As per Section 45 of the Income Tax Act 1961, Capital gains means any profit or gain arising from transfer of a capital asset effected in the previous year.
As per Section 2(14) of the Income Tax Act, 1961 the tern capital assets means:
(a) property of any kind held by an assessee, whether or not connected with his business or profession;
(b) any securities held by a Foreign Institutional Investor (as defined in the Explanation (a) to section 115AD) which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992; and
(c) any unit linked insurance policy to which exemption u/s 10(10D) does not apply on account of the applicability of the 4th and 5th proviso thereof, in relation to assessment year 2021-22 and on wards.
Capital asset does not include:
i) Any stock-in- trade ( other than the securities)
ii) Personal effects of the assessee excluding diamonds, Jewellary, archaeological collections, drawings, paintings, sculptures or any work of art;
iii) Agricultural land in India situated in a rural area;
iv) 61/2% Gold Bonds, 1977 or 7% Gold Bonds, 1980 or National Defense Bonds, 1980 issued by the Central Government;
v) Special Bearer Bonds, 1991, issued by the Central Government;
vi) Gold Deposit Bonds issued under Gold Deposit Scheme,1999 and deposit certificates issued under the Gold Monetization Scheme, 2015 (Finance Act, 2016).
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- There must be a ‘transfer’ of such capital asset and
- There must arise either profit or gain or loss out of such transfer.
Year of Taxability :
Capital Gains are generally charged to tax in the year in which “transfer” takes place.
Mode of Computation:
| In respect of capital assets other than depreciable assets | as per section 48 |
| In respect of depreciable Assets, other than mentioned below | as per section 50 |
| In respect of depreciable assets of an undertaking engaged in generation or generation and distribution of power | as per section 50A |
| In respect of slump sale | as per section 50B |
Capital Gain under section 48 are computed as follows:
| Full value of consideration received or accruing As a result of the transfer of capital assets | a |
| Less expenditure incurred wholly and exclusively In connection with transfer of the capital asset, such as stamp duty, registration charges, legal fees, brokerage etc. | b |
| Less cost of acquisition and cost of improvement | c |
| Where any sum of money, received as an advance or otherwise in the course of negotiations for transfer of a capital asset, has been included in the total income of the assessee for any previous year in accordance with section 56(2)(ix), then such sum shall not be deducted from cost for which the asset was acquired or the written down value, as the case may be, in computing the cost of acquisition. | d |
Income / Loss chargeable u/s 45 read with section 48 [a-b-(c-d) ]
From assessment year 2021-22 and onwards, in the case of value of any money or capital asset received by a specified person from a specified entity referred to in section 45(4), the amount chargeable to income tax as income of such specified entity u/s 45(4) which is attributable to the capital asset being transferred by the specified entity, calculated in a prescribe manner.
Under second proviso to section 48, the cost of acquisition of a long term (and not short term)capital asset and cost of any improvement thereto is to be worked out as under:
(a) Cost of acquisition X Cost inflation index of the year in which the asset is transferred divided by Cost inflation index of the year of acquisition or the year beginning on 1-4-2001, whichever is later;
(b) Cost of improvement X Cost inflation index of the year in which the asset is transferred multiply by Cost of inflation Index of the year of improvement to the asset.
Exception to Section 48:
a. In case of nonresident, Capital Gain on transfer of shares in or debentures of n Indi Company are to be computed firstly by converting cost of acquisition, full value of consideration and expenses incurred in connection with transfer in to originally utilized foreign currency and reconverting the capital gains so computed in Indian rupees.
Rule 115A prescribes the rate of conversion and reconversion for the purpose of calculation of capital gain in the above case. The rate of conversion and reconversion are as under And exclusively in connection selling rate as on the date of transfer
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Cost of acquisition |
The average of telegraphic transfer (TT) buying rate and TT selling rate (as on the date of acquisition) of the foreign currency utilized in the purchase of asset. |
| Expenditure incurred wholly and exclusively in connection with transfer consideration | The average of TT buying rate and TT selling rate as on the date of transfer. |
| Full value of consideration | The average of TT buying rate and TT selling rate as on the date of transfer |
| For reconverting the capital gains | TT buying rate as on the date of transfer |
b. The benefits of indexation of cost will not be available for computation of Capital Gains on transfer of Bonds/Debentures/ specified shares and units.
c. While calculating long term Capital Gains ( other than those covered under (a) and (b) above) cost of acquisition and cost of improvement are required to be indexed at prescribed indices.
d. Finance Act 2026 has inserted proviso to Section 48 w.e.f. 1st April 2017 stating that while computing capital gains arising to a non resident assessee on redemption of rupee denominated bond of an Indian Company subscribed by him, the gain arising on account of appreciation of rupee against a foreign currency shall be ignored for the purpose of computation of full value of consideration. W.e.f. 1st April, 2018 the benefit available to subscriber of bond is also extended to subsequent acquirer of such bonds.
e. For computing long term Capital Gains arising on transfer of Sovereign Gold Bond issued by the RBI under the Sovereign Gold Bond Scheme, 2015, the cost of acquisition shall be indexed.
Author Bio
Hello,
I received the demand notice for AY2020-21 in Nov 2021,
I tried several times to file RECTIFICATION but I was getting
ERROR: ITD-EXEC2003.
Can I file the revised return or belated return now.
Appreciate your kind response.
Rgds,
Anushka