CAPITAL GAINS

Capital gains [section 45]

• Any profits or gains arising from the transfer
of capital asset effected in the previous year
shall, unless exempt under sections 54, 54B,
54D, 54 EC, 54EE, 54F, 54G, 54GA, 54GB and
54H, be chargeable to income tax under the
head “Capital Gains”, and shall be deemed to
be the income of the previous year in which
the transfer took place.
• Conditions for taxability under Capital Gains:
(a)There must be a capital asset;
(b)The capital asset must have been transferred;
(c)Such transfer must have taken place during
the previous year;
(d)The transfer of capital asset must give rise to
profits or gains(include loss also);
(e)Such capital gains should not be exempt from
tax under sections 54, 54B, 54D, 54 EC, 54EE,
54F, 54G, 54GA, 54GB and 54H.
 Capital Assets [Section 2(14)]

(a) Property of any kind held by an assessee,

whether connected with his business,
profession or not.
(b) Any securities held by a Foreign Institutional
Investor which has invested in such securities
in accordance with the regulations under the
SEBI Act, 1992.
Capital Assets- movable or immovable, tangible
or intangible, fixed or floating.
Exceptions:
(1)Commercial goods. Any stock in trade[other
than securities mentioned in clause(b)]
consumable stores or raw materials held for
the purpose of his business and profession.
(2)Movable Assets for personal use.
Exceptions- (a) Archaeological collections (b)
drawings (c)paintings (d) Sculptures (e) any
work of art (f) jewellery for personal use.
(3) Rural Agricultural Land in India, provided---
(4) 6.5%Gold bonds, 1977 or 7% Gold bonds or
National Defence Gold bonds, 1980 issued by
the Central Government.
(5) Special Bearer Bonds, 1991
(6) Gold deposit bonds issued under Gold
deposit scheme, 1999 or deposit certificate
issued under the Gold Monetisation Scheme,
2015 notified by the Central Government.
The Finance Act, 2012 has retrospectively amended the definition of:

• Section 2(14): Amendment in Definition of

Capital Asset
• Following Explanation has been added to
section 2(14) i.e. the definition of Capital Asset:
• 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 rights of
management or control or any other rights
whatsoever.
 Self-generated Assets
(1) Self-generated goodwill of a business.
However self-generated goodwill of a
profession is not treated as capital asset.
(2) Self-generated tenancy rights, stage carriage
permits and loom hours.
(3) Right to manufacture, produce or process
any article or thing.
(4) Right to carry on any business or profession
 Kinds of Capital Assets
• Short-term Capital Asset, and Long-term
Capital Asset
• Short-term Capital Asset- means any
asset held by an assessee for not more than 36
months immediately preceding the date of its
transfer.
• Capital gains arising from the transfer of
short-term capital asset is called Short-term
Capital gains.
• Long-term Capital Asset- means any
asset held by an assessee for more than 36
months immediately preceding the date of its
transfer.
• Capital gains arising from the transfer of Long-
term capital asset is called Long-term Capital
gains.
• Exceptions:
(1)In the case of financial assets being:
(a)A share held in a company,or
(b)Any other security recoganised stock exchange, or
(c)A unit of the Unit Trust of India, or
(d)A unit of Mutual Fund specified in section 10(23D), or
(e)Zero coupon bond
- The period of 36 months reduced to 12 months.
(2) Assets used for business or profession on which
depreciation is allowed on the WDV, are treated always
as short-term capital assets.