CAPITAL GAINS TAX 1 Since 1994 - 2005; on every 13th April Anil has been gifting gold ornaments

worth Rs.100000 to Radhika every year on her birthday the current market value of which is Rs.4850000. Anil wants to sell Radhika's gold ornaments at current market valuation. Out of such sale porceeds, he wants to reserve Rs.25 lacs for upcoming wedding of Satish and use the remaining amount for their house, which is under construction. These ornaments are inclusive of gold worth Rs.2 lac of gold then gifted by Radhika's parents at the time of her wedding in April 1981. Anil wants to know whether any capital gains tax liability would arise on this sale. (Ignore any surcharge or Education Cess) CII values for Capital Gains purpose YEAR 1981-1982 1982-1983 1983-1984 1984-1985 1985-1986 1986-1987 1987-1988 1988-1989 1989-1990 1990-1991 1991-1992 1992-1993 1993-1994 1994-1995 CII 100 109 116 125 133 140 150 161 172 182 199 223 244 259 YEAR 1995-1996 1996-1997 1997-1998 1998-1999 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 CII 281 305 331 351 389 406 426 447 463 480 497 519 551 582 Indexed cost of CII acquisition 100 1164000 08-09 259 224710 281 207117 305 190820 331 175831 351 165812 389 149614 406 143350 426 136620 447 130201 463 125702 480 121250 497 117103 3052130

Original gift on Gift on

13.04.1981 13.04.1994 13.04.1995 13.04.1996 13.04.1997 13.04.1998 13.04.1999 13.04.2000 13.04.2001 13.04.2002 13.04.2003 13.04.2004 13.04.2005 3052130 4850000

Amount 200000 100000 100000 100000 100000 100000 100000 100000 100000 100000 100000 100000 100000

582

Indexed cost Sale price (current market value) LTCG Invested in new residential house LTCG exempted Taxable LTCG Tax on LTCG

1797870 2350000 4850000-2500000 871133 1797870*2350000/4850000 926737 (1797870-871133) 185347

2 Umang purchased 200 shares of XYZ Ltd on 01/04/1978 for Rs.40 each. He was allotted 200 rights shares on 01/05/1979 for Rs.50 each and 400 bonus shares on 01/05/1980. On 04/05/1990 he was further allotted 800 right shares for Rs.80 each. Again on 07/08/1996 he was allotted 800 bonus shares. The fair market value of this shares on 01/04/1981 was Rs.60. All the shares thus accumulated by Umang are sold by him on 16/10/2007 for Rs.400 per share. Compute the capital gain for AY 20082009 on this transaction assuming the above shares are not sold through recognised stock exchange. Cost Inflation Index for 19981/82 is 100; for 1990/91is 182; for 2006/07 is 519; for 2007/08 is 551 Date 01.04.1978 01.05.1979 01.05.1980 01.04.1981 04.05.1990 07.08.1996 16.10.2207 Rate Purchase Rights Bonus TOTAL Rights Bonus Sale LTCG Sale date Purchase date 40 50 0 60 80 0 400 Quantity 200 200 400 800 800 800 2400 FMV CII

48000 64000 0 960000 501762

264480 800*60*551/100 193758 800*80*551/182 458238

16.10.07 16.10.07 16.10.07 16.10.07 16.10.07 01.04.78 01.05.79 01.05.80 04.05.90 07.08.96 Original Right Bonus Right Bonus shares shares shares shares shares 200 200 400 800 800 400 80000 80000 160000 320000 320000

Sale consideration @ Less: indexed cost of acquisition FM as on 01.04.1981 81-82 100 90-91 182 07-08 551

60 66120

60 66120

60 132240

80 193758

0 0

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LTCG

501762

CAPITAL GAINS TAX 13880

13880

27760

126242

320000

3 X gives the following information (he does not own any residential house property) - Transfer of gold Date of transfer Date of purchase Sale consideration Cost of acquisition Expenses on transfer 10.05.2009 23.06.1982 3655000 300000 55000

To get the exemption under section 54F the following residential house property is purchased by X Date of purchase 12.05.2009 Cost of acquisition 2700000 Find out the capital gain chargeable to tax in the hands of X Solution : Assessment year 2010-11 Sale consideration Less: Expenses on transfer Net sale consideration Less: Indexed cost of acquisition Capital gains before any exemption Less: Exemption under section 54F (amount of investment in new residential property 2700000/3600000*1860550 Long term capital gains chargeable to tax 300000*632/109 3655000 55000 3600000 1739450 1860550

1395413 465138

4 X purchases 1000 (non-listed) shares in Y Ltd on August 16, 1990 for Rs.8000. On May 17, 1992 he gets 500 bonus shares. On October 20, 2008, he acquires 1500 right shares at the rate of Rs.11 per share. He sells 3000 (Non-listed) shares in Y Ltd. on February 12, 2010 at the rate of Rs.110 per share (brokerage on sale : 1 per cent). He owns one residential house property. He purchases a residential house on June 29, 2010 for Rs.290000. Ascertain the amount of capital gains chargeable to tax for the assessment year 2010-11 100 500 bonus 1500 right original shares shares shares Sale consideration 110000 55000 165000 Less: Expenses on transfer 1100 550 1650 Net sale consideration 108900 54450 163350 Less: Indexed cost of acquisition 8000*632/182 1500*11*632/582 Long Term capital gain Long term capital gain as percentage of net sale consideration Order of preference for claiming exemption under sec.54F Exemption under section 54F 27780 81120 74.49% 3 53782 0 54450 100.00% 1 54450 17918 145432 89.03% 2 145432

The amount of exemption is determined as follows: Investment uiilised for claiming Exemption exemption Bonus shares (54450/54450*54450) 54450 54450 Right shares (163350/163350*145432) 163350 145432 Original shares (72200/108900*81120) 72200 53782 290000 253664 5 Anil wants to sell Radhika's gold ornaments at current market valuation (Rs.4850000). Out of such sale proceeds, he watns to reserve Rs.25 lakh for the upcoming wedding of Satish and use the remaining amount for their house, which is under construction. These ornaments are inclusive of gold worth Rs.2 lakh of gold then gifted by Radhika's parents at the time of her wedding in April 1981. Anil wants to know whether any capital gains tax liability would arise on this sale. (Ignore any surcharge or education cess) Indexed cost of Amount CII acquisition Original gift on 13.04.1981 200000 100 1164000 08-09 582 Gift on 13.04.1994 100000 259 224710 13.04.1995 100000 281 207117 13.04.1996 100000 305 190820 13.04.1997 100000 331 175831 13.04.1998 100000 351 165812 13.04.1999 100000 389 149614 13.04.2000 100000 406 143350 13.04.2001 100000 426 136620 13.04.2002 100000 447 130201 13.04.2003 100000 463 125702 13.04.2004 100000 480 121250 13.04.2005 100000 497 117103 Indexed cost 3052130

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CAPITAL GAINS TAX Sale proceeds LTCG Invested in new residential house LTCG exempted Taxable LTCG Tax on LTCG 4850000-2500000 2350000 871133 926737 185347 4850000 1797870

1797870*2350000/4850000 1797870-871133 926737*20%

6 Sahil has invested Rs.400000 in an Agricultural land at his native village Goraya in 2000-2001. Goraya has a population of about 12000 and the nearest urban place is at a distance of 4 k.m Sahil has received an offer to sell his agricultural land for Rs.1100000. What is the long term capital gain tax liability for Sahil in case he sells the land before 31.03.2008. (igonore surcharge and education cess) Sale consideration in 2007-2008 Less Cost of acqusition in 2000-01 Inflation index 2000-01 406 Inflation index 2007-08 551 Indexed cost of acquisition Amount of Capital Gain Capital Gains Tax @20% 1100000 400000

542857 400000*551/406 557143 111429

7 Rahul transferred shares of X Ltd, a listed security to Avinash in an off market transaction for a consideration of Rs.30 lakh on July 1, 2008. The shares were held by him in physical form. He had purchased these shares on April 1, 2000 for Rs.15 lakh. What will be the Long Term Capital gains tax payable by Rahul on the above transactions. Ignore sucharge and any other taxes, if applicalbe. Sale consideration on 01.07.2008 Less Cost of acqusition on 01.04.2000 Inflation index 2000-01 406 Inflation index 2008-09 582 Indexed cost of acquisition Amount of Capital Gain Capital Gains Tax @20% 3000000 1500000

2150246 1500000*551/406 849754 169951

Capital Gains without taking cost of inflation index 3000000-1500000 1500000 Tax payable @10% 150000 Tax on LTCG will be lower of the two 150000

8 Aditi sold 500 Gold ETF units @ Rs.1585.27 per unit on the stock exchange on 27th October 2008. These units were acquired in the initial offering @ Rs.983 per unit on 17.10.2006. She asks you to advise her on the tax to be paid on such disposal of units. The same is.... Sale consideration on 27.10.2008 Units Rate Cost of acquisition on 17.10.2006 Units Rate CII 2006-07 2008-09 Indexed cost of acquisition Capital gain Tax on LTCG with indexation 241473*20.6% Tax on LTCG without indexation LTCG 792635-491500 301135 LTCG Tax 301135*10.3% 792635 500 1585.27 491500 500 983 519 582 551162 241473 49743

31017

9 Prabhat's father acquired his flat at Bangalore in 1985-86 for Rs.10 lakh. After the death of Prabhat's father such house is transferred to Prabhat through inheritance in FY 2006-2007. If he had sold this inherited house on 15.03.2009 for Rs.25 lakh and shift to his own house then compute the capital gain for AY 2009-10 (Assume expenses incurred on sale of house by him was Rs.1 lakh) Sale consideration on 15.03.2009 Less Expenses on transfer Cost of acquisition CII 2006-07 519 2008-09 582 Indexed cost of acquisition Long Term Capital Gain 2500000 100000 1000000

1121387 1278613

1000000*582/519

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CAPITAL GAINS TAX 10 Prasoon purchased 100 units of Gold Exchange Traded Fund (bought at Rs.894.60 per unit in August 2007, currently trading at Rs.1329.45 per unit.) If the growth in the NAV of the invested Gold ETF from here onwards is taken as 6% CAGR (net of administration charges), Prasoon wants to know what would be the approximate tax liability on selling 100 units of the Gold ETF 10 years from now. (Ignore indexation benefit of arriving at capital gains, eucation cess and surcharge) Cost of purchase of 100 units of Gold ETF in August,2007 894.60*100 Expected NAV of Gold ETF from Aug, 2008 to Aug,2018 @6% NAV as on Aug,2008 Growth FV 1329.45*(1+0.06)^10 Redemption value of 100 units LTCG Tax @10% 1329.45 6% 2380.84 2380.84*100 238084 148624 14862 89460

11 Suneel wants to sell Sneha's plot on 28th February 2009 at Rs.13.00 lakh and out of the sale proceeds he intends to invest Rs.1 lakh in NSCs in her name and remainining amount in a bank FDR. This plot was purchased by the amount which Sneha won in a reality show in April 2004 for Rs.5 lakh. He has asked you about her tax liability if she has no other income / investments in the FY 2008-09 and the CII for 2004-05 is 480, 2005-06 is 497, 2007-08 is 551 and 2008-09 is 582. According to you the same is CII Date of purchase 13.04.04 480 Date of sale 28.02.09 582 Sale price 1300000 Purchase price 500000 Indexed cost of acquisition 606250 500000*582/480 LTCG 693750 Less: Basic exemption 180000 Taxable LTCG 513750 Tax @20% 102750 E-cess @3% 3083 Total Tax liablity 105833 (or) 105830 No deduction u/s 80C from LTCG is allowed

12 Charu purchased a house on 11.04.2003 for Rs.15.50 lakh for investment purpose. In September 2003 he spent another Rs.295000 on renovation. In March 2006 he entered into agreement for sale of this house for Rs.25 lakh and received Rs.5 lakh towards advance. However the buyer could not meet his commitment of getting the property registered in his name within the time and the amount was forfeited by Charu In January 2008 Charu has signed a fresh sale agreement with another prospective buyer for Rs.30 lakh for the house. Out of this amount Rs.20 lakh was paid immediately at the time of registry in January 2008. The balance was paid after 6 months along with interest @18% p.a. Charu wants to know the approximate capital gain on this sale transaction. CII for various financial years are 2002-03:447, 200304: 463, 2007-08: 551, 2009-09: 582 Full sale value Less: Cost of acquisition Original cost Less: forfeited amount Inflation index 2003-04 463 2007-08 551 Indexed cost of acquisition Cost of improvement Indexed cost LTCG 3000000

1550000 500000 (u/s 51) 1050000

1050000*551/463

1249568

295000 295000*551/463 3000000-1249568-351069

351069 1399363

13 Ajay's father gifted him stocks of XYZ Ltd in Feb 2002 whose fair market value at the date of the gift was Rs.36000. Ajay's father had himself purchased the same in 1985 for Rs.10000 through IPO. If Ajay sells the sahres of XYZ Ltd in Jan 2007 for Rs.77000 what is the capital gain earned by him? Consider brokerage charges to be Rs.1500. Cost Inflation Index for various years is : 1981-82: 100, 1985-86:140, 2001-02: 426, 2002-03: 447 and 2006-07: 519 Sale consideration in Feb 2007 Less Brokerage charges Cost of acquisition in Feb 2002 CII Index 2006-07 519 2001-02 429 Indexed cost of acquisition 10000*519/426 LTCG 77000 1500 10000

12183 63317

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CAPITAL GAINS TAX 14 Sumit purchased 200 shares of X on 1-April-1978 for Rs.40 ech. He was allotted 200 right shares on 1May-1979 for Rs.50 each. He was also allotted 400 bonus shares on 1-May-1980 (Market price of the shares at that time was Rs.50). On 4-May-1990 he was further allotted 800 right shares for Rs.80 each. Again on 7-August-1996 he was allotted 800 bonus shares (Market price of the shares at that time was Rs.100). The fair market value of these shares as on 1-4-1981 was Rs.60 each. All the above shares are sold by Sumit on 16-July-2004 for Rs.300 per share through a recorgnised stock excahange. Compute the capital gain for assessment year 2005-06. 1981-82 100 1990-91 182 1996-97 305 2004-05 480 1989-90 172 1995-96 281 2003-04 463 Where shares were sold through Stock Exchange on 16-July-2004, that is before 1st October 2004, Capital Gain will be calculated as Original Right Bonus Right Bonus shares shares shares shares shares Sale date 16.07.04 16.07.04 16.07.04 16.07.04 16.07.04 Purchase date 01.04.78 01.05.79 01.05.80 04.05.90 07.08.96 200 200 400 800 800 Sale consideration@ 300 60000 60000 120000 240000 240000 Less: Cost of acquisition Indexed cost

60 480/100 57600

60 480/100 57600 2400 320809

60 480/100 115200 4800

80 480/182 168791 71209

0 240000

Capital Gains Total Capital Gains for AY 2005-06

2400

15 Roger sold 350 shares of a company at Rs.300 each on 1st March 2010. He purchased 50 shares on 1st May 1979 for Rs.20 each. The fair market value was Rs.40 each as on 1st April 1981. Again on 7th Agusut 1998, he was allotted 50 bonus shares. The fair market value was Rs.115 each as on 7th Agust 1998. He purchased additional 250 shares on 1st April 2009 for Rs.150 each. Calculate the capital gains on shares sold. CII - 1981-82 : 100; 1998-99 :351; 2008-09 : 582; 2009-10 : 632 Original Bonus Additioal shares shares shares 01.03.10 01.05.79 07.08.98 01.04.09 50 50 250 300 15000 15000 75000

Sale date Purchase date Sale consideration @ Less Cost of acquisition Indexed cost

40 632/100 12640

0 0 0 15000

150 0 37500 37500

Capital Gains Total Capital Gains

2360 54860

16 Vanisha has an option to invest in the house (at hill station) immediately. She wishes to sell the plot of land for Rs.900000 and invest the proceeds for buying the new house. For balance amount she would avail a loan for the cost of the house. The plot was gifted by her grand father on her 16th birthday when market value was Rs.4 lakh, cost of purchase as on 01.01.1986 : Rs.100000. She wants to know the eligible amount of exemption under section 54F of the Income Tax Act, 1961 for the FY 2009-10 (CII - 1985-86:133, 2000-01:406, 2001-02:426, 2008-09:582, 2009-10:632) Cost of land as 01.01.1986 100000 Date of gift 12.02.2002 Cost of acquisition = Cost to the previous owner As per Section 49(1) in case of gift of capital asset, Cost of acquisition is cost to previous owner and indexation is done from the year in which gift is made. However, since asset acquired is long term indexed cost of acquisition needs to be computed Sale consideration Indexed cost of acquisition 900000 148357 751643

100000*632/426

Capital Gains Exemption under Section 54F =

Amount invested*Capital Gain/Net sale consideration 900000*751643/900000 751643

18 Ravinder Saxena purchased a house in May 2004 for Rs.18 lakh for investment purpose and further spent Rs.3.15 lakh in August 2005 on its renovation. He entered into an agreement for sale of this house for Rs.35 lakh in March 2008 and received Rs.2 lakh towards advance. However, the buyer could not meet his commitment and the advance was forfeited by Ravinder.

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CAPITAL GAINS TAX Ravinder has received an offer to sell the house for Rs.37 lakh. The brokerage charges to be incurred on sale transaction are 1.50% of sale amount. Ravinder wants to know from you the amount of capital grains on this sale transaction if provisions of AY 2009-10 are applicable today as well. Cost Inflation index (CII) for various Financial Years is : 2004-05:480, 2005-06:497, 2006-07:519, 2007-08:551, 200809:582, 2009-10:632. Expected sale consideration Less: Brokerage paid @ 1.50% Net sale consideration Cost of acquisition Less: Forfeited advance amount Indexed cost of acquisition CII: 2004-05 480 CC: 2009-10 632 Cost of renovation Indexed cost of renovation Total Indexed cost Long Term Capital Gain 1800000 200000 1600000 2106667 1600000*632/480 3700000 55500 3644500

315000 400563 315000*632/497 2507230 1137270 3644500-2507230

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