sub-section (1), where the capital gain arises to an assessee, being an
individual or a Hindu undivided family, from the transfer of a capital asset, being land or building or both,
under a specified agreement, the capital gains shall be chargeable to income-tax as income of the previous
year in which the certificate of completion for the whole or part of the project is issued by the competent
authority; and for the purposes of section 48, the stamp duty value, on the date of issue of the said certificate,
of his share, being land or building or both in the project, as increased by the consideration received in cash,
if any, shall be deemed to be the full value of the consideration received or accruing as a result of the transfer
of the capital asset.
Provided that the provisions of this sub-section shall not apply where the assessee transfers his share in the
project on or before the date of issue of said certificate of completion, and the capital gains shall be deemed to
be the income of the previous year in which such transfer takes place and the provisions of this Act, other
than the provisions of this sub-section, shall apply for the purpose of determination of full value of
consideration received or accruing as a result of such transfer.
Explanation.—For the purposes of this sub-section, the expression—
(i) "competent authority" means the authority empowered to approve the building plan by or
under any law for the time being in force;
(ii) "specified agreement" means a registered agreement in which a person owning land or
building or both, agrees to allow another person to develop a real estate project on such
land or building or both, in consideration of a share, being land or building or both in
such project, whether with or without payment of part of the consideration in cash;
(iii) "stamp duty value" means the value adopted or assessed or assessable by any authority of
Government for the purpose of payment of stamp duty in respect of an immovable
property being land or building or both.'.
(Added by Finance Act, 2017)
Section 49(7): Cost of Acquisition
Where the capital gain arises from the transfer of a capital asset, being share in the project, in the form of
land or building or both, referred to in section 45(5A), not being the capital asset referred to in the proviso to
the said sub-section, the cost of acquisition of such asset, shall be the amount which is deemed as full value
of consideration in that sub-section.
Aasaan Hai…
- In case of an assessee being Individual or HUF,
- who entered into a specified agreement for development of project,
- the capital gain on transfer of Land or Building or Both, shall be taxable in the year in which Certificate
of Completion (CC) for the whole or part of project issued by Competent Authority.
Year of Transfer = Year in which possession of immovable property is transfer in JDA
Year of Tax = Year in which CC issued by Competent Authority
FVOC = SDV on the day of issue of CC of his share in project + Consideration received in Cash
Note: Above provisions not apply if assessee transfer his share in project on or before the date of issue of CC
and capital gain will be taxable in the year in which transfer took place i.e. possession transfer in JDA.

Capital Gains
Section 49(7): COA of share received in JDA

COA = Amount Deemed as FVOC u/s 45(5A)
Meaning of Specified Agreement(JDA)
It means a registered agreement in which a person owning land or building or both, agrees to allow another
person to develop a real estate project on such land or building or both.The consideration, in this case, is a
share, being land or building or both in such project; Part of the consideration may also be in cash.
EXAMPLE 1
Mr. BB purchased a plot for ` 5,00,000 in PY 01-02. On 16/07/2018 he entered into a JDA with Omkar
Builders & handover the possession of plot to Builder on 16/07/2018. FMV of plot on uch date is `
32,00,000.
As per JDA, BB is to receive 2 flats in developed project along with ` 40,00,000.
Mr. BB received money of ` 40,00,000 in PY 20-21. Completion certificate (CC) of project issued on
10/12/2021 & SDV on such date is ` 50,00,000 per flat. Mr. BB got possession of 2 flats on 30/06/2022.
Compute Capital Gain.
Solution:
MR. BB PY 2021-22 AY 2022-23
Computation Capital Gain `
FVOC [(50Lacs x 2 Flats) + 40 Lacs] 1,40,00,000

Less: ICOA [POH 01-02 to 15/7/2018]
5,00,000 x 280 (18-19) 14,00,000
100 (01-02)
LTCG 1,26,00,000
EXAMPLE 2
Suppose in above example if Mr. BB transfer 1 Flat for ` 92,00,000 on 14/02/2023. Compute capital gain.
Solution:
MR. BB PY 2022-23 AY 2023-24
Computation Capital Gain `
FVOC 92,00,000
Less: COA [POH 30/06/22 to 13/02/23] Sec. 49(7) 50,00,000 (Note-1)
STCG 42,00,000
Note-1: Alternative view
If we take rigid interpretation of section 49(7) then COA will be ` 70,00,000 (1,40,00,000/2 Flats) because as
per section 49(7) COA shall be FVOC u/s 45(5A) but if we take logical interpretation then COA should be
` 50,00,000.
Capital Gains
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Capital Gains
Capital Gain on transfer of a capital asset by a partner / member to firm/AOP/BOI

Sec. 45(3)
The Capital gains arising from the transfer of a capital asset by a person to a firm in which he is or in which
he becomes a partner, by way of capital contribution or otherwise, shall be chargeable to tax in the PY in
which such transfer takes place. The amount recorded in the books of account of the firm as the value of
capital asset, shall be deemed to be the FVOC for the purposes of section 48.
i The same provisions will apply where a member of AOP/BOI, transfers a capital asset to AOP/BOI.
Capital Gain on transfer of a capital asset by a firm/AOP/BOI to partner/member

Sec. 45(4)
The capital gains arising from the transfer of a capital asset by way of distribution of capital assets on the
dissolution of a firm or otherwise shall be chargeable to tax as the income of the firm in the PY in which such
distribution takes place. The fair market value of the capital asset on the date of distribution shall be taken
as the FVOC for the purposes of section 48.
i Same provisions will apply where the assets are distributed by AOP/BOl to its members.
Lingmallu Raghukumar (Supreme Court)

Where a partner retires from a partnership and the amount of his share in the net partnership assets after
deduction of liabilities and prior charges is determined on taking accounts in the manner prescribed by the
relevant provisions of the partnership law there is no element of transfer of interest in the partnership assets
by the retired partner to the continuing partners. It cannot be said that the retiring partner has transferred his
share in firm to other partners.
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Capital Gains
Transfer of Securities by depositories Sec. 45(2A)

Where any person has had at any time during PY any beneficial interest in any securities, then any profits or
gains arising from transfer made by the depository or participant of such beneficial interest in respect of
securities shall be chargeable to income-tax as the income of the beneficial owner of the PY in which such
transfer took place and shall not be regarded as income of the depository who is deemed to be the registered
owner of securities by virtue of sub-section (1) of section 10 of the Depositories Act, 1996, and for the
purposes of:
(1) section 48; and
(2) proviso to clause (42A) of section 2, (i.e. period of holding)
The cost of acquisition and the period of holding of any securities shall be determined on the basis of the
first-in-first-out (FIFO) method.
In this connection CBDT Circular has clarified that:

(a) The FIFO method will be applied only in respect of the dematerialized holdings because in the case
sale of D-Mat securities, the securities held in physical form cannot be construed to have been sold as
they continue to remain in the possession of the investor and are identified separately.
(b) In the depository system, the investor can open and hold multiple accounts. In such a case, where an
investor has more than one security account, the FIFO method will be applied account wise. This is
because in case where a particular account of an investor is debited for sale of securities, the
securities lying in his other account cannot be construed to have been sold as they continue to remain
in that account.
(c) If in an existing account of D-Mat, old physical stock in dematerialized and entered at a later date,
under the FIFO method, the basis for determining the movement out of the account is the date of
entry into the account.
(d) The date of Broker Note that should be treated as the date of transfer in case of sale transactions of
the securities.
X furnishes the following information:
No. of Month and year of Shares dematted

shares purchase month and year
EXAMPLE
1,000 March 2016 December 2020
500 March 2017 January 2021
1,000 December 2018 October 2020
He sold 1,500 share in March 2021 out of the dematted shares. He seeks your advice as to the
taxability towards capital gains for the assessment year 2021-22.

Capital Gains
Solution:
Therefore in the present problem, the period of holding of 1,500 shares sold shall be as under:
(i) 1000 Shares: December, 2018 to March, 2021 (Long Term). The cost of acquisition of these shares
shall be taken from the broker’s contract note.
(ii) 500 Shares: March, 2016 to March 2021 (Long Term). The cost of acquisition of these shares shall
be taken from the broker’s contract note.
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Capital Gains
Special provision for full value of consideration in Case of Immovable Property

Sec. 50C
(1) Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset,
being land or building or both, is less than the value adopted or assessed or assessable by any authority
of a State Government (hereafter in this section referred to as the “stamp valuation authority”) for the
purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or
assessable shall, for the purposes of Section 48, be deemed to be the full value of the consideration
received or accruing as a result of such transfer.
Provided that where the date of the agreement fixing the amount of consideration and the date of
registration for the transfer of the capital asset are not the same, the value adopted or assessed or
assessable by the stamp valuation authority on the date of agreement may be taken for the purposes of
computing full value of consideration for such transfer
Provided further that the first proviso shall apply only in a case where the amount of consideration, or a
part thereof, has been received by way of an account payee cheque or account payee bank draft or by use
of electronic clearing system through a bank account or through such other electronic mode as may be
prescribed, on or before the date of the agreement for transfer. (Amended by FA(No.2),2019 w.e.f. AY
20-21)
Proviso Added by FA 2018
Provided also that where the value adopted or assessed or assessable by the stamp valuation authority
does not exceed one hundred and five Ten per cent of the consideration received or accruing as a
result of the transfer, the consideration so received or accruing as a result of the transfer shall, for the
purposes of section 48, be deemed to be the full value of the consideration. (Amended by FA 2020)
(2) Without prejudice to the provisions of sub-section (1), where
(a) the assessee claims before any Assessing Officer that the value adopted or assessed or assessable by
the stamp valuation authority under sub-section (1) exceeds the fair market value of the property as
on the date of transfer; and
(b) the value so adopted or assessed or assessable by the stamp valuation authority under sub-section (1)
has not been disputed in any appeal or revision or no reference has been made before any other
authority, court or the High Court,
the Assessing Officer may refer the valuation of the capital asset to a Valuation Officer.
Explanation: For the purposes of this section, the expression “assessable” means the price which the
stamp valuation authority would have, notwithstanding anything to the contrary
contained in any other law for the time being in force, adopted or assessed, if it were
referred to such authority for the purposes of the payment of stamp duty.
(3) Subject to the provisions contained in sub-section (2), where the value ascertained under sub-section (2)
exceeds the value adopted or assessed or assessable by the stamp valuation authority referred to in sub-
section (1), the value so adopted or assessed or assessable by such authority shall be taken as the full
value of the consideration received or accruing as a result of the transfer.

Capital Gains
Other electronic Modes : Notification No. 08/2020 dates 29/01/2020

(a) Credit Card;
(b) Debit Card;
(c) Net Banking;
(d) IMPS (Immediate Payment Service);
(e) UPI (Unified Payment Interface);
(f) RTGS (Real Time Gross Settlement);
(g) NEFT (National Electronic Funds Transfer), and
(h) BHIM (Bharat Interface for Money) Aadhaar Pay
Note: Above notification also applicable for section 13A, 35AD, 40A, 43, 43CA, 44AD, 56, 80JJAA, 269SS,
269ST, 269T.
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Capital Gains
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Capital Gains
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Capital Gains
QUESTION
X purchased on 18.06.2003, house property for ` 22,00,000/- which was sold to ‘A’ On 18.10.2020 for
` 38,75,000/-. The sub registrar at the time of Registration of sale deed, charged stamp duty on ` 60,00,000/-
which was paid by the buyer.
The Assessing officer while assessing for capital gain referred the matter to the valuation officer as per the
request of vendor. The valuation officer determined the value of property at ` 55,00,000/- on the date of
transfer.
X seeks your advice on the following: On what value the assessing officer could compute the Capital Gain
Chargeable to tax? The amount of capital gain on which ‘X’ is required to pay capital gains tax.
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QUESTION
Mr. Nikhil had purchased a house property on 01.04.1999 for ` 3,00,000 (FMV as on 01.04.2001: `
4,20,000). This property is sold by Mr. Nikhil on 14.02.2021 to Mr. Bhanwar. Mr. Nikhil has declared ` 50
lakhs as the sales consideration for the purposes of computation of capital gains whereas, the value assessed
by the Government Authority for the purposes of stamp duty valuation is:
Case I : ` 49,00,000
Case II : ` 52,00,000
Evaluate the tax implication on the above transaction in the hands of Mr. Nikhil.
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Capital Gains
Special provision for full value of consideration in Case Unquoted Shares

Sec. 50CA
Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset,
being share of a company other than a quoted share, is less than the fair market value of such share
determined in such manner as may be prescribed, the value so determined shall, for the purposes of section
48, be deemed to be the full value of consideration received or accruing as a result of such transfer.
Provided that the provisions of this section shall not apply to any consideration received or accruing as a
result of transfer by such class of persons and subject to such conditions as may be prescribed.
(Proviso Added by FA 2019 w.e.f AY 20-21)
Explanation - For the purposes of this section, "quoted share" means the share quoted on any recognised
stock exchange with regularity from time to time, where the quotation of such share is based on current
transaction made in the ordinary course of business.
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Amendment Analysis
1. The section applies to all assessees including non-resident assessees.
2. The section applies only if the shares are held as capital asset and not as stock-in-trade.
3. The section applies to all shares whether equity or preference. However, the section does not cover
convertible debentures.
4. It is not that all quoted shares are exempt. There is a specific definition in section 50CA and hence, a
share will not be covered only if the following conditions are fulfilled:
(a) The share is quoted on a recognized stock exchange;
(b) The share is quoted with regularity from time to time;
(c) The quotation of the share is based on current transaction;
(d) The current transaction is made in the ordinary course of business.
Capital Gains
Fair Market Value deemed to be full value of consideration in certain cases

Sec. 50D
Where the consideration received or accruing as a result of the transfer of a capital asset by an assessee is not
ascertainable or cannot be determined, then, for the purpose of computing income chargeable to tax as
capital gains, the fair market value of the said asset on the date of transfer shall be deemed to be the full
value of the consideration received or accruing as a result of such transfer.
The objective behind introduction of the provision is explained in the Memorandum explaining the provisions
of the Finance Bill, 2012 as follows:
"Capital gains are calculated on transfer of a capital asset, as sale consideration minus cost of acquisition. In
some recent rulings, it has been held that where the consideration in respect of transfer of an asset is not
determinable under the existing provisions of the Income-tax Act, then, as the machinery provision fails, the
gains arising from the transfer of such assets is not taxable.
It is, therefore, proposed that where in the case of a transfer, consideration for the transfer of a capital asset(s)
is not attributable or determinable then for purpose of computing income chargeable to tax as gains, the fair
market value of the asset shall be taken to be the full market value of consideration."
Certain transactions not regarded as Transfer Sec. 47

The following transactions will not be regarded as transfers for the purposes of section 45 and therefore, no
capital gains will arise:
(i) any distribution of capital assets on the partial or total partition of a Hindu Undivided Family.
(iii) any transfer of a capital asset under a gift, will or an irrevocable trust.
Note: This clause shall not apply to transfer under gift or an irrevocable trust of share, debenture or
warrants allotted by company to employee under ESOPS.
As per sixth proviso to section 48 FMV on the date of transfer (date of GIFT or irrevocable trust)
shall be treated as FVOC of such shares, debentures or warrants.
(iv) any transfer of a capital asset by a holding company to its subsidiary company provided that the
following conditions are satisfied:
(a) the holding company or its nominees hold the entire share capital of the subsidiary company
(100% subsidiary company) and
(a) the subsidiary company is an Indian company.
Provided that where a holding company transfers a capital asset to the subsidiary company as stock-
in-trade, then the exemption under section 47 shall not be available in respect of such a transfer.

Capital Gains
(v) any transfer of a capital asset by a subsidiary company to its holding company provided that the
following conditions are satisfied:
(a) the holding company or its nominees hold the entire share capital of the subsidiary company
(100% subsidiary company) and
(b) the holding company is an Indian company.
Provided that where a subsidiary company transfers a capital asset to the holding company as stock-
in-trade, then the exemption under section 47 shall not be available in respect of such a transfer.
Cost of Acquisition in above cases Sec. 49(1)
Where the capital asset became the property of the assessee:
(i) on any distribution of capital assets on the partial or total partition of a Hindu Undivided Family;
(ii) under a gift or will;
(iii) by succession, inheritance or devolution;
(iv) under a transfer to an irrevocable trust;
(v) under a transaction referred to in clause clause (iv) or clause (v) of section 47
then the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner
acquired it as increased by the cost of improvements incurred by the previous owner and the assessee.
Notes:
i ± Option to take FMV as on 1.4.2001 is also available.

± Cost of improvement in the hands of previous owners shall also be considered.
± Whether indexation benefit in respect of the gifted asset shall apply from the year in which the
asset was first held by the assessee or from the year the same was first acquired by the previous
owner? (Refer following case law)
CIT vs. Manjula J. Shah Bom. HC
As per Explanation 1 to section 2(42A), in case the capital asset becomes the property of the assessee in the
circumstances mentioned in section 49(1), inter alia, by way of gift by the previous owner, then for
determining the nature of the capital asset, the aggregate period for which the capital asset is held by the
assessee and the previous owner shall be considered.
As per the provisions of section 48, the profit and gains arising on transfer of a long-term capital asset shall
be computed by reducing the indexed cost of acquisition from the net sale consideration. The indexed cost of
acquisition meant the amount which bears to the cost of acquisition the same proportion as Cost Inflation
Index (CII) for the year in which the asset is transferred bears to the CII for the year in which the asset was
first held by the assessee transferring it i.e., the year in which the asset was gifted to the assessee in case of
transfer by the previous owner by way of gift.
In the present case, the assessee had acquired a capital asset by way of gift from the previous owner.
The said asset when transferred was a long-term capital asset considering the period of holding by the
assessee as well as the previous owner. The assessee computed the long-term capital gain considering
the CII of the year in which the asset was first held by the previous owner. The Assessing Officer raised
Capital Gains
an objection mentioning that as per meaning assigned to the Indexed cost of acquisition, the CII of the
year in which the asset is first held by the assessee need to be considered and not the CII of the year in
Which the asset was first held by the previous owner.
Hence, the indexed cost of acquisition in case of gifted asset has to be computed with reference to the
year in which the previous owner first held the asset and not the year in which the assessee became the
owner of the asset.
Sec. 2(42A): Period of holding
For determining the nature of capital gains in the hands of the assessee who acquired the capital asset by way
of a transaction referred to in section 49(1), the period for which the asset was held by the previous owner
shall also be considered.
QUESTION
Mr. Amir purchased an asset on 01.01.1999 for ` 1 Lakhs (FMV as on 01.04.2001 is ` 2 Lakhs). Mr. Amir
gifts the asset to Mr. Shah Rukh on 01.01.2004. Mr. Shah Rukh incurred cost of improvement on the said
asset on 10.02.2005 – ` 35,000. Further, Mr. Shah Rukh gifts the asset to Mr. Salman on 01.01.2009. Cost of
improvement incurred by Mr. Salman on 01.06.2010 is as ` 40,000. Mr. Salman sells the asset on 14.02.2021
for ` 35,00,000. Compute the value of taxable capital gains.
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Capital Gains
(vi) any transfer, in a scheme of amalgamation, of a capital asset by the amalgamating company to the
amalgamated company if the amalgamated company is an Indian company
(via) any transfer in a scheme of amalgamation, of shares held in an Indian company, by the amalgamating
foreign company to the amalgamated foreign company if the following conditions are satisfied:
(a) at least 25% of the Shareholders of the amalgamating foreign company continue to remain
shareholders of the amalgamated foreign company and
(b) such transfer does not attract tax on capital gains in the country, in which the amalgamating
company is incorporated.
(viaa) any transfer, in a scheme of amalgamation of a banking company with a banking institution
sanctioned and brought into force by the Central Government, of a capital asset by the banking
company to the banking institution.
(viab) any transfer, in a scheme of amalgamation, of a capital asset, being a share of a foreign company,
referred to in the Explanation 5 to clause (i) of sub-section (1) of section 9, which derives, directly or
indirectly, its value substantially from the share or shares of an Indian company, held by the
amalgamating foreign company to the amalgamated foreign company, if—
(a) at least 25% of the shareholders of the amalgamating foreign company continue to remain
shareholders of the amalgamated foreign company; and
(b) such transfer does not attract tax on capital gains in the country in which the amalgamating
company is incorporated;
(vib) any transfer, in a demerger, of a capital asset by the demerged company to the resulting company, if
the resulting company is an Indian company;
(vic) any transfer in a demerger, of a capital asset, being a share or shares held in an Indian company, by
the demerged foreign company to the resulting foreign company, if—
(a) the shareholders holding not less than 3/4th in value of the shares of the demerged foreign
company continue to remain shareholders of the resulting foreign company; and
(b) such transfer does not attract tax on capital gains in the country, in which the demerged foreign
company is incorporated :
Provided that the provisions of sections 230 to 232 of the Companies Act, 2013 shall not apply in
case of demergers referred to in this clause;
(vica) any transfer in a business reorganisation, of a capital asset by the predecessor co-operative bank to
the successor co-operative bank;
(vicb) any transfer by a shareholder, in a business reorganisation, of a capital asset being a share or shares
held by him in the predecessor co-operative bank if the transfer is made in consideration of the
allotment to him of any share or shares in the successor co-operative bank
(vicc) any transfer in a demerger, of a capital asset, being a share of a foreign company, referred to in
the Explanation 5 to clause (i) of sub-section (1) of section 9, which derives, directly or indirectly, its
value substantially from the share or shares of an Indian company, held by the demerged foreign
company to the resulting foreign company, if—
Capital Gains
(a) the shareholders, holding not less than 3/4th in value of the shares of the demerged foreign
company, continue to remain shareholders of the resulting foreign company; and
(b) such transfer does not attract tax on capital gains in the country in which the demerged foreign
company is incorporated:
Provided that the provisions of sections 230 to 232 of the Companies Act, 2013 shall not apply in
case of demergers referred to in this clause;
(vid) any transfer or issue of shares by the resulting company, in a scheme of demerger to the shareholders
of the demerged company if the transfer or issue is made in consideration of demerger of the
undertaking,
(vii) any transfer by a shareholder, in a scheme of amalgamation, of a capital asset being a share or shares
held by him in the amalgamating company, if—
(a) the transfer is made in consideration of the allotment to him of any share or shares in
the [amalgamated company except where the shareholder itself is the amalgamated company,
and]
(b) the amalgamated company is an Indian company
(viia) any transfer of bonds or Global Depository Receipts referred to in section 115AC, made outside
India by a non-resident to another non-resident.
(viiaa) any transfer, made outside India, of a capital asset being rupee denominated bond of an Indian
company issued outside India, by a non-resident to another non-resident
(viiab) any transfer of a capital asset, being-
(a) bond or Global Depository Receipt referred to in sub-section (1) of Section 115AC; or
(b) rupee denominated bond of an Indian company; or
(c) derivative,
(d) such other securities as may be notified by the Central Government in this behalf
made by a non-resident on a recognised stock exchange located in any International Financial
Services Centre and where the consideration for such transaction is paid or payable in foreign
currency (Added by FA 2018 & amended by FA 2019)
Notes:
Notification No 16/2020
Central Government hereby notifies the following securities
(i) foreign currency denominated bond;
(ii) unit of a Mutual Fund;
(iii) unit of a business trust;
(iv) foreign currency denominated equity share of a company;
(v) unit of Alternative Investment Fund.

Capital Gains
(viib) any transfer of capital asset, being a Govt. security a periodic payment of interest, made outside India
through an intermediary dealing in settlement of securities, by non-resident to another non-resident.
(viic) any transfer of Sovereign Gold Bond issued by the Reserve Bank of India under the Sovereign Gold
Bond Scheme, 2015, by way of redemption, by an assessee being an individual
As per section 47, NO Capital Gain will arise in case of Individual on Redemption of Sovereign Gold
Bond issued by RBI
Redemption on Maturity NO CG due to Sec 47
(a) Individual
Transfer before Maturity CG Apply (Index Available)
(b) Other Asssesee: Capital gain applicable on transfer or maturity and index benefit available
(ix) Any transfer of a capital asset, being any work of art, archaeological, scientific, or art collection,
book, manuscript, drawing, painting, photograph or print, to the Government, University, National
Museum, National Art Gallery, National Archives or any such other public museum or institution as
may be notified by the Central Government.
(x) Any transfer by way of conversion of bonds, or debentures or debenture stock or deposit certificates
of a company into the shares or debentures of that company.
i Sec. 49(2A) The cost of acquisition of the share or debenture so received on conversion
shall be cost of that part of the debenture, bond, debenture stock or deposit
certificate, which is so converted.
Rule : 8AA In the case of a capital asset, being a share or debenture of a company,
which becomes the property of the assessee in the circumstances mentioned
in clause (x) of section 47 of the Act, there shall be included the period for
which the bond, debenture, debenture-stock or deposit certificate, as the
case may be, was held by the assessee prior to the conversion
Capital Gains
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Capital Gains
(xb) any transfer by way of conversion of preference shares of a company into equity shares of that
company (Added by Finance Act, 2017)
i Sec. 49(2AE) Where the capital asset, being equity share of a company, became the
property of the assessee in consideration of a transfer referred to in clause
(xb) of section 47, the cost of acquisition of the asset shall be deemed to be
that part of the cost of the preference share in relation to which such asset
is acquired by the assessee.
Sec. 2(42A) in the case of a capital asset, being equity shares in a company, which
becomes the property of the assessee in consideration of a transfer referred
to in clause (xb) of section 47, there shall be included the period for which
the preference shares were held by the assesse
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(xii) any transfer of a capital asset, being land of a sick industrial company made under a scheme prepared
and sanctioned under section 18 of the Sick Industrial Companies (Special Provisions/ Act, 1985
where such sick industrial company is being managed by its workers’ co-operative.
However, the exemption is applicable if such transfer is made during the period commencing from
the PY in which the said company has become a sick industrial company under section 17(1) of that
Act and ending with the PY during which the entire net worth of such company becomes equal to or
exceeds the accumulated losses.
Capital Gains
(xv) any transfer in a scheme for lending of any securities under an agreement or arrangement, which the
assessee has entered into with the borrower of such securities and which is subject to the guidelines
issued by the Securities and Exchange Board of India or the Reserve Bank of India, in this regard.
(xiii) where a firm is succeeded by a company in the business carried on by it as a result of which the
firm sells or otherwise transfers any capital asset or intangible asset to company
Provided that
(a) all the assets and liabilities of the firm relating to the business immediately before the
succession become the assets and liabilities of the company;
(b) all the partners of the firm immediately before the succession become the shareholders of the
company in the same proportion in which their capital accounts stood in the books of the firm on
the date of succession;
(c) the partners of the firm do not receive any consideration or benefit, directly or indirectly, in
any form or manner, other than by way of allotment of shares in the company; and
(d) the aggregate of the shareholding in the company of the partners of the firm is not less than
50% of the total voting power in the company and their shareholding continues to be as such
for a period of five years from the date of the succession.
(xiv) where a sole proprietary concern is succeeded by a company in the business carried on by it as a
result of which the sole proprietary concern sells or otherwise transfers any capital asset or intangible
asset to the company:
Provided that
(a) all the assets and liabilities of the sole proprietary concern relating to the business immediately
before the succession becomes the assets and liabilities of the company;
(b) the shareholding of the sole proprietor in the company is not less than 50% of the total voting
power in the company and his shareholding continues to so remain as such for a period of 5
years from the date of the succession; and
(c) the sole proprietor does not receive any consideration or benefit, directly or indirectly, in any
form or manner, other than by way of allotment of shares in the company
(xiii) any transfer of a capital asset to a company in the course of demutualisation or corporatisation of
a recognised stock exchange in India as a result of which an association of person or body of
individual is succeeded by such company
Provided that
(a) all the assets and liabilities of the association of persons or body of individuals relating to the
business immediately before the succession become the assets and liabilities of the company;
(b) the corporatisation of a recognised stock exchange in India is carried out in accordance with a
scheme of demutualisation or corporatisation which is approved by SEBI.
(xiiia) any transfer of a capital asset being a membership right held by a member of a recognized stock
exchange in India for acquisition of shares and trading or clearing rights acquired by such member in
that recognised stock exchange in accordance with a scheme for demutualisation or corporatisation
which is approved by the Securities and Exchange Board of India.

Capital Gains
i Sec. 2(42A) in the case of a capital asset, being trading or clearing rights of a recognised
stock exchange in India acquired by a person pursuant to demutualisation or
corporatisation of the recognised stock exchange in India as referred to in
clause (xiii) of section 47, there shall be included the period for which the
person was a member of the recognised stock exchange in India immediately
prior to such demutualisation or corporatization
(xiiib) Any transfer of a capital asset or intangible asset by a private company or unlisted public company
(hereafter in this clause referred to as the company) to a limited liability partnership or any transfer of
a share or shares held in the company by a shareholder as a result of conversion of the company into a
limited liability partnership in accordance with the provisions of the Limited Liability Partnership
Act, 2008:
Provided that
(a) all the assets and liabilities of the company immediately before the conversion become the
assets and liabilities of the limited liability partnership;
(b) all the shareholders of the company immediately before the conversion become the partners of
the limited liability partnership and their capital contribution and profit sharing ratio in the
limited liability partnership are in the same proportion as their shareholding in the company on
the date of conversion;
(c) the shareholders of the company do not receive any consideration or benefit, directly or
indirectly, in any form or manner, other than by way of share in profit and capital contribution in
the limited liability partnership;
(d) the aggregate of the profit sharing ratio of the shareholders of the company in the limited
liability partnership shall not be less than 50% at any time during the period of five years from
the date of conversion;
(e) the total sales, turnover or gross receipts in business of the company in any of the three PYs
preceding the PY in which the conversion takes place does not exceed sixty lakh rupees; and
(ea) the total value of the assets as appearing in the books of account of the company in any of the
three previous years preceding the previous year in which the conversion takes place does not
exceed five crore rupees; and
(f) no amount is paid, either directly or indirectly, to any partner out of balance of accumulated
profit standing in the accounts of the company on the date of conversion for a period of 3
years from the date of conversion
i Sec. 49(1) Where the capital asset became the property of the assessee by way of
transaction referred to in clause (xiii) or clause (xiv) or clause (xiiib) of
section 47, then the cost of acquisition of the capital asset shall be deemed to
be the cost for which the previous owner acquired it as increased by the cost
of improvements incurred by the previous owner and the assessee.
Sec. 2(42A) For determining the nature of capital gains in the hands of the assessee who
acquired the capital asset by way of a modes referred to in section 49(1), the
period for which the asset was held by the previous owner shall also be
considered.
Capital Gains
(xvi) any transfer of a capital asset in a transaction of reverse mortgage under a scheme made and
notified by the Central Government.
Sec. 10(43): Income exempt from tax
Any amount received by an individual as a loan, either in lump sum or in instalment, in a transaction
of reverse mortgage referred to in clause (xvi) of section 47 is exempt from tax.
(xvii) any transfer of a capital asset, being share of a special purpose vehicle to a business trust in exchange
of units allotted by that trust to the transferor.
(xviii) any transfer by a unit holder of a capital asset, being a unit or units, held by him in the consolidating
scheme of a mutual fund, made in consideration of the allotment to him of a capital asset, being a unit
or units, in the consolidated scheme of the mutual fund:
Provided that the consolidation is of two or more schemes of equity oriented fund or of two or more
schemes of a fund other than equity oriented fund.
Explanation: For the purposes of this clause,—
(a) "consolidated scheme" means the scheme with which the consolidating scheme merges or which
is formed as a result of such merger;
(b) "consolidating scheme" means the scheme of a mutual fund which merges under the process of
consolidation of the schemes of mutual fund in accordance with the Securities and Exchange
Board of India (Mutual Funds) Regulations, 1996 made under the Securities and Exchange Board
of India Act, 1992 (15 of 1992);
(c) "equity oriented fund" shall have the meaning assigned to it in clause (38) of section 10;
(d) "mutual fund" means a mutual fund specified under clause (23D)of section 10.
i Sec. 49(2AD) Where the capital asset, being a unit or units in a consolidated scheme of
a mutual fund, became the property of the assessee in consideration of a
transfer referred to in clause (xviii)of section 47, the cost of acquisition of
the asset shall be deemed to be the cost of acquisition to him of the unit or
units in the consolidating scheme of the mutual fund
Sec. 2(42A) in the case of a capital asset, being a unit or units, which becomes the
property of the assessee in consideration of a transfer referred to in clause
(xviii) of section 47, there shall be included the period for which the unit
or units in the consolidating scheme of the mutual fund were held by the
assessee

Capital Gains
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(xix) any transfer by a unit holder of a capital asset, being a unit or units, held by him in the consolidating
plan of a mutual fund scheme, made in consideration of the allotment to him of a capital asset, being
a unit or units, in the consolidated plan of that scheme of the mutual fund.
Explanation.—For the purposes of this clause,—
(a) "consolidating plan" means the plan within a scheme of a mutual fund which merges under the
process of consolidation of the plans within a scheme of mutual fund in accordance with the
Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 made under the
Securities and Exchange Board of India Act, 1992 (15 of 1992);
(b) "consolidated plan" means the plan with which the consolidating plan merges or which is formed
as a result of such merger;
(c) "mutual fund" means a mutual fund specified under clause (23D) of section 10.
i Sec. 49(2AF) Where the capital asset, being a unit or units in a consolidated plan of a
mutual fund scheme, became the property of the assessee in consideration of
a transfer referred to in clause (xix) of section 47, the cost of acquisition of
the asset shall be deemed to be the cost of acquisition to him of the unit or
units in the consolidating plan of the scheme of the mutual fund
Sec. 2(42A) in the case of a capital asset, being a unit or units, which becomes the
property of the assessee in consideration of a transfer referred to in
clause (xix)of section 47, there shall be included the period for which the
unit or units in the consolidating plan of a mutual fund scheme were held by
the assessee
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Withdrawal of exemption in certain cases Sec. 47A

1. Where at any time before the expiry of a period of eight years from the date of transfer of a capital asset
referred to in Clause (iv) or (v) of section 47 (i.e. Holding company to subsidiary company or
subsidiary company to holding company)
(a) such capital asset is converted by the transferee company into stock in trade of its business, OR
(b) the holding company or its nominees cease to hold the whole of the share capital of the subsidiary
then, the amount of capital gains arising from the transfer of such capital asset not charged to tax earlier by
virtue of provisions of section 47, shall be charged to tax as the income of the transferor company. The said
capital gains shall be charged to tax in the PY in which the transfer took place.
i ± Section 155: Where section 47A is attracted, the assessment of the transferor company will be
rectified under section 154. For the purposes of section 154, four years shall be counted from
the end of the PY in which the capital asset was converted into Stock-in-trade or in which the
holding company or its nominees ceased to hold the whole of the share capital of subsidiary
company.
± Section 49(3) – Cost of Acquisition: Where section 47A is attracted and capital gains have
been charged to tax in the hands of transferor company, then the cost of acquisition of such
asset to the transferee company shall be the cost for which such asset was acquired by it (i.e.,
the price at which the asset was transferred by the transferor company).
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3. Where any of the conditions laid down in the proviso to clause (xiii) or the proviso to clause (xiv)
of section 47 are not complied with, the amount of profits or gains arising from the transfer of such
capital asset or intangible asset not charged under section 45 by virtue of conditions laid down in the
proviso to clause (xiii) or the proviso to clause (xiv) of section 47 shall be deemed to be the profits and
gains chargeable to tax of the successor company for the previous year in which the requirements of the
proviso to clause (xiii) or the proviso to clause (xiv), as the case may be, are not complied with.
4. Where any of the conditions laid down in the proviso to clause (xiiib) of section 47 are not complied with,
the amount of profits or gains arising from the transfer of such capital asset or intangible assets or share
or shares not charged under section 45 by virtue of conditions laid down in the said proviso shall be
deemed to be the profits and gains chargeable to tax of the successor limited liability partnership or the
shareholder of the predecessor company, as the case may be, for the previous year in which the
requirements of the said proviso are not complied with.

Capital Gains
Slump Sale Sec. 50B

“Slump Sale” means the transfer of one or more undertakings as a result of the sale for a lump sum
consideration without values being assigned to the Individual assets and liabilities in such sales.
Explanation: For removal of doubts, it is hereby declared that the determination of the value of an asset or
liability for the sole purposes of payment of stamp duty, registration fees or other similar taxes
or fees shall not be regarded as assignment of values to individuals’ assets or liabilities.
Explanation: For the purposes of this clause, “Undertaking” shall include any part of an undertaking, or a
unit or division of an undertaking or a business activity taken as a whole, but does not include
individual assets or liabilities or any combination thereof not constituting a business activity.
Examples of undertaking can be:
± Jewellery Division of Titan Industries Ltd.
± Cement Division of Larsen & Toubro Ltd.
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Sec. 50B: Special provisions for computation of capital gains in case of slump sale
± If the agreement for transfer specifies the individual value of each asset to be transferred, then the
provisions of “slump sale” shall not be applicable and capital gains on each asset shall be computed
separately.
± Capital gains shall be taxable in the PY in which the slump sale is effected.
± Nature of capital gains will depend on the period of holding of the undertaking transferred by way of
slump sale. If the undertaking is held for more than 36 months immediately preceding the date of transfer,
then the capital gains shall be long term. This is irrespective of the fact that the undertaking consist of
certain assets which are short term capital assets.
± No profits under the head P/G/B/P shall arise in case of a slump sale even if stock is transferred in slump
sale.
± The cost of acquisition and cost of improvement of the undertaking shall be the “net worth” of the
undertaking.
± The benefit of indexation shall not be available.
± No values should be assigned to the individual assets and liabilities.
± However, the values can be assigned to the assets for the limited purpose of payment of stamp duty,
registration fees etc. This issue should be clarified in the agreement.
± “Net worth” = Aggregate value of total assets of the undertaking or division transferred minus Value of
liabilities of the undertaking or division transferred as appearing in its books of account.
± Contingent liabilities do not appear in the books of account and therefore shall not be deducted while
computing the “net worth”.
± Revaluation of assets shall not be considered white computing the “net worth”, i.e., revaluation of
assets shall be ignored for computing the “net worth”, irrespective of the fact that revaluation is
done in the current year or in past years.
± For computing the “net worth”, non-depreciable assets are to be taken at their book values.
± For computing the “net worth”, in case of depreciable assets, the written down value of such assets shall
be computed as per section 43(6)
± Every assessee, in the case of slump sale, shall furnish in the prescribed form a report of an chartered
accountant before the specified date referred to in section 44AB indicating the computation of the net
worth of the undertaking or division, as the case may be, and certifying that the net worth of the
undertaking or division, as the case may be, has been correctly arrived at in accordance with the
provisions of this section.

Capital Gains
QUESTION
Your client X Ltd. has two industrial undertakings - one engaged in production of audio music CDs and
cassettes and the other engaged in production of video CDs. As a restructuring drive, the company has
decided to sell its undertaking producing video CDs as a going concern by way of slump sale for ` 450 lakh
to a new company called Y Ltd. in which it holds 75 % equity shares. The balance sheet of X Ltd., as on
March 31, 2020 reads as follows: (` in lakhs)
Audio Video
Particulars
units Units
Fixed assets 150.0 225.0

Debtors 150.0 112.5
Inventories 75.0 37.5

Liabilities 42.0 75.0
Paid-up share capital 378

General reserve 222
Share premium 33
Revaluation reserve 140
The company set up the video unit on April 1, 2005. The written down value of the block of assets for tax
purposes as on March 31, 2020 is ` 200 lakh of which ` 85 lakh are attributable to video unit.
(i) Determine the tax liability, which would arise to X Ltd. from slump sale.
(ii) Suggest modification of the restructuring plan of X Ltd. without changing the amount of consideration
so as to make it more tax efficient.
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CA FINAL

Sources of Income Tax Law

Charge of Income Tax Sec: 4

Tax Rates for Assessment Year 2021-22

Total Income Rates of Income-tax

Upto ` 2,50,000 NIL

> ` 2,50,000 upto ` 5,00,000 5%

> ` 5,00,000 upto ` 10,00,000 20%

> ` 10,00,000 30%

Total Income Rates of Income-tax

Upto ` 3,00,000 NIL

> ` 3,00,000 upto ` 5,00,000 5%

> ` 5,00,000 upto ` 10,00,000 20%

> ` 10,00,000 30%

Total Income Rates of Income-tax

Upto ` 5,00,000 NIL

> ` 5,00,000 upto ` 10,00,000 20%

> ` 10,00,000 30%

CIRCULAR: 28/2016, dated 27 July,2016

Total Income Rates of Income-tax

Upto ` 10,000 10%

> ` 10,000 upto ` 20,000 20%

> ` 20,000 30%

4 CA Final Direct Tax - Vol. 01

E. In Case of Foreign Company : 40% of the Total Income

Health & Education Cess

Rounding off of Income and Tax

6 CA Final Direct Tax - Vol. 01

Compute Tax liability of Mr.BB, an individual, assuming that total income is `

10 CA Final Direct Tax - Vol. 01

(v) 45 600 645 15% 15%

LTCG 112A (in excess of 1,00,000) 10% 25,00,000 2,40,000

STCG 111A 15% 20,00,000 3,00,000

Balance NTI Normal Tax Rate 70,00,000 19,12,500

Total 1,15,00,000 24,52,500

Add: Surcharge on LTCG 112A & STCG 111A @15% 81,000

Add: Surcharge on Balance Tax @15% 2,86,875

Add: Health & Education Cess @ 4% 1,12,815

Net Tax Payable 29,33,190

(i) Capital gains u/s 112A - ` 1,00,00,000

(ii) Capital gains u/s 111A - ` 2,00,00,000

(iii) Other income - ` 1,00,00,000

LTCG 112A (in excess of 1,00,000) 10% 1,00,00,000 9,90,000

STCG 111A 15% 2,00,00,000 30,00,000

Add: Surcharge on Balance Tax @15% 4,21,875

Add: Health & Education Cess @ 4% 3,12,915

Net Tax Payable 81,35,790

LTCG 112A (in excess of 1,00,000) 10% 40,00,000 3,90,000

STCG 111A 15% 60,00,000 9,00,000

Balance NTI Normal Tax Rate 3,00,00,000 88,12,500

Total 4,00,00,000 1,01,02,500

12 CA Final Direct Tax - Vol. 01

Add: Surcharge on LTCG 112A & STCG 111A @15% 1,93,500

Add: Surcharge on Balance Tax @25% 22,03,125

Add: Health & Education Cess @ 4% 4,99,965

Net Tax Payable 1,29,99,090

LTCG 112A (in excess of 1,00,000) 10% 1,00,00,000 9,90,000

STCG 111A 15% - -

Balance NTI Normal Tax Rate 6,00,00,000 1,78,12,500

Total 7,00,00,000 1,88,02,500

Add: Surcharge on LTCG 112A & STCG 111A @15% 1,48,500

Add: Surcharge on Balance Tax @37% 65,90,625

Add: Health & Education Cess @ 4% 10,21,665

Net Tax Payable 2,65,63,290