Capital Assets

• A capital asset is defined to include property of any kind held by an assessee, whether connected
with their business or profession or not connected with their business or profession. It includes all
kinds of property, movable or immovable, tangible or intangible ,fixed or circulating.
• Land, building, house property, vehicles, patents, trademarks, leasehold rights, machinery, shares,
debentures, securities, jewellery, pieces of art are a few examples of capital assets. This includes
having rights in or in relation to an Indian company. It also includes the rights of management or
control or any other legal right.
 The following do not come under the category of capital asset:
• a. Any stock, consumables or raw material, held for the purpose of business or profession
• b. Personal goods such as clothes and furniture held for personal use
• c. Agricultural land in rural India
• d. 6½% gold bonds (1977) or 7% gold bonds (1980) or national defence gold bonds (1980) issued by
the central government
• e. Special bearer bonds (1991)
• f. Gold deposit bond issued under the gold deposit scheme (1999) or deposit certificates issued
under the Gold Monetisation Scheme, 2015
Capital Asset Sec 2(14)
According to Sec 2(14)
“Capital Asset” means ----
a) Property of any kind held by an assessee, whether or not connected with his business or profession
b) Any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the
regulations made under the SEBI Act, 1992.
but does not include-
(i) any stock-in-trade [other than the securities referred to in sub-clause (b)], consumable stores or raw materials held for the
purposes of his business or profession;
(ii) 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 exclude,-
(a) jewellery;
(b) archaeological collections;
(c) drawings;
(d) paintings;
(e) sculptures; or
(f) any work of art.
(iii) Agricultural land in India, which is not an urban agricultural land. In other words, it must be a rural agricultural land
(iv) Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 or deposit certificates issued under the Gold
Monetization Scheme 2015 and 2019 notified by the Central Government
Types of Capital Assets
CAPITAL ASSETS

Short- term Capital Assets Long- term Capital Assets

Period of Holding

Period of Holding
 > Security including equity shares (other than unit) listed in recognized stock
exchange
 > A unit of Equity oriented fund
STCA – Less
 than
> Zeroor equal
Coupon to 12 months
Bond
LTCA – More than 12 months

> Unlisted Share

> Land or Building or both

STCA – Less than or equal to 24 months

LTCA – More than 24 months

> Units of Debt oriented funds

> Unlisted Securities &
> All other Capital Assets

STCA – Less than or equal to 36 months

LTCA – More than 36 months
Capital Gain
• Any profit or gain that arises from the sale of a ‘capital asset’ is a capital
gain.
• This gain or profit is comes under the category ‘income’, and hence you
will need to pay tax for that amount in the year in which the transfer of the
capital asset takes place.
• This is called capital gains tax, which can be short-term or long-term.
• Capital Gain arises only when there is a transfer of capital asset.
• If the Capital asset is not transferred or if there is any transaction which
is not regarded as transfer, there will not be any capital gain. 
Transfer (Sec 2(47))
"Transfer”, in relation to a capital asset, includes:
(i) Sale, exchange or relinquishment of the asset;
(ii) Extinguishment of any rights in relation to a capital asset;
(iii) Compulsory acquisition of an asset;
(iv) Conversion of capital asset into stock-in-trade;
(v) Maturity or redemption of a zero coupon bond;
(vi) Allowing possession of immovable properties to the buyer in part
performance of the contract;
(vii) Any transaction which has the effect of transferring an (or enabling the
enjoyment of) immovable property; or
(viii) Disposing of or parting with an asset or any interest therein or creating any
interest in any asset in any manner whatsoever.
What is not a Transfer??
• Transfer of assets to share holders on liquidation
• Transfer of property in the partition of HUF
• Transfer under a gift, will or trust
• Transfer from parent company to a subsidiary company
• Transfer of assets of historical importance to museum, Government
etc
• Conversion of proprietary concern into a company
• Transfer of debentures/ bonds into shares
Deemed Transfer
• When a capital asset is converted into stock-in-trade then it is known
as Deemed transfer.
• The cost for ascertaining profits will then be the market price on that
date.
Section 54 in Capital Gains

Section Eligible Type of Asset Asset Purchased Time Limit Quantum of Further
Assessee Capital transferr Deduction Sale/
gain ed / Sold Min.
Holding per.

54 Individual
or HUF
LTCG Residenti
al House
• One Residential
House Property in
• Within / Before
1 year of date of
Whichever is
less:
3 years

Property India transfer a) Amount

OR OR invested in
• If the Cap. Gain • Purchase -2 purchase/
does not exceed ₹ 2 years after the construction
crore – The date of transfer + CG Deposit
assessee may at his OR
option may • In the OR
purchase / Construction of
construct TWO HP – 3 yrs after b) Amount of
residential houses the date of such LTCG
in India transfer
OR
• Capital Gain Deposit
Section 54 in Capital Gains
1. Asset must be classified as a long-term capital asset.
2. The asset sold is a Residential House. Income from such a house should be
chargeable as Income from House Property
3. The seller should purchase a residential house either 1 year before the date of
sale/transfer or 2 years after the date of sale/transfer.
4. In case the seller is constructing a house, the seller has an extended time, i.e. the
seller will have to construct the residential house within 3 years from the date of
sale/transfer.
5. The new residential house should be in India. The seller cannot buy or purchase a
residential house abroad and claim the exemption.
6. The above conditions are cumulative. Hence, even if one condition is not fulfilled,
then the seller cannot avail the benefit of the exemption under Section 54.
Section 54 in Capital Gains
The amount of exemption under Section 54 of the Income Tax Act for
the long-term capital gains will be the lower of:
• Long Term Capital gains arising on transfer of residential house, Or
• The investment made in purchase or construction of a new residential
house property. Hence, the balance capital gains (If any) will be
taxable.
Section 54 B
Section Eligible Type of Capital Asset transferred Asset Time Limit Quantum of Further
Assesse gain Purchased Deduction Sale/
e Holding
per.
54 B Individu
al or
STCG/ LTCG Agricultural land Agricultura Within 2 years of
used by assessee, l Land the date of
Whichever is
less:
3 years

HUF his parents or HUF transfer a) Amount

At least for 2 years invested in
immediately purchase +
preceeding the (CG Deposit)
Date of transfer
OR

b) Amount of
LTCG / STCG
Section 54 B
A taxpayer can claim exemption u/s 54B if all the below conditions are satisfied:
1.The taxpayer must be an Individual or HUF.
2.The benefit of exemption u/s 54 is not available to the company, LLP, or Firm.
3.The agricultural land sold is a Long Term Capital Asset (Sold after 24 months) or Short
Term Capital Asset.
4.The agricultural land sold is used for agricultural purposes by the individual / his
parent / HUF as the case may be for 2 years prior to transfer.
5.New Agricultural land is purchased within 2 years from the sale of the agricultural land.
6.A new Agricultural land should be in India.
Section 54 B
Amount of Exemption under Section 54B will be least of the
following:
1.The Cost of new Agricultural land
OR
2.The Capital Gains on the sale of Agricultural land
Section 54 D
Section Eligible Type of Asset transferred Asset Time Quantum of Further Sale/
Assessee Capital gain Purchased Limit Deduction Holding
period
54 D Industrial
Undertakin
STCG/ LTCG Land & Building
forming a part of
Another
L&B in
Within 3
years of
Whichever is less:
a) Amount invested in
3 years

g an Industrial Industrial the date purchase/ + CG

Compulsor Undertaking used Undertakin of Deposit
y by assessee for a g transfer
Acquisition period of 2 years OR
immediately
preceeding the b) Amount of Cap.
date of its Gain
compulsory
acquisition
Section 54 D
Following conditions should be satisfied to claim exemption under section 54D:
• 1. The land or building that is acquired should belong to an industrial
undertaking.
• 2. The assessee (industrial undertaking) should have used the land or building for
the purpose of its business for minimum 2 years immediately preceding the date
on which the transfer took place.
• 3. The assessee should purchase another land or building or any right in any
other land or building (new asset) within 3 years from the date of transfer of
original asset, for the purpose of shifting or re-establishing the said industrial
undertaking.
Section 54 D
Amount of Exemption under Section 54D will be least of the
following:
1.The Cost of new Asset
OR
2.The Capital Gains
Section 54 EC
Section Eligible Type of Asset Asset Purchased Time Limit Quantum of Further
Assessee Capital transferred Deduction Sale/
gain Holding
period

54 Any
Assessee
LTCG Land &
Building or
Bonds of National Highways
Authority of India (NHAI)/
Within 6
months of
Whichever is
less:
5 years
EC Both the date ofa) Amount
Rural Electrification transfer invested in
Corporation (REC)/ purchase/ +
Investmen (CG Deposit)
Power Finance Corporation t in bonds OR
(PFC) or cannot b) Amount of
Indian Railway Finance exceed LTCG
Corporation Limited or IRFC ₹50 lakh OR
bonds. c) 50 Lakh
Any other bond notified by
the Central Government in
this behalf
Section 54 EC
• To avail the tax-exemption the investment must be made within 6 months of the
date of sale of immovable property.
• Such investment can be redeemed only after 5 years.
• The exemption on investment is allowed only against long term capital gains on
sale of immovable property (i.e. sale of land or building).
• The exemption is available up to a maximum amount of Rs 50 lakh
Bonds Eligible for Deduction u/s 54EC
• Rural Electrification Corporation Limited or REC bonds,
• National Highway Authority of India or NHAI bonds,
• Power Finance Corporation Limited or PFC bonds,
• Indian Railway Finance Corporation Limited or IRFC bonds.
Section 54 EE
Section Eligible Type of Asset Asset Time Limit Quantum of Further
Assessee Capital transfe Purchased Deduction Sale/
gain rred Holding
period
54 Any
Assessee
LTCG after
1/4/2016
Any
Asset
Specified
Assets to
Within 6 months
of the date of
Whichever is less:
a) Amount invested in
3 years
EE Finance transfer purchase (CG
Start ups Deposit)
Investment in start
up cannot exceed OR
₹50 lakh
b) Amount of LTCG

OR

c) 50 lakh
Section 54 EE
• The assessee should have earned a capital gain on account of transfer of a . Meaning
thereby, the exemption is not available on the transfer of a short term capital asset
• The assessee has invested (whole or part) of the capital gain in the long term
specified asset. The long term specified asset here means units of funds, as notified
by the Government, issued before 1st April 2019.
• The investment into a long term specified asset is to be made within a period of six
months from the date of transfer.
• The total investment made in the long term specified asset (from capital gain arising
on transfer of one or more long term capital asset) doesn’t exceed INR 50 Lakhs
during the financial year in which the long term capital asset is transferred and also
in the subsequent financial year
 Section 54 F
Section Eligible Type of Asset Asset Time Limit Quantum of Further
Assessee Capital gain transferred Purchased Deduction Sale/
Holding
period
54 F Individua LTCG
l/ HUF
Any asset other
than House
One House Within 1 year
Property before or 2 years
a) Full Exemption
If Invt. Cost > NSC
3 years

Property after the date of

transfer of such b) Proportionate
asset or in the Exemption
construction of If Invt. Cost < NSC
one residential
house in India LTCG X Amount
within 3 years of Invested
date of such ------------------------
transfer Net Sale
(1/2/3 yrs) Consideration
Section 54 F
Applicable when the assessee does not own more than one RHP
The Assessee should not purchase, within a period of 2 years after the date of
transfer of original asset or construct with in a period of 3 years after the date of
transfer of original asset, any other residential house other than the new asset.
Exemption:
a) Full Exemption
If Invt. Cost of HP (new asset)> = NSC
b) Proportionate Exemption
If Invt. Cost of HP (new asset) < NSC
LTCG X Amount Invested
-----------------------
Net Sale Consideration
 Section 54 G
Section Eligible Type of Asset transferred Asset Time Limit Quantum of Further
Assessee Capital (Sale) Purchased Deduction Sale/
gain Holding
period
54 G Industrial LTCG /
Undertak STCG
Land or/&
Building
Land or/&
Building
Within 1 year
before
Whichever is less:
a) Amount invested
3 years

ing Or in purchase/
Plant & Plant & 3 years after the construction (CG
Machinery Machinery date of transfer Deposit)

In URBAN AREA In RURAL OR

AREA
b) Amount of LTCG
 Section 54 GA
Section Eligible Type of Asset transferred Asset Time Limit Quantum of Further
Assessee Capital (Sale) Purchased Deduction Sale/
gain Holding
period
54 Industrial LTCG /
Undertak STCG
Land or/&
Building
Land or/&
Building
Within 1 year
before
Whichever is less:
a) Amount invested
3 years
GA ing Or in purchase/
Plant & Plant & 3 years after the construction (CG
Machinery Machinery date of transfer Deposit)

In URBAN AREA In Special OR

Economic
Zone ( SEZ) b) Amount of LTCG
 Section 54 GB
Sectio Eligible Type of Asset Asset Purchased Time Limit Quantum of Further
n Assesse Capital transferred Deduction Sale/
e gain (Sale) Holding
period

54 Individu
al / HUF
LTCG Residential
Property
Equity of a new start-
up SME company in
Within 1 year
before
Exempted upto
proportionate to
5 years
GB (A house or the manufacturing Or the net
plot of land) sector which is 3 years after consideration
utilized by the the date of price so invested
company for the transfer in the
purchase of new subscription of
Plant & Machinery equity shares of a
Eligible Company eligible company
before the due
date of furnishing
the return of
income under
section 139(1).
Tax Rate
Tax Type
Long-term capital gains tax
Long-term capital gains tax
Short-term capital gains tax
Short-term capital gains tax
Condition Tax applicable
Except on sale of equity shares/ 20%
units of equity oriented fund
On sale of Equity shares/ units 10% over and above Rs 1 lakh
of equity oriented fund
When securities transaction tax The short-term capital gain is
is not applicable added to your income tax
return and the taxpayer is taxed
according to his income tax
slab.
When securities transaction tax 15%
is applicable
Computation of taxable Short-term Capital
Gain
Particulars Amount (₹)
Sale Consideration XXX
Less: Selling Expenses (XX)
Net Sale Consideration XXX

Less: Cost of Acquisition (XX)

Less: Cost of Improvement (XX)
STCG XXX

Less: Exemption u/s 54 B, 54D, 54G , 54 GA (XX)

TAXABLE STCG XXX

Computation of Taxable Long-term Capital
Gain
Particulars Amount (₹)
Sale Consideration XXX
Less: Selling Expenses (XX)
Net Sale Consideration XXX

Less: Indexed Cost of Acquisition (XX)

Less: Indexed Cost of Improvement (XX)
LTCG XXX

Less: Exemption u/s 54,54 B, 54D, 54 EC, 54 EE, 54 F, 54G , 54 GA, 54 GB (XX)

TAXABLE LTCG XXX

Computation of Taxable gain for Depreciate Assets
Particulars Amount (₹)
Sale Consideration XXX
Less: Selling Expenses (XX)
Net Sale Consideration XXX

Less: WDV of block of assets (XX)

Less: Purchase cost of New Asset (XX)
STCG XXX

Less: Exemptions (XX)

TAXABLE STCG XXX

Important Points:
Selling Expenses:
It refers to expenses incurred for transferring capital asset .
Ex: Brokerage, Commission, Stamp duty, Registration fees, Legal expenses
and any other expenses related to transfer
Cost of Acquisition:
• It is a purchase cost. It refers to cost incurred by assessee to acquire capital
asset.
• In other sense, it is the capital expenditure incurred for acquiring an asset.
Ex: Interest on loan , Legal expenses to cure the defect of title of property
Important Points:
• Cost of Improvement
It is the cost incurred by assessee to improve the status of the capital
asset.
It is incurred to improve the utility of asset or enhance the value of an
asset.
Ex: Addition, Alteration, Repairs, Renewal, renovation etc.
Important Points:
• Indexed Cost of Acquisition
It means inflating the cost of asset purchased to its present value.
Indexation is done only for long term assets .
Here the cost of acquisition is inflated to its present value
No indexation benefit is given to goodwill, bonds, debentures,
Intangible assets, bonus share and depreciable assets.
Important Points:
• Indexed Cost of Improvement
It refers to inflating the cost spent by the assessee for improving the
utility or enhancing the value of an asset.
Any cost of improvement before 1/4/2001 must be ignored
Formula
a) Indexed Cost of Acquisition ( before 2001)

Cost of Acquisition or Fair Mkt Value X CII of the year of sale

as on 1/4/2001 : WEH ----------------------------------
CII of the year 2001-02
Formula
b) Indexed Cost of Acquisition ( after 2001)

Cost of Acquisition X CII of the year of sale

-------------------------------
CII of the year of acquisition
Formula
c) Indexed Cost of Improvement ( only for assets after 2001) (only if
improvement is made after 2001)

Cost of Improvement X CII of the year of sale

-------------------------------
CII of the year of improvement
Indexation of Cost is Not Allowed in certain cases
In the following cases, indexation of cost shall not be allowed for the assets specified therein –

1. Transfer of long-term bond or debenture (Other than : Capital indexed bonds issued by the
Government ; or b) Sovereign Gold Bonds issued by RBI under Sovereign Gold Bond Scheme, 2015)

2. Transfer of shares or debentures acquired by a non-resident in foreign currency in an Indian Company

3. The Capital gains arising from the transfer of a long term capital asset being an equity share in a
company, a unit of an equity oriented fund, a unit of a business trust.

4. Transfer of undertaking or division in a slump sale

5. Transfer of units of Unit Trust of India or Mutual Fund covered u/s 10(23 D) purchased in foreign
currency by overseas financial organisation also known as Offshore funds.
Indexation of Cost is Not Allowed in certain
cases
6. Transfer of Global Depository Receipt or bonds of an Indian Company or share or bonds of
public sector company sold by the Government and purchased in foreign currency by a non-
resident.

7. Transfer of Global Depository Receipt purchased in foreign currency by an individual

resident in India and employee of an Indian Company.

8. Transfer of securities by Foreign Institutional Investors

9. Transfer of foreign exchange asset by a non-resident Indian

10. Transfer of unlisted securities by non-resident

Sec 112 of Income Tax Act
• Capital gains are taxed as per the tenure of holding investments. The
gains on investments are broadly classified into long-term capital
gains or short-term capital gains.
• The taxation of long-term capital gains is divided under two
provisions, i.e. Section 112 and Section 112A of the Income Tax Act
Section 112 applies to whom?
• Section 112 applies to all types of taxpayers, such as individuals, HUF,
company, firm, resident, non-resident (not a company), a foreign
company, etc
What types of long-term assets are covered
under Section 112?
Section 112 specifies income tax rates on all kinds of long-term
capital assets, such as-
• Listed securities 
• LTCG on zero-coupon bonds 
• Unlisted securities 
• Immovable property 
• Other long-term capital assets
Section 112 (This section does not apply to the capital
assets under section 112 A)
• Listed equity shares where STT paid on acquisition or
transfer 
• Units of equity-oriented mutual funds where STT
paid on transfer 
• Units of business trust where STT paid on transfer
Tax rate on long-term capital gain covered
under Section 112
1.If there is LTCG on listed securities (other than units) and zero-
coupon bonds 
1. Tax rate is lower of-10% (without indexation)
2. 20% (with indexation)
2.For any other long-term capital asset such as units of debt fund,
immovable property sold by a resident
Tax rate is 20%
Tax Rate
Tax Type
Long-term capital gains tax
Long-term capital gains tax
Short-term capital gains tax
Short-term capital gains tax
Condition Tax applicable
Debt mutual funds 20%
Immovable Property
(Except on sale of equity shares/
units of equity oriented fund )
On sale of Equity shares/ units 10% over and above Rs 1 lakh
of equity oriented fund
When securities transaction tax The short-term capital gain is
is not applicable added to your income tax
return and the taxpayer is taxed
according to his income tax
slab.
When securities transaction tax 15%
is applicable
Long term capital gains on shares-Section 112A
• Long Term Capital Gain on equity shares was exempted u/s 10 (38) till
2017-18. 
• However, the above exemption encouraged the diversion of funds from
important sectors like manufacturing, infrastructure etc. into capital
markets.
• Also, many taxpayers misused this exemption which resulted in the
loss of tax revenue due to abusive practices of certain taxpayers. 
• Hence to keep a check over the above issue, CBDT removed the
exemption by introducing a new Section 112A with 10% tax on
LTCG in excess of Rs 1 Lac on sale of listed equity or equity-
related instruments (STT paid).
Assets covered under 112A
• Listed equity shares where STT paid on acquisition or
transfer 
• Units of equity-oriented mutual funds where STT
paid on transfer 
• Units of business trust where STT paid on transfer
Applicability of Sec 112A
Capital gain tax under section 112A will be levied provided the below-
mentioned conditions are fulfilled:
1.Sale of equity shares and equity-related instruments like units of a mutual
fund and units of a business trust.
2.The securities should be long-term capital assets i.e having more than 1 year
of holding.
3.Capital gain is exceeding Rs.1 lakh.
4.The transactions of purchase and sale of equity share in a company are
subject to STT (Securities Transaction Tax). In the case of equity-oriented
mutual fund units or business trust, the transaction of the sale is liable to STT.
Grandfathering clause in section 112 A
(Formula for calculating Cost of Acqn of Shares
(Long term) )
Step 1 - Fair Market Value as of 31st Jan 2018
(OR)
The Actual Selling Price whichever is Lower

Step 2 – Value at Step 1

(OR )
Actual Purchase Price whichever is Higher
 Comparison b/w 112 and 112 A
Sl. No Particulars
1) What type of LTCA covers?
Sec 112
Applies to transfer of all Long Term Capital Assets
defined as per section 2(29A) of the Act.
Sec 112A
Applies to transfer of only
following Long Term Capital
Assets:-
1. Equity share in a company
2. Unit of Equity Oriented Fund
3. Unit of a business trust

2) Tax Rate Tax Rate @ 20% or 10% Tax Rate only @ 10% in excess of
Rs. 1 lakh
3) Exemption of Rs. 1 lakh NO YES
4) Applicability Inserted by Finance Act, 1992 Inserted by Finance Act, 2018.
Applicable w.e.f. 01-04-2019
5) Indexation benefit for COA YES NO (Grand fathering Clause)
Comparison b/w 112 and 112 A
Sl. No Particulars Sec 112 Sec 112A
6. Condition of Applies on Applies only when following conditions are satisfied:-
payment of STT transfer of
LTCA
whether
STT is paid
or not.