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Any Income derived from a Capital asset movable or immovable is taxable under the head Capital Gains under Income Tax Act 1961. The Capital Gains have been divided in two parts under Income Tax Act 1961. One is short term capital gain and other is long term capital gain.

 Article explains Taxability of short term capital gains, Capital gains in case of depreciable assets, Capital Gain Where some assets are left in block of assets, Capital Gain When no assets are left in block of assets, Short term capital gain where land & building are sold together, Capital Gain when Capital asset transferred by the partner to the partnership firm, Capital gain in case of Dissolution of a Firm, Calculation of Capital gain from Plot and building , Taxation of Long term capital gains, Section 50C and Section wise Table on Exemptions from long term capital gain.

Capital Gains

1. Short Term Capital Gains :

If any taxpayer has sold a Capital asset within 24 months and Shares or securities within 12 months of its purchase then the gain arising out of its sales after deducting therefrom the expenses of sale(Commission etc) and the cost of acquisition and improvement is treated as short term capital gain and is included in the income of the taxpayer.

The deduction u/s 80C to 80U can be taken from the income from short term capital gain apart from the short term capital gain u/s111A

i. Taxability of short term capital gains:

Section 111A of the Income tax Act provides that those equity shares or equity oriented funds which have been sold in a stock exchange and securities transaction tax is chargeable on such transaction of sale then the short term capital gain arising from such transaction will be chargeable to tax @15% from assessment year 2009-10 onwards.

The short term capital gains other than those u/s 111A shall be added to the income of the assessee and no such benefit is available on short term capital gains arising in other cases and they will be taxed normally at slab rates applicable to the assessee.

If an assessee does the business of selling and purchasing shares he cannot take advantage of section 111A or section 10(38). In this case income will be treated as business income.

ii. Capital gains in case of depreciable assets :

According to section 50 of Income tax act if an assessee has sold a capital asset forming part of block of assets (building, machinery etc) on which the depreciation has been allowed under Income Tax Act, the income arising from such capital asset is treated as short term capital gain.

iii. Where some assets are left in block of assets:

If a part of such capital asset forming part of a block of asset has been sold and after deducting the net consideration received from sale of such asset from the written down value of the block of such asset the written down value comes to NIL then the gain arising shall be treated as short term capital gain and in such case where written down value has become NIL no depreciation shall be available on such block of asset even if some assets are physically left in the block of assets.

iv. When no assets are left in block of assets:

If the whole of the capital assets forming part of a block of assets have been sold during a year and the assessee has suffered a loss after deducting the net sale consideration from the written down value of the block of assets then such loss shall be treated as short term capital loss and no depreciation shall be allowed from such block of assets.

It was decided by Chandigarh tribunal in (2004) 3 S.O.T. 521/ 83 T.T.J. 1057 if the whole of capital assets in a block have been sold in a year and some gain arises after the sale such gain shall not be treated as short term capital gain if some new asset has been purchased within the same year in the same block of assets and the total value of new and old capital assets in the same block is more than the sale consideration of the assets sold, since the block of asset does not cease to exist in such case as is required u/s 50(2). This can be explained with an example as below:

Written down value of 5 Machinery as on 01-04-2020 –  Rs. 500000

5 machinery sold on 01-05-2020 –  Rs. 600000

New Machinery purchased on 01-06-2020 – Rs. 250000

now in above cases the difference between the w.d.v and sale value i.e Rs 100000 can not be treated as short term capital gain in the year 2020-21 since new machinery has been purchased in the same block of asset afterwards in the same year and the total of new and old machinery is more than the sale value of the machineries sold as a result the block of asset continue to exist.

v. Short term capital gain where land & building are sold together:

Some times it happens that in a block of assets namely land & building, the whole of land & building is sold together. In such cases the capital gain on land and building should be calculated separately.

The Supreme Court has held in (1967) 65ITR 377 that depreciation is available on the value of building and not on the value of plot. Considering the above decision of Supreme Court, the Rajasthan High court in (1993)201 ITR 442 has held that Plot and building are different assets. If the assessee has purchased plot more than 2 years back and constructed building on it less than 2 years back then the gain arising on sale of plot shall be long term capital gain and the benefit of indexation shall be given on it whereas the gain arising on sale of building shall be short term capital gain and will be added to the income of the assessee. Therefore, both should be calculated separately.

Where the plot has been purchased more than three years back and the building has been constructed on it less than 2 years back, it is advisable that in the sale deed the sale value of plot and building should be shown separately for more clarity and if the consolidated sale value of the Plot and building has been written in the sale deed then the valuation of plot and building should be done separately from a registered valuer.

vi. Capital asset transferred by the partner to the partnership firm:

As per section 45(3) of the Income Tax Act 1961 if any partner in a firm transfers his asset to the firm then the capital gain on such asset as arising to the partner shall be calculated by presuming the sale value of such asset as is shown in the books of accounts of the firm and not the market value of the asset.

whether such gain is treated as long term or short term will be decided as below:

a) If the depreciation has been claimed on the asset transferred to the firm then in view of section 50(2) the gain arising there from will be treated as short term capital gain.

b) If the partner has been the owner of the asset for more than 24 months and no depreciation has been claimed on it then the gain arising from such asset shall be treated as long term capital gain.

vii. Capital gain in case of Dissolution of a Firm:

As per section 45(4) of the Income Tax Act where any partnership firm or AOP or BOI is dissolved and the Capital assets of the such firm or AOP or BOI are transferred by way of distribution of assets to the partners at the time of Dissolution in such case the gain arising from such transfer to the partners will be treated as capital gain and the firm will be liable for paying tax on it in the year of distribution of the assets.

For the purpose 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 received or accruing as a result of the transfer.

2. Long Term Capital Gain:

A Capital Asset held for more than 24 months and 12 months in case of shares or securities is a long term capital asset and the gain arising therefrom is a long term capital gain. Long term capital gains are arrived at after deducting from the net sale consideration of the long term capital asset the indexed cost of acquisition and the indexed cost of improvement
of the asset.

The Central govt notifies cost inflation index for every year. The indexed cost of acquisition is calculated by multiplying the actual cost of acquisition with C.I.I of the year in which the capital asset is sold and divided by C.I.I of the year of purchase of capital asset. Similarly the indexed cost of improvement can be calculated by using the C.I.I of the year in which the capital asset is improved. Where the capital asset was acquired before the year 2001 then the cost of acquisition shall be the fair market value or the actual cost of its acquisition which ever is higher. The Fair market value of a capital asset can be known by the valuation of the registered valuer.

i. The cost inflation index table:

Financial year Cost Inflation Index
2001-02 100
2002-03 105
2003-04 109
2004-05 113
2005-06 117
2006-07 122
2007-08 129
2008-09 137
2009-10 148
2010-11 167
2011-12 184
2012-13 200
2013-14 220
2014-15 240
2015-16 254
2016-17 264
2017-18 272
2018-19 280
2019-20 289
2020-21 301

If a capital asset has been subjected to depreciation then no indexation benefit is allowed on sale of such capital asset in view of section 50(2) as discussed above.

ii. Capital gain from Plot and building should be separately calculated:

As discussed above plot and building are separate assets and the capital gain on above should be calculated separately. If the plot is purchased more than 2 years back and building has been constructed within 2 years the capital gain on plot will be considered as long term and the capital gain on building will be treated as short term capital gain.

iii. Taxation of Long term capital gains:

The long term capital gains are taxed @ 20% after the benefit of indexation as discussed above. No deduction is allowed from the long term capital gains from section 80C to 80U. But in case of individual and HUF where the income is below the basic exempted limit the shortage in basic exemption limit is adjusted against the long term capital gains.

Section 112(1) provides that any capital gain arising from a long term capital asset being the listed securities which are sold outside the stock exchange the long term capital gain shall be calculated on such securities as below:

a) Tax arrived at @ 20% on such long term capital gain after indexation u/s 48 or

b) Tax arrived at @ 10 % on such long term capital gain without indexation

Whichever is less.

The long term capital gain on equity shares or units of equity oriented mutual fund which are sold in the stock exchange and on which securities transaction tax is paid, is exempt u/s 10(38).

iv. Section 50C:

The provisions of Section 50C of the Act states that where the consideration received or accruing as a result of  transfer by an assessee of a capital asset, being land or building or both, is less than the stamp duty value for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer.

From the above, it is apparent that the provisions of Sec. 50C of the Act will get attracted where a capital asset, being land or building or both is transferred for a consideration, which is less than the stamp duty value. Thus, the basic condition for invoking the provisions of Section 50C of the Act is that the asset transferred should be a capital asset as per Section 2(14) of the Act.

Thus, a rural agricultural land, not being a capital asset u/s. 2(14) of the Act is beyond the ambit of Section 50C of the Income Tax Act, 1961 and any transfer of a rural agricultural land for a consideration, which is less than the stamp duty value is out of purview of Section 50C.

v. Section wise Table on Exemptions from long term capital gain:

Section
Asset
Assessee
Holding Period of Original Assets
Whether Re-investment Necessary —Time Limit
Other Conditions / Incidents
Quantum
54
Residential House Property
Individual HUF
2 years
Yes — In Residential House, within 1 year before, or 2 years after the date of transfer (if purchased) or 3 years after the date of transfer (if constructed). **
Where capital gain does not exceed Rs 2 crore, the assessee has the option to purchase/ construct two houses. This option is available once in a lifetime of assessee.
The amount of gains, or the cost of new asset, whichever is lower
54B
Agricultural Land
Individual & HUF
Use for 2 years
Yes — In Agricultural Land, within 2 years after the date of transfer.
Assessee or his parents or HUF must have used the land for agricultural purpose for preceding two years
As above
54D
Industrial Land or Building or any
right
therein
Any Assessee
Use for 2 years
Yes — In Industrial Land, Building, or any right therein within 3 years after the date of transfer.
Must have been compulsorily acquired and used for business of Industrial undertaking for preceding 2 years
As above
54EC
Land or Building or both (w.e.f. 2019-20)
Any Assessee
2 Years
Yes — Investment of whole or any part of capital gain in ‘specified assets’. (Refer Note 1)
Investment should be made within 6 months from the date of transfer
Lower of the Capital Gain or the actual amount invested in specified assets.
However the aggregate investment made by assessee in the specified asset, during the financial year in which the original asset/ assets are transferred and in the subsequent financial year should not exceed 50,00,000/-
54EE
Any Long Term Capital Asset
Any Assessee
1 year for listed shares, Listed Securities, Units of UTI/ Mutual Fund specified u/s 10(23D), Zero coupon bonds, 2 years for unlisted shares and land and building, 3 years for other capital assets
Yes — Investment of whole or any part of capital gain in ‘long term specified assets’ as stipulated in the section. Investment should be made within 6 months from the date of transfer. (Note 2)
Investment made by an assessee in the long term specified asset, from capital gains arising from the transfer of one or more original assets. During the financial year in which the original asset or assets are transferred and in the subsequent financial year does not exceed Rs 50,00,000/-
54F
Any Capital Asset (not being a residential house)
Individual HUF
1 year for listed shares, listed securities, unit of UTI/ Mutual Fund specified u/s 10(23D), Zero-coupon bonds, 2 years for unlisted shares and any immovable property other than residential house, 3 years for other capital assets
Purchase of one Residential House in India within 2 years after or 1 year prior to date of transfer or construction of one residential house in India within 3 years from date of transfer
If cost of new asset is more than the net consideration of original asset, the whole of the gains is exempt. If cost of specified asset is less than net consideration, proportionate amount of the gains will be exempt i.e. Capital Gain * Cost of new Asset / Net Consideration on sale of asset.
54G
Land or Building or any right therein or Plant or Machinery in Urban Area used for the business
Industrial undertakings in urban area shifting to an area other than urban area
No Period specified
Acquire similar assets and incur expenses on shifting original asset, within 1 year before or 3 years from the date of transfer
The amount of gains, or the aggregate cost of new asset and shifting expenses, whichever is lower.
54GA
Land or Building or any right therein or Plant or Machinery in Urban Area used for the business
Industrial undertakings in urban area shifting to any Special Economic Zone
No period specified
Acquire similar assets and incur expenses on shifting original asset, within 1 year before, or 3 years from the date of transfer
The amount of gains, or the aggregate cost of new asset and shifting expenses, whichever is lower
54GB
Long Term Capital asset being a residential property (a house or a plot of land)
Individual & HUF
2 years
a. Subscribe to equity shares of an eligible company before due date of return filing
b. The company within 1 year of subscription should utilize the amount for purchase of new asset
If cost of new asset is more than the net consideration of original asset, the whole of the gains is exempt. If cost of specified asset is less than net consideration, proportionate amount of the gains will be exempt i.e. Capital Gains * Cost of New Asset/ Net Consideration on sale of asset.

Note:

1. “specified asset” for making any investment under this section,—

(i)  on or after the 1st day of April, 2007 but before the 1st day of April, 2018, means any bond, redeemable after three years and issued on or after the 1st day of April, 2007 but before the 1st day of April, 2018;

(ii)  on or after the 1st day of April, 2018, means any bond, redeemable after five years and issued on or after the 1st day of April, 2018,

by the National Highways Authority of India constituted under section 3 of the National Highways Authority of India Act, 1988 (68 of 1988) or by the Rural Electrification Corporation Limited, a company formed and registered under the Companies Act, 1956 (1 of 1956) or any other bond notified in the Official Gazette by the Central Government in this behalf.

2. Long term specified asset means unit or units issued before 01/04/2019 of fund notified by Central Government in this behalf.

(Author – Amit Bajaj Advocate, Bajaj & Bajaj Advocates, 128, Sangam complex, Milap chowk, Jalandhar City (Punjab), Email: [email protected], M +919815243335)

Read Other Articles from Advocate Amit Bajaj

Disclaimer: The contents of this article are for information purposes only and does not constitute advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer to relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up.  The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author / TaxGuru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.

(Republished with Amendments by Team Taxguru)

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144 Comments

  1. Prem Nath Dogra says:

    I sold a plot of 200 yds in end June 2021. I am required to pay capital gains tax which comes to approx Rs.13 lakhs.
    Please advise under which section or head I should pay the Advance tax on above amount.

  2. Pankaj says:

    I had purchased a Shop in 1991 and had done business in it for 7 years and also claimed depreciation on it, now if I sell that property what will be the effect on long term capital gain on it

  3. Murali krishna says:

    Sir my father expired. He is the managing partner with 90℅ and rest 10℅ by my elder brother. Totally we are seven sons including other partner. We want dissolution of firm and the property mutation in our names. Is capital gains applicable

  4. IMRAN UMATIYA says:

    I SOLD ANIMAL SHED WHICH WAS RECEIVD AS A LEGAL HIERER(INHERITED) ERLIER ALSO THIS PLACE ANIMAL SHED PRIOR TO 1/04/1980 AND SAME WAS SALE IN CURRENT YEAR(18-19) AMOUNT RS.800000.(1/3RD SHARE) AND I HAVE NOT ANY RECORD RELATING TO COST OF AQUISITION,KINDLY SUGGEST HOW COMPUTE LONGTERM CAPITAL GAIN

  5. Rajkumar Majhi says:

    Nice Articles I am truly motivated while reading your Articles, thanks for providing valuable knowledge to us once again thank you.

  6. K Rajendran says:

    My Father has gifted an house hold property to me and to my 2 brothers and we sold the same within a week from the registration date. Sir Capital Gain applicable to all the three under short term or Long term? Pls clarify sir

  7. Ankit Jain says:

    If long-term equity shares are sold in an off-market transaction whether the resultant loss can be allowed to be set-off against taxable long term gains.

  8. mahadik says:

    I have purchase a shop in the year against 99 yrs. lease deed for 2 lacs. now I am selling it for 15 lacs. I am retired person and I have no monthly income. what will be my tax responsibility?

  9. Sandeep says:

    Sir, I purchased a flat in 2013-14, for this i borrowed amount from outside in 2012-13. I deposited this amount in bank.I got a notice from Income Tax Department for filling of Returns for that years.So, please help me,how to disclose that income and purchase of flat.

  10. Anshika Shukla says:

    Hello sir, my parents are planning to purchase a house. For this they met with many builders. Some builders said that you have to pay gain tax. Some said gain tax is responsibility of colonizer not yours. Please tell me who has to pay tax colonizer or builder or by common people?

  11. anshika shukla says:

    hello sir,
    i have some query regarding tax. sir my parents are going to purchase house from builder. they met many builders. some builders said u have to pay gain tax on registry. some said gain tax is responsibility of the person who develop the colony not yours. i just want to know who will really paid the tax. The coloniser who develop colony or the builder who is going to build house for common people or it will be bear by common people. plz reply sir

  12. Divya says:

    Hello Sir,
    Have a query.
    Got LTCG of Rs 150000 from selling of a commercial property. Can this gain be used to buy a residential property ( under construction)?
    Advance of Rs 400000 for new property has given in 2015, Agreement has made but not yet registered. Commercial property sold in the same year. I do not have other house Property than the property purchased.

  13. ARUN SWAMI says:

    I have sold one shop in 3100000 which was purchased in 2004 and sold in 2014 I invested the amount in purchasing of flat now under which section i have to mention this fund in income tax return also convey I have to pay any tax on the same sale.

  14. Karan says:

    Sir,

    Currently, my case in running in Court. I file the return since last 10 years. Long back, I had purchased a Vehicle from agent. At the same time, the agent also took the money, from another person. I have showed the in the IT return that i own that crane whereas at the opposition hasn’t showed any such thing. He doesn’t even files the return. So, is there any law according to which if a person doesn’t pays the return is not liable for the property which he has claimed.

    Thank You!

  15. dwarakanath modi says:

    dear sir
    I have sold 200 shares of AHLCON PARENTERALS(I)LTD.This co.is delisted from stock exchanges.There was EXIT OFFER by one acquirer co.I accepted and in off market I sold and I earned a long term capital gain in these shares.I am resident indian.
    STT is not paid.Should I have to pay capital gain tax on it and how is it to be calculated?

  16. SADAGOPAN R says:

    I WAS ALLOTED 700 SQ.FT FLAT BY TAMILNADU HOUSING BOARD DURING AUG 1979 AND OCCUPIED THE FLAT DURING 1979.PARTIAL AMOUNT WAS PAID BY EMI FOR 10 YEARS.COST OF THE FLAT DURING ALLOTMENT WAS 42000.SUBSEQUENTLY THE COST WAS INCREASED TO 47150.STAMP PAPER,REGN COST WAS 9000.
    IMPROVEMENT DONE DURING 1998 COST OF IMPROVEMENT WAS 1,35000. UDS-1278 SQ.FT.
    IN MAY 2015 WE HAD JOINT VENTURE AGREEMENT WITH A DEVELOPER TO DEMOLISH AND RECONSTRUCT THE FLATS BY GIVING UDS 385 SQ.FT TO THE DEVELOPER.IN TURN DEVELOPER WILL CONSTRUCT 1500 SQ,FT FLAT FOR ME. NOW THE CONSTRUCTION COST 2000/SQ.FT
    NOW THE LAND COST IS RS.10,000/SQ.FT.
    DEVELOPER WILL GIVE 20 LAKHS GOOD WILL MONEY AND 25000 RENT/MONTH FOR 18 MONTHS.
    WHAT WILL BE THE LONG TERM CAPITAL GAIN AND WHEN TO INVEST TO SAVE CAPITAL GAIN TAX.

  17. Ashwini Kumar says:

    Dear Sir / Madam,
    we have purchased a land in the name of a pvt ltd company own by us in the year 2011. the land is outside 6 km radius of a municipality (population less than 10 lac). if we sold the land today. how will the gain from the sale of the land be treated in our pvt ltd company. and if there is any tax, what is the tax rate and how can we save the tax.

    awaiting a reply.

    yours faithfully,
    ashwini kumar

  18. Madhu says:

    I sold a flat and made a capital gain of Rs 20 lakhs. Now I am buying a residential property worth Rs 18 lakhs on which I have to pay stamp duty and registration charges amounting to Rs 1.5 lakhs. Can I claim capital gain tax exemption on Rs 19.5 lakhs or only on 18 lakhs? Pl guide.

  19. Vishal says:

    Property of my deceased father inherited by probet to our Two Brother. we have sold it and purchased New house on one brother’s wife name. and Loan Taken on One brother’s Name(Husband). So Both brother can claim Capital Gain Exemption on Purchase of New House.

  20. Anoop Kumar says:

    I sold my single home property in 360 days. .if I got short terms gain..if I invested
    another single home property. .can I get benefit of exemption 54..

  21. darshan kabra says:

    sir,
    I exchange my old car with new car and value of the old car in my books is 21000 and in exchange valuation of old car is considered as 30000 then is capital gain applicable on me.? as the block of asset is still in the b/s. please suggest me what to do

  22. RAJU says:

    An assessee has sold agriculture land and amount of sale invested in purchase of plot & construction of residencial house. Can assesse get exemption u/s 54F?

  23. Divya says:

    Sir,

    We had a commercial building which was in a dilapidated condition. As such we gave it to the Builders. After breaking down the old building a shopping mall will be constructed. The builders share is 60%. what ever payments they give will it attract capital gains tax? or the 60% share attract CG tax?If so are there any options for exemptions?

  24. Anoop says:

    Sir,
    I and my father own a Private limited company, is Long term capital gains section 10 (38) applicable on the sale of shares held by the company under the demat form, which is sold after a period of 12 months. Can our company avail the benefit of long term capital gains. eg The co purchased the shares on 1st feb2014, and sold it on 15 feb 2015 will LTG benefits be available to the Company

    Awaiting your kind reply

  25. harith mandadi says:

    sir
    my question is there is one house property in joint name say husband and wife .They have 5 sons and a daughter. The parents died without creating any will and then sons sold that property and the property is in name of parents name.whatever consideration they received they shared equally among them….now i want to know here in this case who is liable to pay tax and why

  26. ANAR NATH GHOSH says:

    Sir,
    If a proprietor purchase a car in the f.y. 2007 and he has not charged any depreciation upto f.y.2014 and he sold this current year then can I charged 7 years depreciation in this year

  27. ANUP Dasgupta says:

    Sir
    My father purchased a co-op flat Rs 52000 partly instalment payment system. Took possession in 1977. After full payment received allotment letter in 1992. Co-op flt regn was not compulsory then. When it became compulsory Regd in 2002. Father died in 2002 and mother became member. She died in Feb 2014 I, son, became member in April 2014.Now I decided to sell the flat for Rs 40 lac. Is it short term cap gain? If it is, whether index cost will apply since 1977. My mother took loans several times in writing from daughters totalling 7 lacs. I hv to pay that from sale proceeds. What wud be its adjustment with capital gains. Pl advise.
    Thanking you.
    — ANUP Dasgupta

  28. Farhad Firoz Hansotia says:

    Dear Sir,
    I have purchased a residential house for a consideration of 15,00,000 in FY 2012-13 (11/10/2012) availing a bank loan. Now in FY 2014-15 (23/12/2014), I am selling it for consideration of Rs. 25,00,000 and my first priority would be paying the bank loan availed. Can you help me to know what amount would be chargeable to me as Short Term Capital Gain and is indexation allowed in the instance of STCG also?

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