CAPITAL GAIN

MEANING OF CAPITAL GAIN – SEC.45

 Any profits or gains arising from the transfer

of a capital asset effected in the previous year

shall be chargeable to income-tax under the
head ‘’capital gains’’ & shall be deemed to be
the income of the previous year in which the
transfer took place.
 Profit or loss arising from transfer of capital

assets is taxable under the head capital

gains.
 It is the fourth head of income.
Requisites of Capital gains Section 45

 There must be a capital asset.

 The capital asset must be transferred.
 The transfer must have been taken place in

the previous year.

 There must be a gain arising from such

transfer.
Capital assets Sec.2(14)
 Capital assets means property of any kind, whether
movable or immovable, tangible or intangible like-
land, building, furniture, silver, precious metal etc.
 Exceptions:
1. stock in trade, consumable parts or raw material
held for the purpose of business.
2. Personal effects (air conditioner, apparel etc.) for
personal use by assesse.
3. Agricultural land in rural area (population <10000)
4. Gold deposit bonds 1999, issued under Gold
Deposit Scheme, 1999 notified by Central Govt.
Examples of capital assets
 Land, building, flat, plot (immovable)
 Furniture, machinery (movable)
 Gold, silver, precious metals, jewellery,
precious stones etc.
 Urban agricultural land (population > 10000)
 Shares, securities, bonds as an investment.
 Goodwill, patent.
Short term capital asset [2(42A)]

1. Land, building,plot etc- held by assessee for a

period of less than 24 months (2yrs);
immediately after the date of transfer
2. gold, silver etc- held by assessee for a period of
less than 36 months (3yrs); immediately after
the date of transfer.
3. Shares & securities- held by assessee for a period
of less than 12 months ( 1 yr)
4. Depreciable assets, irrespective of holding period

Ex : Mr. X purchased a plot on 1st Aug 2016 for Rs. 2

lacs, sold it for Rs. 3 lacs on 1st Oct 2017.
Computation of short term capital
gain/ loss

Sales consideration Xxx

Less- Total of the following

1. Transfer expenses (advertisement, legal, brokerage) xxx

2. Cost of acquisition (purchase Price) xxx

3. Cost of improvement xxx (-)xxx

Taxable Short term capital gain/loss Xxx

Positive means gain, negative means loss
Long term capital asset
1. Land, building,plot etc- held by assessee for
a period of more than 24 months (2yrs);
immediately after the date of transfer
2. Gold, silver etc- held by assessee for a
period of more than 36 months (3yrs);
immediately after the date of transfer.
3. Shares & securities- held by assessee for a
period of more than 12 months ( 1 yr)
Computation of long term capital gain/loss

Full value of consideration xxx

Less- Total of the following:

1. Transfer expenses xxx

2. `Indexed cost of acquisition xxx

3. Indexed cost of improvement xxx (-)xxx

Taxable Long term capital gain/loss xxx

Positive means gain, negative means loss
Cost of acquisiton
 Original Cost: means the purchase price of
asset, cost of construction, registration
charges, any improvement charges &
brokerage .(time of acquiring the asset)

 Cost before 1.4.2001:

Original cost of acquisition
Or
Fair market value
(which ever is more)
 Indexed cost of acquisition (asset held prior to
2001)

original cost index for the yr in

or fair market value * which asset transferred
on 1.4.2001 ex: 2017-18 (272)

cost inflation index for 2001-02

i.e. 100 (base yr)
 If property acquired before 1.4.20011, then
index for 2001-02 is taken for the base yr
 Original cost = purchase price + registration or
installation etc. (current repairs not included)
 For assets acquired after 1.4.2001.

cost of acquisition * index for the yr in which

asset is transferred
ex: 2017-18(272)

cost inflation index for the 1st year

in which the asset was acquired
Cost of Improvement
 It includes the cost of all alterations or
additions to any capital asset (except
goodwill) on or after 1.4.2001
 Interest on loan, current repairs, insurance

premiums are not considered as cost of

improvements.
 If the property is acquired before 1.4.2001

and cost of improvement incurred before

1.4.2001 will not be considered. Cost of
improvement after 31.3.2001 is considered.
 Indexed cost of improvement (after 1.4.2001)

Cost of improvement * Index for the yr in which

asset is transferred

cost inflation index for the yr

of improvement
Indexation not allowed
 Long term bonds and securities, mainly
debentures (actual cost taken)
 Shares transferred outside stock exchange

(long term)
 Shares/debentures purchased by non-
residents in foreign exchange (issued by
Indian Company, purchased in foreign
currency)
Capital Gains Account Scheme-1988

 This scheme is applicable for sections 54,

54(b), 54(d), 54(f), 54(g)
 If the assessee can not utilise the capital gain

before the due date of filing of Return of

Income for purchasing or constructing new
asset, like residential house, agricultural land,
machinery etc. then he must deposit the
unutilised money of capital gain in this
scheme in a public sector bank to avail
exemption under aforesaid sections.
 Exemptions
Exemptions
Residential property converted into Cost of the new house
new residential property within 3 or
years or before 1 year or after 2 Capital gain
years (Section 54) LTCG (whichever is less)
Agricultural land transferred and Cost of the new land
agricultural land purchased within or
two years(Section 54B) STCG OR Capital gain
LTGC (whichever is less)
Compulsory acquisition of land Cost of the new land and building
and building of industrial or
undertaking. (Section 54D) Capital gain
(whichever is less)
EXEMPTIONS
Capital Gain (LTCG) is invested in
notified bonds (Section 54EC)
Example :NABARD, Rural
Electrification Corporation Bonds ,
National Highway Authority etc.
• Max limit of investment is
Rs.50lakh.
• Within 6 months of capital gain
the assessee should invest the
amt in such bonds. (wholly or
partly)
(Redeemable after 3 years)
• If invested amt is less than
capital gain; invested amt will be
exempted.
• If any loan taken or bonds
converted into money within 3
yrs, then tax on CG arising from
original asset will be charged
which was earlier exempted.
Other capital gain invested
Residential property (Section 54F)
(LTCG)
• Assessee who is an individual or
HUF.
• If purchased 1 yr before or 2 years
after the date of transfer or
constructed within 3 years
• If only a part of net consideration is
so invested
Cost of new asset x long term capital gain
Net Consideration arising
• If full amt. of net consideration is
invested then entire capital gain is
exempted.
• Net consideration = sales
consideration – transfer exp (which
Gain arising from transfer od any Exemption limit- Upto the cost of
plant or other asset of industrial Industrial asset which can be a
undertaking which was situated in building, plant, machinery etc.
notified urban area; Shifting of
Industrial Undertaking from urban
area to other area (Section 54G) or
SEZ(Section 54GA)