CA S S GaurCA S S Gaur

Capital Gain Tax

1.  Capital Gain as defined u/s 45

  • Any profit or gain on transfer of a capital asset effected in the previous year (1)
  • Receipt of insurance amount for capital assets in the year of receipt damage due   to flood, riot, accident fire and action by enemy     (1A)
  • Any gain on transfer of capital assets by way of conversion in to stock in trade of business at fair market price (2)
  • Any gain to beneficial owner in case of    transfer of security by depository (2A)
  • Any gain on transfer on capital assets to firm or AOP (not Company &Co-operative society) at the price recorded in the books of accounts   (3)
  • Any gain on distribution of capital assets on  dissolution of firm or AOP at fair   market price (4)
  • Any gain on compulsory acquisition ,  consideration as determined /   approved / increased /decreased (5)
  • Difference on repurchasing of units –   sec. 80CCB (2) in the year in which   repurchase took place (6)

2.  Taxation in special cases as under                

       Company liquidation – Sec. 46 –

  • Distribution to share holders on liquidation of company taxed in the hands of share holders.

       Company purchasing its own shares -Sec. 46A-

*Purchase of its own shares by company , taxed in the hands of the shareholders

3.  Transactions not transfer- Sec 47

  • HUF partitions
  • Gift, will or irrevocable trust except ESOP.
  • Transfer from holding to its 100% Indian  subsidiary company except stock in trade.
  • Transfer to 100% Indian holding company by subsidiary except stock in trade.
  • Amalgamated Indian company in the scheme of amalgamation
  • Amalgamation for shares   held in Indian company by foreign amalgamating company provided 25% existing shareholders continue & no tax applicable in foreign country.
  • Amalgamation of banking company by central govt. by B.R. Act.
  • Demerger to Indian Company
  • Demerger of shares held in Indian company by foreign company . if existing ¾ the shareholders continues.Business reorganisation from Co-operative bank to another Co-operative bank.
  • Any scheme of demerger / amalgamation.
  • Any transfer by non resident to non resident.
  • Any agriculture land before 1st march 1970.
  • Any Capital Assets of art, book etc. to university/museum/ art gallery etc. as notified.
  • Conversion of bonds etc. into shares or  debentures.
  • Any transfer of membership to stock exchange in exchange of shares prior to   31st Dec. 1998.
  • Transfer of land of sick industrial unit.
  • Succession of firm by company with laid   down condition.
  • Exchange of membership right and approved by SEBI.
  • Any firm transfer to LLP with laid down condition.
  • Succession of sole proprietorship by a company.
  • Any transfer of lending of security as per SEBI guideline.
  • Reverse mortgage.

4.  Conditions of the above exemptions – Sec 47A

  • 8 yrs limitation for of holding & subsidiary company transfer.
  • 3 yrs limitation for stock exchange membership transfer.
  • If other condition of transfer not complied with.

5.  Mode of Computation – Sec 48

From full value of consideration received/ accruing- deduction of –

–          Exp. Wholly & exclusive for such transfer.

–          Cost of acquisition/ any improvement

Provision 1.- Calculation of Capital gain for non-resident -conversion of transaction value into foreign currency & then conversion of capital gain in foreign currency into Indian

Provision 2.- Capital gain other than non resident- indexed cost of acquisition and indexed of   Any improvement will be adopted , Except bond or debenture (other than indexed bond    by govt.)

Provision3. In case of transfer share/debenture/warrants under ESOP, market value at the time of transfer to be considered

Provision 4 . No deduction for STT.

Expl. – Cost of acquisition- index of the year of first year of assets hold or year beginning April  1981 whichever is later.

Index cost of acquisition/improvement same proportion as it bears to the index of the year of sale and first year of   assets held.

6.  cost of certain acquisition – Sec 49

(1)Assets acquired due to

 –   HUF partition

-Succession , inheritance devolution

-Any distribution on liquidation of company

 – Any transfer under trust

 -Any other transferred under various clause of sec. 47.

 -Individual property transferred to HUF

   The cost of acquisition/ improvement will be with reference to the previous owner.

-Expl. Previous Owner – Means the last previous owner of the capital asset who acquired it by   a mode of acquisition other than that referred above . 

(2)Cost of amalgamating company in case of   amalgamation .

(2A). in case of conversion into share or debenture cost of acquisition with reference to original shares/debentures.

(2AA). Conversion to LLP, the cost of original security.

(2AB). In case of ESOP , market value at the time of issue.

(2C/2D/2E). In case of merger, book value of the demerged company as reduced by cost of  original   shares ,also to apply for Co- operative banks.

(3)In case of holding & subsidiary company transactions – cost of original acquisition.

(4) Any fair market value consider u/s 56, the same will be the cost of acquisition

Depreciable Assets –Sec.50

(i)Any excess of full consideration over WDV of block of assets plus value of any  assets acquired during the year, to be consider capital gain.

(ii)If WDV value of block is nil due to transfer of all block assets, WDV at the  beginning of the year will be considered.

In case of depreciable assets -WDV will be the cost of acquisition. Sec. 50A

– Slump sale Sec. 50B

 – Sale to be considered as long capital assets

  • Any undertaking if held not more than 36  month to be considered short term capital assets

-Net worth will be taken as a cost of   acquisition

-Net worth to be certified

Stamp Valuation -Sec. 50C-

(1)- In case of land and /or building , stamp valuation adopted or assessed or assessable  deemed to be full value of consideration.

(2)-where assessee claims stamp value exceeds FMV and such value not disputed in any  appeal the assessing officer may refer valuation to the valuation officer.

(3)- if valuation officer value higher, then stamp duty valuation shall be taken as a full value

– If consideration not ascertainable FMV shall be taken as full value. Sec. 50D

– Advance money received on any previous occasion to be deducted from the computation of  cost of acquisition. – Sec. 51

Capital Gain Tax -EXEMPTIONS

Profit on sale of property used for residence – Sec.54 (1)

-Transfer of long term building or lands   appurtenant thereto and being residential house and income chargeable under the head income from house property & assesse being individual or HUF has purchased within the a period of one year before or two year after the date of transfer or  constructed within a period of 3 year one residential house in India , then  Charge excess of  capital gain over the cost of purchase / construction and for sale of new assets within 3 years, cost will be taken nil.

 -No tax if capital gain equal or less than cost of purchase / constructed & cost of new assets to be reduced by capital gain   for sale within 3 years for calculation of   capital gain.

 (2) -the amount of capital gain not appropriated for   purchase before one year or not utilized Before  filling the return the amount shall be deposited in accounts with such banks as  specified before due date of filing return and utilized as per scheme.

-The amount so deposited will be considered a cost of new assets together with other cost of  purchase / consideration if utilized.

– If amount so deposited not utilized within the period specified (2/3 yrs) amount not utilized will   be taxable after expiring of 3yrs. and amount can be withdrawn the amount so deposited

Land used for agriculture purpose Sec. 54B –

  • Transfer of land being used for agriculture purpose in two year immediately preceding by assesses / his parents / HUF and purchased any other land being used   for agriculture purpose within two years, exemption in the same manner as laid dawn u/s 54.

Compulsory acquisition of land and building.- Sec. 54D-

-Transfer under compulsory acquisition of   land or building or any right in L&B forming part of any industrial undertaking and was   being used for such undertaking in two years immediately preceding and within 3 yrs purchased / constructed any other L&B   for shifting or setting up another industrial undertaking capital gain to be taxed as provided u/s 54.

Capital gain invested in certain bonds – Sec. 54EC-

  • Capital gain if invested within a period of 6 months with lock in period of 3 years in specified bonds (infrastructure bonds) upto Rs 50 Lakhs in total

Capital gain invested in residential house.- Sec. 54F –

(1)   (a)Any capital gain on long term assets not  being residential house of individual/HUF and purchased before one year or after two year or constructed within 3 years one residential house in India ,the capital gain will be taxed as under.

  -If the cost of new assets is more than the net consideration of original assets –no   tax

-If the cost of new assets is less than the net consideration than tax same proportion of capital  gain as the cost of new assets bear to the net consideration of original assets.

(b) Income from such residential house (other than one owned on the date of     transfer of original   assets) is chargeable under head income from house property.

(2) if assesee purchase within 2 years or   constructed within 3 years of original   transfer a residential house other than new assets whose income chargeable under income from house property, exempt capital gain to be taxed in the year of purchased or construction.

(3) if new asset transferred within 3 years of it purchases/constructed capital gain exempted to be

(4) procedure of bank deposited apply for   net consideration.

Shifting of industrial undertaking from urban area Sec. 54G-

  • Capital gain on capital assets being machinery or plant or building or land or any right in L&B of industrial undertaking situated in an urban and transfer effected due to such shifting to any area other than urban and assessee within one year before or 3 years after of transfer  purchased /   acquired / constructed P&M , Land , building and incurred other expenses  specified for purpose of such shifting, than capital gain to be treated as  under

– If capital gain in excess of the above cost,   difference will be treated as capital gain.

 -If capital gain is equal or less than the above   cost capital gain nil.

 -The lock in period of 3 years to be    considered for capital gain on transfer of   new assets.

-Procedure of bank deposit of capital gain  not utilized before filling of return apply in  this case also Shifting industrial undertaking from urban area to any special economic zone Sec. 54 GA-(provision similar to 54G)

Sec. 54GB – Capital gain of long term residential property include land & building by individual /HUF and utilises net consideration in equity share of the eligible company before due date of    Filing return u/s 139(1) AND The company utilises this amount for new asset within one year of subscription then   Tax on capital gain will be proportionate if cost of new assets is lower  than net consideration or nil if   cost of new assets is equal or higher than net consideration.

Eligible Company:-

  •    It is a new formed Indian company after 1st  April of relevant previous year It is   a manufacturing company.
  • Assessee’s share investment or voting right, more than 50%.
  • it is a SME
  • New assets – new plant & machinery

*Company may follow the procedure of bank deposit if not purchases new assets before due date  of filing the return.

In case of transfer by compulsory acquisition under any law, period of investment to be reckoned from the date of the receipt of compensation. Sec. 54H

Cost of improvement:- Sec . 55 (1)

  • Goodwill/ right etc.                                                         – NIL
  • Before 1st April 1981                                                        -NIL
  • Expenses deductable under any head                      -NIL

(2) Cost of acquisition

(a)- Goodwill/right

  • In case of purchase                                   – purchase price
  • In other case                                                  – NIL

(aa)   – In case of addition of securities

  • if issue without any cost                       – NIL
  • Issued with cost                                          – actual cost

  • In case renouncement

  • with nil price                                  -NIL

  • With cost                                              -Actual cost price

  • (b) Any other capital assets

    • property acquired before 1st April 1981 actual cost of acquisition or FMV as on 1st  

    April 1981 at the option of assessee

    • In case of property distributed by company   FMV on the date of distribution.
  • In case of share conversion etc. cost with   reference to the cost of original shares.

  • where cost of previous owner can not be ascertained FMV.

  • For ascertaining FMV , A.O. may refer to valuation officer if- Sec. 55A-

    • A.O. is of opinion that value claimed is at variance with the registered valuer valuation.
    • A.O. is of opinion that FMV exceed any certain %age or value an prescribed or it is necessary to do so.

    Capital Assets Sec. 2(14)

    Property of any kind held by assessee but does not include

    – Stock in trade, consumable stores or raw material held for business.

    – Personal effects I e movable property include wearing apparels and furniture held for personal use but exclude jewellery   ,drawings, art work etc.

    – Agriculture land not situated within municipal area with population not less than 10,000 as per preceding census and area within such distance not more than 2/6/8 K.M. from local limit of with population more than 10,000/one lakh/ten lakhs

    – Gold bond(1977)/defence bond(1980)

    – Special deposit bond 1991 Gold deposit bond 1999

    Short term capital assets – Sec. 2(42A)-

    • Capital assets held not more than 36 months
    • Securities listed in RSE or    units of equity oriented funds or units of   UTI or Zero coupon bonds held not more   than 12 months.

    Applicable Tax: Sec. 111A

    Short term

    • Equity shares in a company, or units of business trust & sale subject to STT ,  tax @ 15%.
    • In case of resident individual & HUF , total Income (excluding STCG) is below taxable limit. STCG will be reduced to that extent .
    • Other short term gain , normal tax
    • Deduction under chapter VI-A & rebate u/s 88 from income excluding STCG.

    Tax on LTCG Sec. 112 –

    • 20 % for resident individual / HUF , domestic company and any other resident person
    • In case of resident individual & HUF benefit of deduction for income below taxable limit   available.
    • In case of non-resident( other than company ) or foreign company

    –  unlisted security @ 10% without index benefit.

    –  Other assets ,tax @ 20% of capital gain with index benefit.

    • In case of listed securities ( other than a unit ) or Zero coupon bonds , LTCG tax limited to 10 %  Without index benefit

    *Deduction of chapter VI-A and rebate u/s 88 from income excluding LTCG

    – LTCG on equity share in a company or unit of equity oriented funds and such transaction subject to  STT, fully exempted – Sec. 10(38)

    -Such gain to be considered for MAT   (115JB).

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    0 responses to “Capital Gain Tax – Income Tax Provisions with latest changes”

    1. Vipin Kumar Gupta says:

      Dear Mr. Gaur,

      (1) I had purchased a property in Jan 2004 which was sold by me in Aug 2014. (2) I invested in 2nd new upcoming property in 2008. 95% consideration was paid by taking loan from financial institution. This property is not ready and is not handed over to me. (3) I purchased 3rd property in 2013 on construction linked plan and is due to complete by Jun 2016. Can I take advantage of exemption on LTCG (arising from sale of 1st property) in third property.

      I will be grateful to you if you could give me professional advice on the above matter I shall always be grateful.

      Regards

      V K Gupta

    2. Narendra says:

      I have sold a land in Dec 2014 ( purchased in 2004 ). Can I adjust the capital gain against the any of the two property I acquired in last one year under following circumstances.

      Property One ( Residential Flat ) : Entire money was paid prior to one of the transfer of land but the flat was delivered in last 8 months. Also, agreement to sale was registered prior to 12 months.

      Property two ( Flat ) : Rs. 15 lacs paid through bank and Rs. 10 lacs loan was paid prior to 12 months. Rest of the money was paid prior to 12 months. The sale deed registration was done in last 8 months. The loan outstanding as on today is Rs. 24 lacs.

      What is the best capita gain exemption possible.

      Regards,

      Naren

    3. sudarshana says:

      Very good article. Solves lot of doubts.

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