Capital Gains

Amendments & Tax Planning

Presented by:
CA Vijay Kr Agrawal,
JAIPUR
MCOM,FCA,DISA,DIRM,LLB,NDDY,
CCCA, CCFAFD, DAT
Phone: +91 9828149043
Email: catvijay@yahoo.com
 Capital gains.
45. (1) 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",
and shall be deemed to be the income of the previous year
in which the transfer took place.

(1A) Notwithstanding anything contained in sub-section (1),

where any person receives any money or other assets from
an insurer on account of damage or destruction of any
capital asset, as a result of—
(i) flood, typhoon, hurricane, cyclone, earthquake or other
convulsion of nature; or (ii) riot or civil disturbance; or (iii) accidental
fire or explosion; or (iv) action by an enemy or action taken in
combating an enemy (whether with or without a declaration of war),

then Capital gains shall be deemed to be the income of the

previous year in which such money was received.
(2) Notwithstanding anything contained in sub-section (1), the
profits or gains arising from the transfer by way of
conversion of a capital asset into stock-in-trade
shall be chargeable to income-tax as his income of the
previous year in which such stock-in-trade is sold and, for the
purposes of section 48, the fair market value of the asset on
the date of conversion shall be deemed to be the full value of
the consideration.
(3) The profits or gains arising from the transfer of a capital
asset by a person to a firm/AOP/BOI in which he
becomes a partner or member, by way of capital contribution,
shall be chargeable to tax as his income of the previous year
in which such transfer takes place and, for the purposes
of section 48, the amount recorded in the books of account of
the firm shall be deemed to be the full value of the
consideration.
(4) The profits or gains arising from the transfer of a capital
asset by way of distribution of capital assets on the
dissolution of a firm/ AOP/BOI, shall be chargeable to tax
as the income of the firm, of the previous year in which the
said transfer takes place and, for the purposes of section 48,
the fair market value of the asset on the date of such transfer
shall be deemed to be the full value of the consideration.

(5) Notwithstanding anything contained in sub-section (1),

where the capital gain arises by way of compulsory
acquisition under any law, or where consideration
was determined or approved by the Central Government or the
RBI, and Compensation or Consideration is enhanced by any
court, Tribunal or other authority, the capital gain shall be
dealt with in the following manner:—
(a) the compensation awarded in the first instance or, the
consideration determined or approved in the first instance shall
be chargeable in the previous year in which such compensation
or consideration or part thereof, was first received; and

(b) the amount by which the compensation or consideration is

enhanced, of the previous year in which such enhanced amount
is received by the assessee :

Provided that any amount of compensation received in

pursuance of an interim order of a court, Tribunal or other
authority shall be deemed to be income chargeable under the
head "Capital gains" of the previous year in which the final
order of such court, Tribunal or other authority is made;
Sub-section (5A) inserted by the Finance Act, 2017,
w.e.f. A.Y.2018-19
(5A) Notwithstanding anything contained in sub-section (1),
where the capital gain arises to an assessee, being an
individual/HUF, from the transfer of a capital asset, being land
or building or both, under a specified agreement,
the capital gains shall be chargeable in the previous year in
which the certificate of completion for whole or part of the
project is issued by the competent authority; and
For the purposes of section 48, the stamp duty value, on the
date of issue of the said certificate, of his share, being land or
building or both in the project, as increased by the
consideration received in cash, if any, shall be deemed to be
the full value of the consideration received or accruing as a
result of the transfer of the capital asset :
Provided that the provisions of this sub-section shall
not apply where the assessee transfers his share in
the project on or before the date of issue of said
certificate of completion, in such a case normal
provisions shall be applicable.

For the purposes of this sub-section, "specified

agreement" means a registered agreement in which a
person owning land or building or both, agrees to
allow another person to develop a real estate project
on such land or building or both, in consideration of a
share, being land or building or both in such project,
whether with or without payment of additional
consideration in cash;
Capital gains on distribution of assets by companies
in liquidation.
46. (1) Notwithstanding anything contained in section 45,
where the assets of a company are distributed to its
shareholders on its liquidation, such distribution shall not be
regarded as a transfer by the company for the purposes
of section 45.
(2) Where a shareholder on the liquidation of a company
receives any money or other assets from the company, he shall
be chargeable to income-tax under the head "Capital gains", in
respect of the money so received or the market value of the
other assets on the date of distribution, as reduced by the
amount assessed as dividend within the meaning of sub-clause
(c) of clause (22) of section 2 and the sum so arrived at shall be
deemed to be the full value of the consideration for the
purposes of section 48.
 Transactions not regarded as transfer.
47. Nothing contained in section 45 shall apply to the
following transfers :—
- Any distribution of capital assets on partition of a Hindu
undivided family;
- any transfer of a capital asset under a gift or will or an
irrevocable trust
- any transfer of a capital asset by a company to its subsidiary
company,
- any transfer of a capital asset by a subsidiary company to
the holding company,
- any transfer, in a scheme of amalgamation, if the
amalgamated company is an Indian company;
- any transfer, in a demerger, if the resulting company is an
Indian company;
- any transfer by a shareholder, in a scheme of amalgamation,
of a capital asset being a share or shares held by him in the
amalgamating company
- any transfer of Sovereign Gold Bond-2015 issued by the RBI
by way of redemption, by an assessee being an individual;]
- any transfer of agricultural land in India effected before the
1st day of March, 1970;
- any transfer of a capital asset, being any work of art,
archaeological, scientific or art collection, book,
manuscript, drawing, painting, photograph or print, to the
Government or a University or the National Museum,
National Art Gallery, National Archives or any such other
public museum or institution as may be notified by the
Central Government in the Official Gazette to be of national
importance or to be of renown throughout any State or
States.
- any transfer by way of conversion of bonds or debentures,
debenture-stock or deposit certificates in any form, of a
company into shares or debentures of that company;
- any transfer by way of conversion of preference shares into
equity shares;
- any transfer of a capital asset, being land of a sick industrial
company, made under a scheme u/s 18 of the Sick Industrial
Companies Act, 1985, where such sick industrial company is
being managed by its workers' co-operative :
- any transfer of a capital asset as a result of succession of
the firm by a company in the business carried on by the
firm, There are certain Conditions.
- any transfer of a capital asset by a private company or
unlisted public company to a LLP or any transfer of a shares
in such a case.
- Sole proprietary concern is succeeded by a company, as a
result of which the sole proprietary concern sells or
otherwise transfers any capital asset to the company :
- any transfer of a capital asset in a transaction of reverse
mortgage under a scheme made and notified by the Central
Government;
 Mode of computation.
48. The income chargeable under the head "Capital gains" shall
be computed, by deducting from the full value of the
consideration received or accruing the following amounts,
namely :—
(i) expenditure incurred wholly and exclusively in connection
with such transfer;
(ii) the cost of acquisition of the asset and the cost of any
improvement thereto:

Provided further that where long-term capital gain arises the

words "cost of acquisition" and "cost of any improvement", the
words "indexed cost of acquisition" and "indexed cost of any
improvement" will respectively be substituted:
[Provided also that nothing contained in the proviso
shall apply to the long-term capital gain arising from
the transfer of a long-term capital asset, being a
bond or debenture other than—
- capital indexed bonds issued by the Government;
- Sovereign Gold Bond issued by the RBI

Provided also that no deduction shall be allowed in

computing the income chargeable under the head
"Capital gains" in respect of any sum paid on account
of securities transaction
Indexed Cost of Acquisition – For Transfer Up to
31.03.2017 the Base Year shall be 1.4.1981 and
for Transfer on or after 1.04.2017 the Base Year
will be 01.04.2001
 Special Cost of acquisition.
49. (1) Where the capital asset became the property of the assessee—
- on total or partial partition of a Hindu undivided family;
- under a gift or will;
- by succession, inheritance or devolution, or
- on any distribution of assets on the liquidation of a company, or
- under a transfer to a revocable or an irrevocable trust, or
- Some transfers as is referred to in Section 47
- such assessee being a Hindu undivided family, by the mode referred to in
sub-section (2) of section 64 at any time after the 31st day of December,
1969,

the cost of acquisition of the asset shall be deemed to be the cost for
which the previous owner of the property acquired it, as increased by
the cost of any improvement of the assets incurred or borne by the
previous owner or the assessee, as the case may be.

Explanation.—In this sub-section the expression "previous owner of the

property" in relation to any capital asset owned by an assessee means the
last previous owner of the capital asset who acquired it by a mode of
acquisition other than that referred to above.
(4) Where the capital gain arises from the transfer of a
property, the value of which was subject to clause (vii) or
(viia) or (x) of Section 56(2), the cost of acquisition of such
property shall be deemed to be the value which has been taken
into account for the purposes of the said clause.

(5) Where the capital gain arises from the transfer of an asset
declared under the Income Declaration Scheme, 2016, and the
tax etc has been paid on the FMV of the asset, the cost of
acquisition of the asset shall be deemed to be the FMV which
has been taken into account in the said Scheme.

(7) Where the capital gain arises from the transfer of a capital
asset, being share in the project, in the form of land or
building or both, referred to in section 45(5A), the cost of
acquisition of such asset, shall be the amount which is deemed
as full value of consideration in that sub-section.
 Special provision for depreciable assets.
50. Where the capital asset is subject to depreciation, the
capital gain shall be calculated as under.
(1) where the full value of the consideration, exceeds the
aggregate of the following amounts, namely :—
- expenditure incurred in connection with such transfer;
- the Opening WDV of the block of assets;
- the actual cost of any asset acquired during the year,
such excess shall be deemed to be the short term capital
gain.

(2) where any block of assets ceases to exist as such, the

cost of acquisition of the block shall be the Opening WDV
plus Cost of Acquisition of new assets purchased if any and
the income as a result of such transfer or transfers shall be
Short Term capital gain.
 Special provision as DLC Value.
50C. (1) Where the consideration of a capital asset, being land
or building or both, is less than the value assessed or assessable
by any authority of a State Government for payment of stamp
duty, the value so assessed shall be deemed to be the
consideration :

Provided that where the date of agreement fixing the

consideration and the date of registration for transfer are not
the same, the value so assessed on the date of agreement may
be taken for the purposes of computing consideration
(Applicable from A.Y.17-18)

Provided further that the proviso shall apply only in a case

where the amount of consideration, or a part thereof, has
been received by way of an account payee cheque or draft or
by electronic clearing system through a bank account, on or
before the date of the agreement.
(2) Without prejudice to the provisions of sub-section (1),
where—
- the assessee claims before any AO that the value assessed
under sub-section (1) exceeds the fair market value of the
property as on the date of transfer;
- the value so adopted or assessed has not been disputed in
any appeal or revision or before any other authority, court or
the High Court,
the Assessing Officer may refer the valuation of the capital
asset to a Valuation Officer.

(3) Subject to the provisions contained in sub-section (2),

where the value ascertained under sub-section (2) exceeds the
value adopted or assessed or assessable by the stamp valuation
authority referred to in sub-section (1), the value so adopted
or assessed or assessable by such authority shall be taken as
the full value of the consideration received or accruing as a
result of the transfer.
 Special provision unquoted shares
50CA. Where the consideration received or accruing on
transfer shares of a company other than a quoted share, is less
than the fair market value of such share determined in such
manner as may be prescribed, the value so determined shall,
for the purposes of section 48, be deemed to be the full value
of consideration received or accruing as a result of such
transfer.
Advance money received.
51. Where on any previous occasion, any advance is received
and retained by the assessee, it shall be deducted from the
cost of acquisition or Opening WDV, as the case may be:

Provided that where any such advance, has been included in

the total income of the assessee for any previous year in
accordance with the provisions of section 56(2)(ix), then such
sum shall not be deducted from the cost of acquisition or
Opening WDV, as the case may be:
 Capital gain on transfer of residential
property (From 1.4.17)
54GB. (1) Where,—
- Capital gain from a long-term capital asset, being a
residential property (a house or a plot of land), by
Individual/ HUF and
- the assessee, before the due date of return u/s 139(1),
utilises the net consideration for subscription in the equity
shares of an eligible company and the company has, within
one year from the date of subscription in equity shares by
the assessee, utilised this amount for purchase of new asset,
then, the capital gain shall be exempt if the cost of the new assets is equal
to the Net Consideration otherwise proportionate.

(2) The amount of the net consideration, received by Company for issue of
shares, if not utilised before the due date of furnishing of the return, shall
be deposited in a bank as may be specified and shall be utilised in
accordance with scheme notified by the Central Government may,
Provided that if the amount so deposited is not
utilised, than the capital gain which was exempted
will be taxable in the previous year in which the
period of one year from the date of the subscription in
equity shares by the assessee expires;
(4) If the equity shares of the company or the new
asset acquired by the company are sold or transferred
within five years the amount of capital gain shall be
deemed to be the income of the assessee of the
previous year in which such equity shares or such new
asset are sold/ transferred,

(5) The provisions of this section shall not apply to any

transfer of residential property made after the 31st
day of March, 2017 :
 "capital asset" means—
- property of any kind held by an assessee,
but does not include—
- any stock-in-trade
- consumable stores or raw materials
- personal effects, that is to say, movable property (including wearing
apparel and furniture) held for personal us but excludes—
- jewellery;
- archaeological collections
- drawings;
- paintings;
- sculptures; or
- any work of art.

"jewellery" includes ornaments made of gold, silver, platinum or any other

precious metal or any alloy containing one or more of such precious metals,
whether or not containing any precious or semi-precious stone, and whether
or not worked or sewn into any wearing apparel;

precious or semi-precious stones, whether or not set in any furniture,

utensil or other article or worked or sewn into any wearing apparel.
- agricultural land in India, not being land situate—
within the jurisdiction of a municipality which has a population of
ten thousand or more; or

in any area within the distance, measured aerially,—

not being more than two kilometres, from the local limits of
any municipality which has a population between 10000 to
100000

not being more than six kilometres, from the local limits of
any municipality which has a population between 100000 to
1000000

not being more than eight kilometres, which has a

population of more than ten lakh.

- 6½ per cent Gold Bonds, 1977, or 7 per cent Gold Bonds, 1980, or National
Defence Gold Bonds, 1980, issued by the Central Government;
- Special Bearer Bonds, 1991, issued by the Central Government ;
- Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 4[or
deposit certificates issued under the Gold Monetisation Scheme, 2015]
notified by the Central Government.
(42A) "short-term capital asset" means a capital asset held by
an assessee for not more than thirty-six months immediately
preceding the date of its transfer :

Provided that in the case of a security (other than a unit)

listed in a recognized stock exchange in India or a unit of the
Unit Trust of India or a unit of an equity oriented fund or a zero
coupon bond, the provisions of this clause shall have effect as
if for the words "thirty-six months", the words "twelve months"
had been substituted:

[Provided also that in the case of a share of a company (not

being a share listed in a recognised stock exchange in India)
(w.e.f. F.Y. 01.04.2016), [or an immovable property, being
land or building or both,] (w.e.f. F.Y. 01.04.2017) the
provisions of this clause shall have effect as if for the
words "thirty-six months", the words "twenty-four months"
had been substituted.]
(47) Transfer Means
- the sale, exchange or relinquishment of the asset
- the extinguishment of any rights therein ; or
- the compulsory acquisition thereof under any law ; or
- in a case where the asset is converted by the owner thereof
into stock-in-trade of a business carried on by him, or
- the maturity or redemption of a zero coupon bond; or
- any transaction involving the allowing of the possession of
any immovable property to be taken or retained in part
performance of a contract of the nature referred to in
section 53A of the Transfer of Property Act, 1882 (4 of 1882)
- any transaction (whether by way of becoming a member of,
or acquiring shares in, a society, company or other AOP or
by any other manner whatsoever) which has the effect of
transferring, or enabling the enjoyment of, any immovable
property.
 Amendments - 2018
Under the existing regime, long term capital gains on equity
shares of a company or an unit of equity oriented fund or an
unit of business trusts, is exempt from income-tax under clause
(38) of section 10 of the Act.

In order to minimize economic distortions and curb erosion of

tax base, it is proposed to withdraw the exemption under
clause (38) of section 10 and to introduce a new section 112A in
the Act to provide that long term capital gains arising from
transfer of a long term capital asset being an equity share in a
company or a unit of an equity oriented fund or a unit of a
business trust shall be taxed at 10 per cent. of such
capital gains exceeding one lakh rupees.
This concessional rate of 10 per cent. will be applicable to
such long term capital gains, if—
- in a case where long term capital asset is in the nature of an
equity share in a company , securities transaction tax
has been paid on both acquisition and transfer of
such capital asset; and

- in a case where long term capital asset is in the nature of a

unit of an equity oriented fund or a unit of a business trust,
securities transaction tax has been paid on
transfer of such capital asset.

Further, sub-section (4) of the new section 112A empowers the

Central Government to specify by notification the nature of
acquisitions in respect of which the requirement of payment of
securities transaction tax shall not apply
Further, the new provision of section 112A also proposes to
provide the following:—
i) The long term capital gains will be computed without giving
effect to the first and second provisos to section 48, i.e.
inflation indexation in respect of cost of acquisitions and
cost of improvement,

ii) The cost of acquisitions in respect of the long term capital

asset acquired by the assessee before the 1st day of
February, 2018 , shall be deemed to be the higher of –
a) the actual cost of acquisition of such asset; and
b) the lower of –
(I) the fair market value of such asset; and
(II) the full value of consideration received or
accruing as a result of the transfer of the capital
asset.
 The Cost of Acquisition Shall be Deemed

Higher of

Lower of
Actual Cost
of Acquisition
Fair Market
Actual Sales
Value as on
Consideration
31.01.2018
Scenario 1 – An equity share is acquired on
1st of January, 2017 at Rs. 100, its fair
market value is Rs. 200 on 31st of January,
2018 and it is sold on 1st of April, 2018 at
Rs. 250.
Answer : As the actual cost of acquisition is
less than the fair market value as on 31st
of January, 2018, the fair market value of
Rs. 200 will be taken as the cost of
acquisition and the long-term capital gain
will be Rs. 50 (Rs. 250 – Rs. 200).
Scenario 2 – An equity share is acquired on
1st of January, 2017 at Rs. 100, its fair
market value is Rs. 200 on 31st of January,
2018 and it is sold on 1st of April, 2018 at
Rs. 150.
Answer : In this case, the actual cost of
acquisition is less than the fair market
value as on 31st of January, 2018. However,
the sale value is also less than the fair
market value as on 31st of January, 2018.
Accordingly, the sale value of Rs. 150 will
be taken as the cost of acquisition and the
long-term capital gain will be NIL (Rs. 150 –
Rs. 150).
Scenario 3 – An equity share is acquired on
1st of January, 2017 at Rs. 100, its fair
market value is Rs. 50 on 31st of January,
2018 and it is sold on 1st of April, 2018 at
Rs. 150.
Answer : In this case, the fair market value
as on 31st of January, 2018 is less than the
actual cost of acquisition, and therefore,
the actual cost of Rs. 100 will be taken as
actual cost of acquisition and the long-term
capital gain will be Rs. 50 (Rs. 150 – Rs.
100).
Scenario 4 – An equity share is acquired on
1st of January, 2017 at Rs. 100, its fair
market value is Rs. 200 on 31st of January,
2018 and it is sold on 1st of April, 2018 at
Rs. 50.
Answer : In this case, the actual cost of
acquisition is less than the fair market
value as on 31st January, 2018. The sale
value is less than the fair market value as
on 31st of January, 2018 and also the
actual cost of acquisition. Therefore, the
actual cost of Rs. 100 will be taken as the
cost of acquisition in this case. Hence, the
long-term capital loss will be Rs. 50 (Rs. 50
– Rs. 100) in this case.
iv) Fair market value mean –
- Where capital asset is listed on any recognized stock
exchange, the highest price quoted 31.01.2018. However,
where there is no trading on 31.01.2018, the highest price
of such asset on a date immediately preceding the
31.01.2018.
- in a case where the capital asset is a unit and is not listed
on stock exchange, the NAV as on 31.01.2018.
v) The benefit of deduction under chapter VIA shall be allowed
from the gross total income as reduced by such capital gains.
Similarly, the rebate under section 87A shall be allowed from
the income tax on the total income as reduced by tax payable
on such capital gains.
These amendments will take effect from 1st April,
2019 and will, accordingly, apply in relation to the
assessment year 2019-20 and subsequent
assessment years.
 Tax Planning
Sale your Holding on or Before 31.03.2018,
or otherwise be ready to pay Tax on Long
Term Capital Gain Which Accrue on or after
31.01.2018
10(38) any income arising from the transfer of a long-term
capital asset, being an equity share in a company or a unit of
an equity oriented fund or a unit of a business trust where—
(a) the transaction of sale of such equity share or unit is
entered into on or after the date on which Finance Act, 2004
comes into force; and
(b) such transaction is chargeable to securities transaction tax
under that Chapter :
Following third proviso shall be inserted after the second
proviso to clause (38) of section 10 by the Finance Act,
2017, w.e.f. 1-4-2018 :
Provided also that nothing contained in this clause shall apply to any
income arising from the transfer of a long-term capital asset, being an
equity share in a company, if the transaction of acquisition, other than the
acquisition notified by the Central Government in this behalf, of such
equity share is entered into on or after the 1st day of October, 2004 and
such transaction is not chargeable to securities transaction tax under
Chapter VII of the Finance (No. 2) Act, 2004 (23 of 2004).
 Dividend distribution tax on dividend payout by
equity oriented fund
The existing provisions of section 115R, inter alia, provide any
amount of income distributed by a Mutual Fund to its unit
holders shall be chargeable to tax and mutual Fund shall be
liable to pay additional income-tax on such distributed income
at the rate specified in the section. However, in respect of any
income distributed to a unit holder of equity oriented funds is
not chargeable to tax under the said section.

In the wake of new capital gains tax regime for unit holders of
equity oriented funds, it is proposed to amend the said section
to provide that where any income is distributed by a Mutual
Fund being, an equity oriented fund, the mutual fund shall be
liable to pay additional income tax at the rate of ten per cent
on income so distributed. This amendment will take effect
from 1st April, 2018.
 Rationalization of section 43CA, section 50C
and section 56.
At present, while taxing income from capital gains (section
50C), business profits (section 43CA) and other sources (section
56) arising out of transactions in immovable property, the sale
consideration or stamp duty value, whichever is higher is
adopted.
It has been pointed out that this variation can occur in respect
of similar properties in the same area because of a variety of
factors, including shape of the plot or location. In order to
minimize hardship in case of genuine transactions in the real
estate sector, it is proposed to provide that no adjustments
shall be made in a case where the variation between stamp
not more than
duty value and the sale consideration is
five percent of the sale consideration.
These amendments will take effect from 1st April, 2019 i.e.
assessment year 2019-20.
 Example
An assess sold Land for Rs 500000 however the DLC
rates are
a. 600000
b. 525000
c. 520000
d. 530000
e. 400000
What would be the Sales price to be taken into
account as per the new provisions
f. 600000
g. 500000
h. 500000
i. 530000
j. 500000
43CA. (1) Where the consideration received or
accruing as a result of the transfer by an assessee of
an asset (other than a capital asset), being land or
building or both, is less than the value assessed by any
authority of a State Government for the purpose of
payment of stamp duty, the value so adopted or
assessed or assessable shall, for the purposes of
computing profits and gains from transfer of such
asset, be deemed to be the full value of the
consideration received or accruing as a result of such
transfer.
(2) The provisions of section 50C shall, so far as may
be, apply in relation to determination of the value
assessed under sub-section (1).
Conversion of stock-in-trade into Capital
Asset

Section 45 of the Act, inter alia, provides that capital

gains arising from a conversion of capital asset into
stock-in-trade shall be chargeable to tax. However, in
cases where the stock in trade is converted into, or
treated as, capital asset, the existing law does not
provide for its taxability.
- Profit or gains arising from conversion of inventory into
capital asset or its treatment as capital asset shall be
charged to tax as business income. It is also proposed to
provide that the fair market value of the inventory on the
date of conversion or treatment determined in the
prescribed manner, shall be deemed to be the full value of
the consideration received or accruing as a result of such
conversion or treatment; (Section 28)

- clause (24) of section 2 so as to include such fair market

value in the definition of income;

- section 49 so as to provide that for the purposes of

computation of capital gains arising on transfer of such
capital assets, the fair market value on the date of
conversion shall be the cost of acquisition;
(iv) clause (42A) of section 2 so as to provide that the period
of holding of such capital asset shall be reckoned from the
date of conversion or treatment.

These amendments will take effect, from 1st April, 2019 i.e.
assessment year 2019-20.
 Rationalization of the provisions of section 54EC
Section 54EC of the Act provides that capital gain,
arising from the transfer of a long-term capital asset,
invested in the long-term specified asset at any time
within a period of six months after the date of such
transfer, shall not be charged to tax subject to certain
conditions specified in the said section.
The section also provides that “long-term specified
asset” for making any investment under the section on
or after the 1st day of April, 2007 means any bond,
redeemable after three years and issued on or after
the 1st day of April, 2007 by the National Highways
Authority of India or by the Rural Electrification
Corporation Limited; or any other bond notified by the
Central Government in this behalf.
In order to rationalise the provisions of section 54EC
of the Act and to restrict the scope of the section only
to capital gains arising from long-term capital assets,
being land or building or both and to make available
funds at the disposal of eligible bond issuing company
for more than three years, it is proposed to amend the
section 54EC so as to provide that capital gain arising
from the transfer of a long-term capital asset, being
land or building or both, invested in the long-term
specified asset at any time within a period of six
months after the date of such transfer, the capital
gain shall not be charged to tax subject to certain
conditions specified in this section.
It is also proposed to provide that long-term
specified asset, for making any investment
under the section on or after the 1st day of
April, 2018, shall mean any bond, redeemable
after five years and issued on or after 1st day
of April, 2018 by the National Highways
Authority of India or by the Rural
Electrification Corporation Limited or any other
bond notified by the Central Government in
this behalf.
This amendment will take effect, from 1st April, 2019
and will, accordingly, apply in relation to the
assessment year 2019-20 and subsequent assessment
years.
 Section 43CB – Computation of income from
construction and service contracts

Presently, the Act allows any method of

accounting provided it is regularly followed by
the Tax Payer. Thus, there was no specific
method of accounting prescribed for
construction or service contracts except
provided under Accounting standards.
After section 43CA of the Income-tax Act, the following section
shall be inserted and shall be deemed to have been inserted
with effect from the 1st day of April, 2017, namely:—
“43CB. (1) The profits and gains arising from a
construction contract or a contract for providing
services shall be determined on the basis of
percentage of completion method in
accordance with the income computation and
disclosure standards notified under sub-section (2) of
section 145:
Provided that profits and gains arising from a
contract for providing services,—
- with duration of not more than ninety days
shall be determined on the basis of project
completion method;
- For the purposes of percentage of
completion method, project completion
method referred to in sub-section (1)—
- the contract revenue shall include retention
money;
- the contract costs shall not be reduced by
any incidental income in the nature of
interest, dividends or capital gains.”.
 Tax Planning-1
The Income Tax Act has laid out exemptions under
Section 54 and Section 54F to help taxpayers save tax
on capital gains.
- Exemption under Section 54 is available on long-
term Capital Gain on sale of a House Property.

- Exemption under Section 54F is available on

long-term Capital Gain on sale of any asset other
than a House Property.

To reiterate, both the exemptions are available only

on long-term capital gains.
Common requirements between the two Sections:
- A new residential house property must be
purchased or constructed for exemption

- The new residential property must be purchased

either 1 year before or 2 years after the sale or
the new residential house property must be
constructed within 3 years of sale.

- If you are not able to invest the specified

amount in the manner stated above before the
due date of tax filing, deposit the specified amount
in a bank as per the Capital Gains Account Scheme,
1988).
- Only ONE house property can be purchased or
constructed.

- Starting FY 2014-15 it is mandatory that this new

residential property must be situated in India.
The exemption shall not be available for
properties bought or constructed outside
India to claim this exemption.
 Difference between these two sections
Section 54 Section 54F
To claim full exemption the entire To claim full exemption the entire
capital gains have to be invested. sale receipts have to be invested.
No Condition You should not own more than one
residential house at the time of sale of
the original asset.
In case entire capital gains are not In case entire sale receipts are not
invested - the amount not invested is invested, the exemption is allowed
charged to tax as long-term capital proportionately. [Exemption = Cost
gains. the new house x Capital Gains/Sale
Receipts]
This exemption will be reversed if This exemption will be reversed if
you sell this new property within 3 you sell this new property within 3
years of purchase and capital gains years OR if you purchase another
from sale of the new property will be residential house within 2 years or
taxed as short-term capital gains. construct a new house within 3 years
of sale of the original asset. Capital
gains from the sale will be taxed as
long-term capital gains.
 Tax Planning-2
Capital gain not to be charged on investment in
certain bonds – Section 54EC.
- Where the capital gain arises from the transfer of a
long-term capital asset and the assessee within a
period of six months after the date of such
transfer, invested the whole or any part of capital
gains in the long-term specified asset, the capital gain
shall be extent, the amount of investment.

- Provided that the investment made on or after the

1st day of April, 2007 in the long-term specified
asset by an assessee during any financial year or
subsequent financial year does not exceed fifty lakh
rupees :
- The long-term specified asset is transferred or
converted into money at any time within a period
of three years from the date of its acquisition, the
amount of capital gains which was claimed exempt,
shall be deemed to be the income chargeable under
the head "Capital gains" of the previous year in
which transfer or conversion took place.

Hint: Since the Period of Bonds has now been changed

to 5 years from 01.04.2018, so if any one is planning
to purchase the bonds, he must purchase the same on
or before 31.03.2018, so than he can get the maturity
within 3 years
 Tax Planning-3
- If you have adult child, than you can give shares
gifted to your adult child to avoid the capital gain
in one hand.

- In addition to this as we are aware that capital

gain u/s 112A i.e. Long term Capital gain on Equity
Shares are exempt up to 1 Lacs, so now onward,
take the benefit of this 1 lacs by investing in the
name of different family members.
 Tax Planning – 4

Taken care of STCG or LTCG keeping in view of the following

factors.

- Exemption: Many exemption are available only for LTCG and

not for STCG

- Tax Bracket : if you are under tax bracket of 10% than STCG
is better option but if you are in Higher Tax Bracket i.e.30%,
than obviously LTCG will be a better option. (Take care of
Other option available u/s 54 also)

- Indextation: In LTCG you get the benefit of Indexation, so

this point has also taken care to be in accouint
 Joint Development Agreement
The taxability of capital gains arising on transfer of title to
land from the land owner to the developer in a Joint
Development Agreement (JDA) has always been a heated issue.
The taxation of Joint Development Agreement was never
jointly agreed by the A.O. and the Assessee.

Irrational determination of date of transfer to be the date on

which JDA is entered, by application of Section 2(27) of the
Income Tax Act, 1961.

Vague mode of determination of sale consideration on

execution of JDA using fair market value by application
of Section 50D of the Income Tax Act, 1961. The fair market
value arrived by assessee never appeared to be fair to the A.O.
and vice verse!
 WHY JDA:
If a developer makes an outright purchase of land in
the initial stages of the project, given the fact that
the land prices have been ever-increasing, would lead
to huge investment at the start of the project without
any revenue generation leading to cash crunch to the
developer. Hence the model of JDA’s got fancied in
the real estate :
Benefit to Developer: Payment to landowner can be made
as and when collections are made from the customer or by
sharing of the built up area with the landowner.
Benefit to Landowner: Landowner with low technical
insights on real estate development can now reap the benefits
of higher consideration on sale of developed estate than
outright sale of land.
 OPERATION OF JDA:
In JDA, the share of consideration with the
landowner might be either of the following
ways:
Monetary Consideration: The developer would give
a lump sum to the landowner as refundable security
deposit and share a specified percentage of the sale
consideration of the project.
Non Monetary Consideration: The developer would
give a lump sum to the landowner as refundable
security deposit and share a specified percentage of
the built up area with the landowner.
TAXABILITY UNTIL NOW:
The taxability of JDA in the hands of the developer is under
business income and in the hands of the landowner it is under
capital gain. (I would restrict the discussion to capital gains).

Determination of date of Transfer:

Capital Gains arise on “transfer” of a capital asset. As
per Section 2(47) of the Income Tax Act 1961, the word
“transfer” amongst other things includes:
“any transaction involving the allowing of the possession of
any immovable property to be taken or retained in part
performance of a contract of the nature referred to insection
53A of the Transfer of Property Act, 1882 (4 of 1882)”
The Following points emerged from the abovesaid agreement

- The JDA provides for the consideration, either monetary or

non monetary in most cases
- The JDA deals with the transfer of immovable property /
rights in the immovable property
- In most cases the developer undertakes an irrevocable power
of attorney in his favour to deal with the land, to obtain
permission for development, to develop the property etc.
Further in most cases the developer gives a security deposit
to the land owner on the execution of the JDA.
- Both the landowner and developer are willing to perform
their part of the JDA
- Sale deeds are generally registered in the name of the
ultimate buyer to avoid the intermediate stamp duty cost
however the developer undertakes an irrevocable power of
attorney in his favour.
Considering the above, the assessing officers contented that the date of
execution of the JDA was the date of transfer of the capital asset. However
it is worth to note that on the date of execution of the JDA, the landowner
has not liquidated the land and has no funds to pay the taxes and hence this
appeared irrational and hence led to litigation. Further in the absence of
funds the landowner was also unable to claim the benefits under the
Section 54 series, causing genuine hardship to the assesses.

Determination of Consideration:
Considering that the land owner is required to pay the taxes on the date of
execution of JDA, the biggest question is that when the project is just on
the JDA with no real existence, what will be consideration. For this purpose
I would like to draw attention to Section 50D of the Income Tax Act,
1961, which says,
“Where the consideration received or accruing as a result of the transfer
of a capital asset by an assessee is not ascertainable or cannot be
determined, then, for the purpose of computing income chargeable to tax
as capital gains, the fair market value of the said asset on the date of
transfer shall be deemed to be the full value of the consideration received
or accruing as a result of such transfer.”
A few Judicial decisions:
Dwarka Das Kapadia v. CIT [2003]/180CTR
(Bom.)107/260 ITR 491(Bom)/[2003]; Bombay HC
held that if the contract, read as whole, indicates
passing of or transferring of complete control over
the property in favour of developer, then the date of
contract would be relevant to decide the year of
chargeability. Thus the essence of Section 2(47) (v)
may be considered, when there is transfer of
complete control over the asset by the owner to the
developer.
Charanjit Singh Atwal v. ITO Ward-VI(1)
Ludhiyana; it was held that Irrevocable General
Power of Attorney which leads to overall control of
property in hands of developer, even if that does not
involve exclusive possession of developer, would
constitute transfer within the meaning of Section
2(47) (v) . It was held that the possession
contemplated by provisions of Section 2(47) (v) of the
Income tax Act, 1961 does not require handing over
exclusive possession. What is required is that the
transferred by virtue of possession should be able to
exercise from overall intended purposes.
M/s. Binjusaria Properties Pvt. Ltd. Hyderabad versus Asstt.
Commissioner of Income-tax: As on date there was no
developmental activity on the land which is subject matter of
development agreement – The process of construction has not
been even initiated and no approval for the construction of the
building is obtained – Thus, the sale consideration in the form
of developed area has not been received – Mere receipt of
refundable deposit cannot be termed as receipt of
consideration – the AO calculated the capital gain on the entire
land, even though the assessee has retained 38% share to
itself.
General Glass Co. Ltd. Vs DCIT 108 TTJ 854 (Mumbai): Where
payment of balance consideration within stipulated time is
essence of the agreement of sale and such payments are not
made in time by the transferee, such a contract does not
confer any
right on the transferee as envisaged under Section 53A of the
Transfer of Property Act and provisions of Section 2(47)(v)
cannot be applied in such a situation
 NOTIFIED COST INFLATION INDEX UNDER SECTION 48, EXPLANATION (V) - FINANCIAL YEAR 2017-18
As per Notification no. So 1790(e)[no. 44/2017 (f. No. 370142/11/2017-tpl)], dated 5-6-2017, following table should be used for the Cost
Inflation Index :-

Sl. No. Financial Year Cost Inflation Index

(1) (2) (3)
1 2001-02 100
2 2002-03 105
3 2003-04 109
4 2004-05 113
5 2005-06 117
6 2006-07 122
7 2007-08 129
8 2008-09 137
9 2009-10 148
10 2010-11 167
11 2011-12 184
12 2012-13 200
13 2013-14 220
14 2014-15 240
15 2015-16 254
16 2016-17 264
17 2017-18 272