This article summarizes certain key provisions proposed in the Direct Taxes Code Bill, 2010 (DTC 2010) relating to capital gains.
1. Income to be taxed in India if it accrues directly or indirectly through or from transfer of a capital asset situated in India.
However, the transfer by a non-resident of any share or interest in a foreign company would not be treated as income unless, at any time in twelve months preceding the transfer, the fair market value of the assets in India, owned, directly or indirectly, by the company, represent at least fifty per cent of the fair market value of all assets owned by the company.
In case of a non-resident transferring, outside India, share or interest in a foreign company, the income shall be computed in accordance with the following formula:
A x B/C
A = Income from the transfer computed in accordance with provisions of DTC as if the transfer was effected in India;
B = Fair market value of the assets in India, owned, directly or indirectly, by the foreign company;
C = Fair market value of all assets owned by the foreign company.
2. Income from all investment assets to be computed under the head „Capital gains? Investment asset to include any capital asset which is not a business capital asset, any security held by a Foreign Institutional Investor and any undertaking or division of a business.
|Particulars||Rate of tax (%)||Cost|
|Equity Shares/units of equity oriented fund*|
|One year or less||5 / 10 / 15||Cost of acquisition|
|More than one year||Nil||NA|
|Unlisted Equity shares / Other assets|
|One year or less||30 / applicable rates||Cost of acquisition|
|12 – 24 months**||30 / applicable rates||Indexed cost of acquisition |
Indexed cost of improvement
* Securities Transaction Tax is paid
** The asset is transferred at any time after one year from the end of the financial year of acquisition
Distinction between short-term investment asset and long-term investment asset on the basis of the length of holding of the asset to be eliminated.
3. No tax on transfer of Investment Assets from holding company to wholly owned subsidiary and vice versa if the relationship of holding company – wholly owned subsidiary (i.e. 100 percent subsidiary) is maintained for a period of 8 years from the date of transfer. Further, the transferee should not convert the investment asset into business trading asset in the 8 year time frame. In case these conditions are breached, the gains would be taxable in year of breach.
4. Capital gain to be reckoned as equal to full consideration minus cost of acquisition, cost of improvement and incidental expenses. Capital gain on transfer of investment asset after one year from the end of the financial year in which the asset is acquired to be reckoned as equal to full consideration minus indexed cost of acquisition, indexed cost of improvement, incidental expenses and amount of relief for rollover of the asset.
5. The base date for determining the cost of acquisition to be shifted from 1 April 1981 to 1 April 2000. Consequently, all unrealized capital gains on assets for the period between 1 April 1981 and 31 March 2000 not to be liable to tax.
6. Cost of acquisition to be construed as “Nil”, if it cannot be determined or ascertained for any reason.
7. Roll over relief to be allowed in respect of rollover of any original investment by an individual or a Hindu undivided family. This relief is withdrawn if, besides other conditions, a residential house so purchased is transferred within a period of one year from the end of the financial year in which it is purchased, as against three years specified in the Income-tax Act, 1961.
8. Capital loss to be allowed to set off only against capital gains. The capital loss can be carried forward for an indefinite period.