CAPITAL GAIN

Prof. Madhumathi
Department of Commerce
Kristu Jayanti College
Bengaluru
 Meaning
Any gain arising out of transfer of capital asset in the
previous year is called a capital gain. To tax an
income under the head capital gain the following
conditions are to be fulfilled
 There should be a capital asset

 It must have been transferred by the assessee

 Transfer should have taken place in the previous

year
 Gain on such transfer should not be exempted

from tax U/s 54, 54B, 54D, 54EC,54EE,54F,

54G,54GA and 54GB
 Meaning of capital asset
 Section 2(14) in The Income- Tax Act, 1995. (14)
" capital asset" means property of any kind
held by an assessee, whether or not connected
with his business or profession, but does not
include-
 Stock in trade, raw material or consumable
stores held for the purpose of business or
profession ( surplus arises out of these are
taxed under the head profits and gains of
business or profession)
 Not Capital Asset
I) Any stock-in-trade and raw materials held for the purposes of his business
or profession;

(ii) Personal effects, i.e. to say, movable property (including wearing apparel
and furniture, but excluding jewellery, archaeological collections, drawings,
paintings, sculptures and any work of art) held for personal use by the assessee
or any member of his family dependent on him
(iii) Agricultural land in India not being situated within the jurisdiction of a
municipality or within 8 km. of a municipality as may be notified;
(iv) Gold bonds
(v) Special Bearer Bonds, 1991; and
(vi) Gold Deposit Bonds.

The most important item that should be noted in this regard is “personal effects”
like silver utensils, wearing apparel, etc. which are not treated as capital assets.
 Transfer
As per Section 2(47) “transfer” in relation to a
capital asset includes:
(i)      sale, exchange or relinquishment of the asset
(ii)     the extinguishment of any right therein, or
(iii)    the compulsory acquisition thereof under
any law
(iv)    in a case, where the asset is converted by the
owner thereof into or is treated by him as stock-in-
trade .
The following transactions are not treated
as transfer
 Transfer of asset in a scheme of
amalgamation ,demerger
 Transfer of agricultural land before 1/4/1970
 Transfer of debenture or bonds into shares
 Transfer of Asset in kind at time of liquidation
 Transfer of asset by a parent company to the
own subsidiary company
 Transfer of asset under gift or will
 Transfer of asset at the time of partition of HUF
 Transfer of a capital asset being a government
securities made outside India by a Non –
Resident to another Non- Resident
 Types of Capital Assets

Short term capital asset:

 An asset which is held for a period of 36 months or less is a short-

term capital asset. The criteria of 36 months have been reduced to

24 months in the case of Unlisted Shares, immovable property
being land, building, and house property, from FY 2017-18.
However, following assets held for not more than 12 months shall be
treated as short-term capital assets:
 Equity or preference shares in a company which are listed in any

recognized stock exchange in India;

 Other listed securities;

 Units of UTI;

 Units of equity oriented funds; or

 Zero Coupon Bonds.

 Long term capital asset:
Capital Asset that is held for more than 36 months
or 24 months or 12 months, as the case may be,
immediately preceding the date of transfer is
treated as long-term capital asset.
Computation of Short Term Capital Gains on Sale of Property

Full Value of Consideration xxx

(Less) Expenditure incurred wholly and exclusively
in connection with such Transfer/Sale
xxx
(Less) Cost of Acquisition xxx
(Less) Cost of Improvement xxx
Gross Short Term Capital Gain xxx
(Less) Exemption (if any) available u/s
54B/54D/54G/54GA xxx
Net Short Term Capital Gain on Sale of Property
 Computation of Long Term Capital Gain

Full Value of Consideration xxx

(Less) Expenditure incurred wholly and exclusively
in connection with such Transfer/Sale xxx
(Less) Indexed Cost of Acquisition xxx
(Less)Indexed Cost of Improvement xxx
Gross LTCG xxx
(Less) Exemption (if any) available u/s
54/54B/54D/54EC/54ED/54F/54G xxx
Net Long Term Capital Gain on Sale of
Property XX
Financial Year Cost Inflation Index (CII)
2001-02 (Base year) 100
2002-03 105
2003-04 109
2004-05 113
2005-06 117
2006-07 122
2007-08 129
2008-09 137
2009-10 148
2010-11 167
2011-12 184
2012-13 200
2013-14 220
2014-15 240
2015-16 254
2016-17 264
2017-18 272
2018-19 280
2019-20 289
2020-21 301