CHAPTER:- CAPITAL GAINS

 Sec. 45(1):- Charging Section:-

1) There should be CAPITAL ASSET
2) There should be TRANSFER of Capital Asset during the previous year
3) Profit or GAINS should arise as a result of such transfer

If all the above conditions are satisfied, then income is taxable under the
head Capital Gain.

 What is Capital Asset?

Capital asset means-
a) PROPERTY of any kind held by assessee, whether or not connected
with business or profession, but does not include-
- Stock in trade
- Rural Agriculture Land
- Specified Gold Bonds
- Personal Effects

Personal Effects cover movable properties used by the assessee or his

family member for their personal use but does not cover Jewellery,
Paintings, Drawings, Sculptures, Archaeological Collections or any work
of art;

b) Securities held by Foreign Portfolio Investors(FIIs) whether as stock in

trade or otherwise.

 What is Transfer?
Transfer includes-
a) sale, exchange, relinquishment or extinguishment of right over
capital asset;
b) conversion of capital asset into stock in trade;
c) compulsory acquisition of capital asset;
d) transfer of capital asset under part-performance of contract
under the Transfer of Property Act,1882;
e) transfer of capital asset by member of Co-operative Society,
Company or Association of Persons;
f) maturity of zero coupon bonds.
 There is the detailed list of transactions which are not regard as transfer.
Following are the few of them:-

I. Transfer of capital asset under gift, will or irrevocable trust;

II. Distribution of capital asset under total or partial partition of
HUF;
III. Transfer of capital asset at the time of
amalgamation/merger/demerger when transferee company is
Indian Company;
IV. Transfer of capital asset on conversion of partnership firm into
company;
V. Transfer of capital asset under the notified reverse mortgage
scheme;
VI. Distribution of capital asset on liquidation of company to
shareholders.

 Types of Capital Asset:-

There are two types of capital assets based on period of holding;
i) Short Term Capital Asset;
ii) Long Term Capital Asset.

NON-FINANCIAL CAPITAL ASSETS (LAND/BUILDING/JEWELLERY)

1) LAND/BUILDING:
HP> 24 months = LTCA
HP< 24 months = STCA

2) OHERTHAN LAND/BUILDING (I.E. JEWELLERY):

HP> 36 months = LTCA
HP< 36 months = STCA
FINANCIAL CAPITAL ASSETS (SHARES/SECURITIES)

1) LISTED EQUITY SHARES/EQUITY ORIENTED FUNDS/ZERO COUPON

BONDS
HP> 12 months = LTCA
HP< 12 months = STCA

2) UNLISTED SECURITIES
HP> 24 months = LTCA
HP< 24 months = STCA

3) DEBT-ORIENTED FUNDS

HP> 36 months = LTCA

HP< 36 months = STCA
Particulars Amount (Rs.)
Sale Consideration XX
Less: Expenditure on Transfer (XX)
Net Sale Consideration XX
Less: Cost of Acquisition (XX)
Less: Cost of Improvement (XX)
STCG XX

Q-1 :
Mr X purchased building for Rs 10,00,000/- on 10/04/21. Following
expenses incurred at the time of purchase:
Stampduty – 20,000
Brokerage – 20,000
Legal Fees – 10,000 [COA: 10,50,000]
Building was sold on 15/02/23 for Rs.25,00,000. Following Expenses
incurred at the time of sale:-
Brokerage – 1%
Legal Fees – Rs. 30,000/-
Compute Capital Gain.
10/04/2021 TO 09/04/2023

Statement showing computation of capital gains in the hands of Mr. X

(P.Y. 22-23/A.Y. 23-24)

Particulars Amount (Rs.)

Sale Consideration 25,00,000
Less: Expenditure on Transfer (Brokerage- 25,000 + (55,000)
Legal Fees – 30,000)
Net Sale Consideration 24,45,000
Less: Cost of Acquisition (10L +20K+20K+10K) (10,50,000)
Less: Cost of Improvement -
STCG 13,95,000
Q-2 :
Mr Y purchased building for Rs 25,00,000/- on 10/09/22. Following
expenses incurred at the time of purchase:
Stampduty – 10,000
Brokerage – 10,000
Legal Fees – 15,000

Additional floor was constructed on the house at the cost of Rs.

10,00,000 during the month of November,2022.

Building was sold on 31/03/23 for Rs.45,00,000. Following Expenses

incurred at the time of sale:-
Brokerage – 2%
Legal Fees – Rs. 10,000/-
Compute Capital Gain.
Statement showing computation of capital gains in the hands of Mr. Y
(P.Y. 22-23/A.Y. 23-24)

Particulars Amount (Rs.)

Sale Consideration 45,00,000
Less: Expenditure on Transfer (1,00,000)
Net Sale Consideration 44,00,000
Less: Cost of Acquisition (25,35,000)
Less: Cost of Improvement (10,00,000)
STCG 8,65,000
Statement showing computation of LTCG

Particulars Amount (Rs.)

Sale Consideration XX
Less: Expenditure on Transfer (XX)
Net Sale Consideration XX
Less: Indexed Cost of Acquisition (XX)
[ICOA= COA*Index Number of Sale Year/Index
Number of Purchase Year]
Less: Indexed Cost of Improvement (XX)
[ICOI= COI*Index Number of Sale Year/Index Number
of Improvement Year]
LTCG XX

Q-3 :
Mr Z purchased building for Rs 25,00,000/- on 10/09/17.

Building was sold on 31/03/23 for Rs.45,00,000. Following Expenses

incurred at the time of sale:-
Brokerage – 2%
Legal Fees – Rs. 10,000/-
Compute Capital Gain.
CII: 22-23: 331 17-18: 272

Statement showing computation of LTCG

Particulars Amount (Rs.)

Sale Consideration 45,00,000
Less: Expenditure on Transfer (1,00,000)
Net Sale Consideration 44,00,000
Less: Indexed Cost of Acquisition (30,42,279)
ICOA= COA * INDEX NO OF SALE YEAR / INDEX ON OF
PURCHASE YEAR
= 25,00,000*331/272
Less: Indexed Cost of Improvement (XX)
LTCG 13,57,721
Question 4:-
Mr A purchased building for Rs 10,00,000/- on 10/04/11. Following
expenses incurred at the time of purchase:
Stampduty – 20,000
Brokerage – 20,000
Legal Fees – 10,000 [COA= 10,50,000]
Building was sold on 15/02/23 for Rs.61,00,000. Following Expenses
incurred at the time of sale:-
Brokerage – Rs. 70,000/-
Legal Fees – Rs. 30,000/-
Compute Capital Gain.
CII- 11-12: 184 ; 22-23: 331
Statement showing computation of LTCG

Particulars Amount (Rs.)

Sale Consideration 61,00,000
Less: Expenditure on Transfer (1,00,000)
Net Sale Consideration 60,00,000
Less: Indexed Cost of Acquisition (18,88,859)
ICOA= COA * INDEX NO OF SALE YEAR / INDEX NO OF
PURCHASE YEAR
= 10,50,000*331/184
Less: Indexed Cost of Improvement (XX)
LTCG 41,11,141
Question: 5 -
Mr Harsh purchased building for Rs 12,00,000/- on 10/04/09. Following
expenses incurred at the time of purchase:
Stampduty – 20,000
Brokerage – 10,000
Legal Fees – 5,000

During Previous Year 12-13 expenditure on improvement of Rs. 3,00,000

was incurred by Mr Y.

Building was sold on 15/02/23 for Rs.90,00,000. Following Expenses

incurred at the time of sale:-
Brokerage – 1%
Legal Fees – Rs. 30,000/-
Compute Capital Gain.
CII- 09-10: 148 ; 12-13: 200 ; 22-23: 331

Statement showing computation of LTCG

Particulars Amount (Rs.)

Sale Consideration 90,00,000
Less: Expenditure on Transfer (1,20,000)
Net Sale Consideration 88,80,000
Less: Indexed Cost of Acquisition (27,62,061)
ICOA= COA * INDEX NO OF SALE YEAR / INDEX NO OF
PURCHASE YEAR
= 12,35,000*331/148
Less: Indexed Cost of Improvement (4,96,500)
ICOI= COI * INDEX NO OF SALE YEAR / INDEX NO OF
IMPROVEMENT YEAR
= 3,00,000*331/200
LTCG 56,21,439
Question: 6 -
Mr Kohli purchased building for Rs 15,00,000/- on 10/04/14. Following
expenses incurred at the time of purchase:
Stampduty – 50,000
Brokerage – 30,000
Legal Fees – 20,000

During Previous Year 17--18 expenditure on improvement of Rs.

4,00,000 was incurred by Mr Y.

Building was sold on 15/08/22 for Rs.95,00,000. Following Expenses

incurred at the time of sale:-
Brokerage – 1%
Legal Fees – Rs. 5,000/-
Compute Capital Gain.
CII- 14-15: 240 ; 17-18: 272 ; 22-23: 331
Statement showing computation of LTCG

Particulars Amount (Rs.)

Sale Consideration 95,00,000
Less: Expenditure on Transfer (1,00,000)
Net Sale Consideration 94,00,000
Less: Indexed Cost of Acquisition (22,06,667)
ICOA= COA * INDEX NO OF SALE YEAR / INDEX NO OF
PURCHASE YEAR
= 16,00,000*331/240
Less: Indexed Cost of Improvement (4,86,765)
ICOI= COI * INDEX NO OF SALE YEAR / INDEX NO OF
IMPROVEMENT YEAR
= 4,00,000*331/272
LTCG 67,06,568
Question: 7 -
Mr KL Rahul purchased building for Rs 12,00,000/- on 10/04/16.
Following expenses incurred at the time of purchase:
Stampduty – 15,000
Brokerage – 15,000
Legal Fees – 20,000

Expenditure on improvement of Rs. 2,50,000 and Rs. 1,00,000 was

incurred by Mr KL Rahul during PY 18-19 and 21-22 respectively.

Building was sold on 15/10/22 for Rs.96,00,000. Following Expenses

incurred at the time of sale:-
Brokerage – 1%
Legal Fees – Rs. 4,000/-
Compute Capital Gain.
CII- 16-17: 264 ; 18-19: 280 ; 21-22: 317; 22-23: 331

Statement showing computation of LTCG

Particulars Amount (Rs.)

Sale Consideration 96,00,000
Less: Expenditure on Transfer (1,00,000)
Net Sale Consideration 95,00,000
Less: Indexed Cost of Acquisition (15,67,235)
ICOA= COA * INDEX NO OF SALE YEAR / INDEX NO OF
PURCHASE YEAR
= 12,50,000*331/264
Less: Indexed Cost of Improvement (2,95,535)
ICOI= COI * INDEX NO OF SALE YEAR / INDEX NO OF (1,04,416)
IMPROVEMENT YEAR
1) = 2,50,000*331/280
2) = 1,00,000*331/317
LTCG 75,32,814
SECTION 50C: STAMP DUTY VALUATION:
CONDITIONS:
1) Assessee transfers Land/Building/Land and building which is his
capital asset
2) 110% of Sale Consideration < SDV
If both the above conditions are satisfied, then for the purpose of
computation of CG,

DEEMED CONSIDERATION = SDV

In another words,

We have to take SP or SDV whichever is higher

EXAMPLE:

CASE I : SP 40L; SDV 70L SC = 70L

CASE II: SP 90L; SDV 70L SC= 90L
CASE III: SP 49.90L (54.89L) SDV 50L SC= 49.90L
CASE IV: SP 49.90L (54.89L) SDV 55L SC = 55L

Question: 8 -
Mr Shahrukh purchased building for Rs 15,00,000/- on 10/04/16.
Following expenses incurred at the time of purchase:
Stampduty – 15,000
Brokerage – 15,000
Legal Fees – 20,000
Expenditure on improvement of Rs. 2,50,000 was incurred by Mr
Shahrukh during PY 18-19.
Building was sold on 15/10/22 for Rs.70,00,000 however its stamp duty
value was Rs. 80,00,000. Following Expenses incurred at the time of
sale:-
Brokerage – 1%
Legal Fees – Rs. 4,000/-
Compute Capital Gain.
CII- 16-17: 264 ; 18-19: 280; 22-23: 331
Statement showing computation of LTCG

Particulars Amount (Rs.)

Sale Consideration (50C) 80,00,000
Less: Expenditure on Transfer (74,000)
[70L*1% = 70000 + 4000 = 74000]
Net Sale Consideration 79,26,000
Less: Indexed Cost of Acquisition (19,43,371)
ICOA= COA * INDEX NO OF SALE YEAR / INDEX NO OF
PURCHASE YEAR
= 15,50,000*331/264
Less: Indexed Cost of Improvement (2,95,535)
ICOI= COI * INDEX NO OF SALE YEAR / INDEX NO OF
IMPROVEMENT YEAR
= 2,50,000*331/280

LTCG 56,87,094

EXEMPTIONS
SECTION 54: INVESTMENT IN NEW RESIDENTIAL HOUSE

Available Individual/HUF
Asset Trasferred House Property which is LTCA for transferor
New Asset One Residential House in India
(Two Residential House if LTCG< RS 2 CRORE)
Time Period Purchase : 1 year before ; 2 years after
07/02/2024 – DATE OF SALE OF OLD HOUSE
PURCHASE – 06/02/2026 [08/02/2023]
Construction: 3 year after [06/02/2027]
Amount of LTCG
Exemption Or
Amount of Investment
Whichever is less
PARTICULARS CASE-I CASE-II CASE-III
SP 50L 50L 50L
ICOA (20L) (20L) (20L)
LTCG 30L 30L 30L
INVESTMENT (25L) (40L) (30L)
[EXE-
 30L]
TAXABLE 5L NIL NIL
LTCG
Lock in period 3 years
CG Deposit Available
Account Scheme

SECTION 54F: INVESTMENT IN NEW RESIDENTIAL HOUSE

Available Individual/HUF
Asset Trasferred Any LTCA other than House Property (1st or 2nd
HP of Assessee)
New Asset One Residential House in India
(Two Residential House if LTCG< RS 2 CRORE)
Time Period Purchase : 1 year before ; 2 years after
Construction: 3 year after
Amount of A] Amount of Investment > Net Consideration
Exemption = 100% LTCG is exempt
B] Amount of Investment < Net Consideration
Amount of Exemption = Amount of Investment
* LTCG / NC
Lock in period 3 years
CG Deposit Available
Account Scheme

SECTION 54EC: INVESTMENT IN INFRASTRUCTURE BONDS

Available All Assessee

Asset Trasferred Building or Land being LTCA
New Asset Bonds of NHAI or RECL redeemable after 3 years
Time Period Within 6 months from the date of transfer

Amount of LTCG
Exemption Or
Amount of Investment
Whichever is less
[Maximum Exemption in one or more FY is
restricted upto Rs. 50 lakhs from one CG]
Lock in period 3 years
CG Deposit NA
Account Scheme
RATES OF CAPITAL GAINS TAX

TYPE OF CAPITAL ASSET TYPE OF CAPITAL GAINS RATE OF TAX

A] Listed Equity LTCG (Exempt upto Rs. 10% (without
Shares/Units of Equity 1,00,000 in one FY) u/s indexation)
Oriented Funds 112A
STCG u/s 111A 15%
B] Other than A] STCG Normal Rate (As per
slab)
LTCG 20%
 ADDITIONAL PRACTICE SUMS
ILLU 1 :
Mr Z purchased building for Rs 35,00,000/- on 10/09/22. Following
expenses incurred at the time of purchase:
Stampduty – 20,000
Brokerage – 15,000
Legal Fees – 15,000

Additional floor was constructed on the house at the cost of Rs.

20,00,000 during the month of November,2022.

Building was sold on 31/03/23 for Rs.65,00,000. Following Expenses

incurred at the time of sale:-
Brokerage – 2%
Legal Fees – Rs. 10,000/-
Compute Capital Gain.

Statement showing computation of capital gains in the hands of Mr. Y

(P.Y. 22-23/A.Y. 23-24)

Particulars Amount (Rs.)

Sale Consideration 65,00,000
Less: Expenditure on Transfer (1,40,000)
Net Sale Consideration 63,60,000
Less: Cost of Acquisition (35,50,000)
Less: Cost of Improvement (20,00,000)
STCG 8,10,000
ILLUSTRATION 2:
Mr Raj purchased building for Rs 16,00,000/- on 10/04/16. Following
expenses incurred at the time of purchase:
Stampduty – 25,000
Brokerage – 5,000
Legal Fees – 20,000

Expenditure on improvement of Rs. 3,50,000 and Rs. 4,00,000 was

incurred by Mr Raj during PY 18-19 and 21-22 respectively.

Building was sold on 15/10/22 for Rs.99,00,000. Following Expenses

incurred at the time of sale:-
Brokerage – 1%
Legal Fees – Rs. 1,000/-
Compute Capital Gain.
CII- 16-17: 264 ; 18-19: 280 ; 21-22: 317; 22-23: 331

Statement showing computation of LTCG

Particulars Amount (Rs.)

Sale Consideration 99,00,000
Less: Expenditure on Transfer (1,00,000)
Net Sale Consideration 98,00,000
Less: Indexed Cost of Acquisition (20,68,750)
ICOA= COA * INDEX NO OF SALE YEAR / INDEX NO OF
PURCHASE YEAR
= 16,50,000*331/264
Less: Indexed Cost of Improvement (4,13,750)
ICOI= COI * INDEX NO OF SALE YEAR / INDEX NO OF (4,17,666)
IMPROVEMENT YEAR
1) = 3,50,000*331/280
2) = 4,00,000*331/317
LTCG 68,99,834
ILLUSTRATION 3:

Which of the following are capital assets of Mr. X (Garment Retailer)?

1) Land
2) Building
3) Honda Activa
4) Honda City
5) Jewellery
6) Painting
7) Utensils at home
8) Television Set at home
9) Refrigerator at Home
10) Television set at office
11) Shares purchased from personal savings
12) Debentures
13) Units of UTI
14) Units of SBI Blue Chip Fund
15) Gold Coins
16) Wrist Watch of Titan
17) I Phone 15
18) Office Laptop
19) Loose Dimond
20) Smart Watch