27 capital gain pcc

8/8/2019 27 Capital Gain Pcc

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Cost Inflation Indices

The cost inflation indices as notified by the CentralGovernment are as follows:

F. Y. CII F.Y. CII F.Y. CII F. Y. CII 1981-82

1982-83

1983-84

1984-85

1985-861986-87

1987-88

100

109

116

125

133140

150

1988-89

1989-90

1990-91

1991-92

1992-931993-94

1994-95

161

172

182

199

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259

1995-96

1996-97

1997-98

1998-99

1999-20002000-01

2001-02

281

305

331

351

389406

426

2002-03

2003-04

2004-05

2005-06

2006-072007-08

2008-09

447

463

480

497

519551

582


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Computation of Capital Gains short

term and long term

Short term capital gains [S. 2(42B)] means capital gains arising from transfer

of a short-term capital asset. Long term capital gains [S. 2(29B)] means

capital gains arising from transfer of a long-term capital asset.

Mode of Computation of Capital Gains [Section 48]

Short Term Capital Gains Long Term Capital Gains

Full Value of Consideration

Less : Exp incurred wholly and

exclusively for such transfer

XX

XX

Full Value of Consideration

Less : Expenses incurred wholly and

exclusively for such transfer

XX

XX

Net Consideration XX Net Consideration XX

Less : *C.O.A. XX

**C.O.I. XX XX

Less : Indexed * C.O.A. XX

Indexed**C.O.I. XX

XX

Short term capital gain

Less : Exemption u/s 54B, 54D,

54G, 54GA

XX

XX

Long term capital gain

Less : Exemptions u/s 54, 54B, 54D,

54EC, 54F, 54G, 54GA

XX

XX

Taxable Short Term Capital

Gain

XX Taxable Long Term Capital Gain XX

*Cost of Acquisition (C.O.A) ** Cost of Improvement (C.O.I)


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Notes:

1.

Any sum paid on account of S

ecurities Transaction Tax(STT) is not deductible in computing Capital Gains.

2. Indexed cost of acquisition or improvement shall be

computed as follows :

IndexedCost of

Acquisition

=

Actual cost of acquisition v CII for the year of

transferCII for the year of acquisition by assessee

IndexedCost of

Improvement

=

Actual cost of improvement v CII for the year of

transferCII for the year of improvement


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Special Assets:

(a) Equity or Preference Shares in a company

(b) Other securities like Debentures and

Govt.Securities in listed stock exchange in

India in recognized

(c) Units of UTI or Units of mutual fund

specified u/s 10(23D)

(d) Zero Coupon Bonds


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Summary

Capital assets

Short term capital assets Long term capital assets

Period of holding is 36 months or less Period of holding is more than 36 month

Special cases: period of holding

is 12 months or less

Special cases: period of holding

is more than 12 months

1. For computing the period of 36 months or 12 months, as the case may be,

the date on which the asset was acquired is to be included

while the date on which the asset is transferred is to be excluded.

2. Indexation on long term capital assets will not be allowed for bonds

and debentures other than capital indexed bonds issued by the Government


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Question- short term or long term capital

asset

Y purchases Debentures of a company on Mar 10,2006.Debentures are listed on Cochin Stock Exchangewith effect from Jan 1, 2008. Y transferred thesedebentures on Jan 5, 2009.

We have to see the nature of capital asset on the date of

transfer.

As the debentures were listed on the date of transfer, the

criteria of 12 months will be applicable.

Hence it is a long term capital asset as the period of holding is

more than 12 months.


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Charge under the head Capital Gains

[section 45(1)]

Any profits or gains arising from the transfer of a capital asset is

chargeable to tax as income of the previous year in which

the transfer took place.

Two important conditions.1. There is a capital asset. [The asset must be a capital asset

at the time of transfer]

2. There is a transfer of such capital asset.


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Capital Asset [section 2(14)]

According to Section 2(14), capital asset means property ofany kind held by an assessee, whether or not connected withhis business or profession, but does not include

1. Any stock-in-trade, consumable stores or raw materials heldfor purpose of his business or profession.

2. Personal effects i.e. movable property held for personal use byassessee or his family member dependent on him.

Exception of personal effects:(i.e following are capital assets)

Jewellery

Archaeological collections, Drawings, Paintings, Sculptures and any work of art


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Capital Asset [section 2(14)]

(contd)

3. Rural agricultural land i.e.Agricultural land in India not beinga land situated

_ Within the jurisdiction of a municipality or acantonment board having a population of 10,000 ormore according to the last preceding census; or

_ In any notified area within 8 kms from the locallimits of any municipality or cantonment board.

4. Gold Bonds issued by Central Government including theGold Deposit Bonds issued under the Gold DepositScheme, 1999.

5. Special Bearer Bonds, 1991.


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Question- Capital asset or not

A.C installed at assessees residence

not a CA because it is personal and moveable

A.C installed at business premises

CA because though it is moveable, it is not personal.

A.C for a dealer in AC

not a CA because it is a stock in trade for the assessee.


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Transfer [section 2(47)]:

Transfer, in relation to capital asset, includes

a. sale, exchange or relinquishment of the asset;

b. extinguishment of any rights therein;

c. compulsory acquisition thereof under any law;

d. maturity or redemption of zero coupon bond;

e. conversion or treatment of such asset by the owner into stockin trade of business carried on by him;

f. Any transaction involving allowing of possession of animmovable property to be taken or retained in part performanceof a contract of the nature referred u/s 53A of Transfer of Property Act, 1882.

g.

any transaction (whether by way ofacquiring shares in, or by way of becoming a member of, a co-operative society,company or ot her AOP or by way of any arrangement oragreement or in any ot her manner) that has the effect of transferring or enabling the enjoyment of, any immovableproperty.


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Transfer [section 2(47)]

(contd)

-:Case Laws:-

1. Reduction in face value of shares and consequent paymentto the shareholder towards such reduction amounts to

transfer, as it results in extinguishment of right in the

shares held by the shareholder. Kartikeya Sarabhai v. CIT

[1997] 228 ITR 163 (SC).

2. Surrender of Preference Shares on redemption thereof

amounts to transfer as there is relinquishment by theshareholder of his rights in Preference Shares. Anarkali

Sarabhai v. CIT [1997] 224 ITR 422(SC).


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Transactions not regarded as transfer

(sec 47)

1. Transfer of capital asset by way of gift

or under a will or irrevocable trust.2. Transfer of capital asset in total or

partial partition ofHUF.


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(contd 1)

A B

1.10.90

C

1.10.06 1.1.091Lakh

Gift Sell

Cost=0 5 Lakh

Capital gains for B:

FVC = 5,00,000

Indexed COA = 1,12,139 1,00,000 * 582 (08-09)

519 (06-07)

3,87,861

(-)

Option of taking FMV as on 1.4.81 is available if the previous owner

acquired capital asset before 1.4.81


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(contd 2)

A B CGift Gift

Cost=0

DSell

Cost=0

Who is the previous owner for C?

Previous owner means the last previous owner who

actually paid for the asset.

Hence Previous owner for C will beA

from where cost and periodOf holding will be taken.


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sec 47 (contd 4)

3.Transfer of capital asset by holding company

to its 100% subsidiary company or vice versa

provided the transferee company is an Indiancompany.


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Withdrawal of exemption sec 47A

1. The holding company does not continue to hold the

whole of the share capital of the subsidiary company.

2. The transferee company converts the capital asset into

stock in trade.

If any of the following events occur within 8 years from the date

of transfer, the capital gains so exempted will be chargeable to tax

in the year in which transfer took place


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Section 47 read with section 47A

H1990-91

1 lakh

S

sells

08-09

5 lakhs03-04Without attracting section 47A

Capital gains for S

FVC = 5 Lakhs(-) COA = 1 Lakh

4 Lakhs


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Section 47 read with section 47A

(contd)

H90-91

1 lakh

S

sells

08-09

5 lakhs03-04After attracting section 47A

3 lakhs

Capital gains for S

FVC = 5 LakhsCOA = 3 Lakh

2 Lakhs

Capital gains for H

FVC = 3 LakhsCOA = 1 Lakh

2 Lakhs


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Steps for computing capital gain

1) Identify whether the given asset is a capital asset or not as persection 2(14)

2) Identify whether the given transaction is a taxable transfer or

not as per section 2(47) read with section 47.

3) Find out whether the CA isLT or

ST

.

4) In certain situations, while counting the POH of capital asset,

we include POH of previous owner also.Section 2(42A)

5) In certain situations, while calculating the COA of capital asset,

we consider cost to the previous owner.Section 49.

6) However indexation of COA will always start from the currentassessee.


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Intangible Assets

Cost of acquisition and cost of improvement in case of certain

intangible assets

Capital asset being - COA COI

Goodwill of business, right to

manufacture/produce/process

any article/thing, or right to carry

on business

If self-generated: Nil.

If purchased

whether directly

or from previous

owner: purchase

price.

Note: Option of

taking FMV as on

1.4.81is not

available.

NIL

Trademark/brand name

associated with business or

tenancy rights or route

permits/loom hours

Expenses incurred

by assessee or

previous owner after

31.3.1981


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Bonus shares and right shares.

Mode Period of holding Cost of acquisition

Bonus shares Will start from the

date of allotment

thereof

Cost will be nil.If the

bonus shares are

alloted before 1.4.81,

cost will be FMV as

on 1.4.81

Right shares

purchased by the

existing owner

Will start from the

date of allotment

thereof

Cost will be purchase

price of right shares


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Mode Period of holding COA

When existing

holder renounceshis right in favour of

another person.

Will start from the date of

offer of such right till the dateof renouncement which will

normally be less than 12

months

Cost will be nil.

Right shares

purchased by

renouncee

Will start from the date of

allotment thereof

Cost will be

purchase price

of right shares

+ cost of right


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Conversion of capital asset into stock in

trade sec 45(2)

1.If a capital asset is converted into stock in trade,

it is considered as a transfer as per section 2(47)

in the year of conversion.However the resulting

capital gain is taxable in the year of transfer of theconverted stock.

2. The period of holding of the converted asset

should be calculated from the actual date ofpurchase of capital asset till the date of

conversion.Indexation of COA and COI will also

be till the year of conversion.


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Conversion of capital asset into stock in

trade sec 45(2)

(contd 2)

3. FMV on the date of conversion is

considered as the full value of consideration

for calculating capital gains. The same FMVis considered as purchase price of stock for

calculating income from business.


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Compulsory acquisition of capital asset

Where asset has been compulsorily acquired under any

law or the consideration for transfer is determined by

RBI or Central Govt, it is regarded as transfer.

However the resulting capital gains will be taxable inthe year of receipt of initial compensation or part thereof

The POH will be calculated till the year of compulsory

acquisition. Further COA and COI will be indexed till theyear of transfer and not till the year of receipt of

compensation.


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Compulsory acquisition of capital asset

(contd 2)

When enhanced compensation is received capital

gains will be taxable in the year of receipt of

enhanced compensation.

Capital gains will be ST orLT depending on the

nature of original asset.

No COA and COI will be allowed as deduction asit has already been allowed once. But litigation

expenses is allowed as expense on transfer.


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Capital Gains in case of Depreciable Assets

[section 50 & 50A] 1. Capitalgains in case of transfer ofasset on which depreciation

has been allowed underSection 32(1)(ii) in respect of block ofassets

[Section 50]: The capital gains shall be computed as follows :

Block ofassets ceases to exist or WDV becomes negative or

both[Section 50(1)]:

Full value of consideration

Less :

1. Expenses on transfer

2. WDV of asset on 1st

day of the previous year3. Cost of assets acquired during the previous year and

falling within that block

XXX

XXX

XXX

XXX

Short Term Capital Gains XXX


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Capital Gains in case of Depreciable

Assets [section 50 & 50A]2. Transfer of capital assets of Power sector units on which

depreciation allowed u/s 32(1) (i) [Section 50A]:

(a) If WDV of the asset exceeds Moneys Payable on transfer

of such assets:Terminal depreciation under Section 32(1) (iii) = WDV of suchasset Moneys Payable

(b) If Moneys Payable exceeds WDV of the asset: Then, if -

Moneys payable doesnt exceed actual cost : Balancing chargeu/s 41(2) = Money Payable WDV

Moneys payable exceeds Actual Cost : Balancing Charge u/s41(2) = Actual Cost WDV; and Short-term/Long-term CapitalGains = Moneys Payable Actual Cost


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CASES WHERE BENEFIT OF INDEXATION IS NOT

AVAILABLE EVEN IN CASE OFLONG-TERM CAPITAL

ASSETS:1. Transfer of a bond or a debenture other than capital indexed bonds issuedby the Government.

2. Transfer of undertaking or division in a slump sale under Section 50B.

3. Transfer of shares/debentures of an Indian company purchased by a non -resident in foreign currency.

4. Transfer of units purchased in foreign currency by an assesseecovered under Section 115AB.

5. Transfer of bonds or shares purchased in foreign currency by anassessee covered u/s 115AC.

6. Transfer of global depository receipts by a resident employee of anIndian company u/s 115ACA.

7. Transfer of securities by foreign institutional investors under Section 115AD.

8. Transfer of a foreign exchange asset by a non-resident Indian underSection 115D.


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1.In case of conversion of capital asset into stock in trade.

2.Transfer by way of distribution of capital assets by a firm or

AOP

3.In case of barter exchange

4. Assets distributed in kind in case of liquidation of a

company.It is taxable in the hands of shareholder as saleconsideration.

Cases where FairmarketValueshall betreatedas full value

of consideration


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EXEMPTIONS IN RESPECT OF CAPITAL GAINS

AVAILABLE ONLY TO INDIVIDUAL AND/OR HUF

ASSESSEES

[S

ectio

n 54, 54B

and 54F]Provisions Section 54 S ection 54B S ection 54F

1.Assessee Individual/HUF Individual Individual/HUF

2. Asset

transferred

Residential house

property being

buildings or lands

appurtenant thereto.

Agricultural land

used by individual or

his parent for

agricultural purposesduring 2 years

preceding date of

transfer.

Any capital asset not

being residential

house property. [Note :

Exemption is not available ifassessee

owns more t han 1

residential house

(other than new) on

date of tr ansfer of

original asset;


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Provisions Section 54 Section 54B Section 54F

3. Nature of

Asset

Long Term Short/Long Term Long Term

4. New asset

to be

purchased/

constructed

Residential house

property i.e.

buildings or lands

appurtenant thereto

Agricultural land

(urban or rural)

Residential house

property i.e. buildings

or lands appurtenant

thereto

5. Time-limit

for purchase/

construction

Purchase : Within 1

year before or 2

years after the date

of transfer

Construction : Within

3 years from date of

transfer

Purchase within 2

years from the date

of transfer

Purchase : Within 1

year before or 2 years

after date of transfer;

and

Construction : Within

3 years from date of

transfer

6.Deposit

Scheme

(discussed

later)

Applicable Applicable Applicable


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7.Amount of

Exemption

Lower of Capital

Gains or Investment

in new asset

Lower of Capital

gains or cost of new

asset

Long term capital

gains v Cost of

new house z Netconsideration

8. Withdrawal

of exemption

on

Transfer of the new

asset within 3 years

from its purchase/

construction

Transfer of the new

asset within 3 years

from its purchase

(a) Assessee

purchases within 2

years or constructs

within 3 years from

date of transfer of original asset, a

residential house

other than new

house; or

(b) Transfers new

asset within 3 yearsfrom date of its

purchase/

construction.


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9. Taxability

on withdrawal

Amount of exemption

claimed earlier shall

be reduced from the

cost of acquisition of

new asset

Exemption claimed

earlier shall be

reduced from cost of

acquisition of new

asset

Amount exempted

earlier shall be

taxable as long-term

capital gains in

previous year in

which (a) another

residential house is

purchased or

constructed; or (b)

the new asset is

transferred.


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Note: Important points on exemption under Section 54 and 54F

Purchase/Construction of a Portion: Purchase or consideration of a portion ofthe house is eligible for exemption CIT v. Chandanben Maganlal [2000] 245

ITR 182 (Guj.). E.g. If an assessee purchases 15% undivided share in a houseproperty, exemption will be available.

However, mere construction by way of extension of old existing house is noteligible for exemption. CIT v. Pradeep Kumar [2006] 153 Taxman 138(Mad.)

Purchase of co-owners interest : In case of property owned by co-owners, thepayment made by one co-owner to get the full ownership by release of theinterest of other co-owners amounts to purchase by such co-owner and is

eligible for exemption. CIT v. Aravinda Reddy [1979] 120 ITR 46 (SC).Registration not pre-condition: If assessee has purchased house and acquiredits possession and control, he will be eligible for exemption even if suchpurchase is not registered as per Registration Act, 1908.

Exemptions in respect of capital gains available

only to individual and/or HUF assessees [section

54, 54B and 54F]


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Exemptions in respect of capital gains available to

all assessees [section 54D, 54E

C, 54G and 54GA]

Provisions Section 54D Section

54EC

Section 54G Section

54GA

1.Assessee Any person Any person Any person Any person

2.Assettransferred Compulsoryacquisition of

land or

building which

was used in

the business of

industrial

undertakingduring 2 years

prior to date of

transfer.

Any long termcapital

asset.

Transfer of plant,

machinery or

land or

building for

shifting

industrial

undertakingfrom urban

area to rural

area.

Transfer of plant,

machinery or

land or

building for

shifting

industrial

undertakingfrom urban

area to Special

Economic

Zone.


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54EC

Section 54G Section

54GA3. Nature of

Asset

Short term/

Long term

Long term Short term/

Long term

Short term/

Long term

4. New asset

to be

purchased/

constructed

New land or

building for the

industrial

undertaking

Bonds,

redeemable

after 3 years

issued (a)by National

Highway

Authority of

India; or

(b)By Rural

Electrification

Corp.

(Amendment

by the Finance

Act, 2006)

(a)Purchase/

Construction of

plant,

machinery,land or

building in

such rural area

or,

(b)Shifting

original assets

to that area, or

(c)Incurring

notified

expenses

(a)Purchase/

construction of

plant,

machinery,land or

building in

such SEZ, or

(b)Shifting the

original assets

to SEZ, or

(c)Incurring

notified

expenses


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54EC

Section 54G Section

54GA

5. Time-limit

for

purchase/

constructio

n of new

asset

Within 3 years

from date

of receipt

of initial

compensati

on

Within 6

months

from the

date of

transfer of

original

asset

Within 1 year

before or 3

years after

the date of

transfer

Within 1 year

before or 3

years after

the date of

transfer

6. Deposit

Scheme

Applicable -- Applicable Applicable

7. Amount of

exemption

Lower of

capital gains or

investment in

new asset

Lower of

Capital gains

or investment

in new asset or

Rs.50 lacs

Lower of

Capital gains

or cost

incurred for (a)

to (c) of point

4.

Lower of

Capital gains

or cost

incurred for (a)

to (c) of point

4.


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Provisions Section

54D

Section

54EC

Section

54G

Section

54GA

8.Withdrawal

of Exemption

Transfer of

new asset

within aperiod of 3

years from

the date of its

acquisition or

construction

Transfer of

new asset,

conversionthereof in

money or

taking loan or

advance on

its security

within 3 years

from date of its acquisition.

Transfer of

new or shifted

asset within aperiod of 3

years from

the date of its

acquisition or

construction

or shifting.

Transfer of

new or shifted

asset within aperiod of 3

years from

the date of its

acquisition or

construction

or shifting.


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54EC

Section 54G Section

54GA

9. Taxability on

withdrawal of

exemption

Amount of

exemption

claimed earlier

shall be

reduced from

the cost of

acquisition of new asset.

Exempted

capital gain will

be taxable as

long-term

capital gains in

previous year

in which suchtransfer/

conversion

takes place.

Amount of

exemption

claimed earlier

shall be

reduced from

the cost of

acquisition of new or shifted

asset.

Amount of

exemption

claimed earlier

shall be

reduced from

the cost of

acquisition of new or shifted

asset.

Note: If exemption has been claimed u/s 54EC in respect of investment in a new

asset, no deduction shall be allowed u/s 80C with reference to the amount of

investment for which exemption has been claimed.


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Transfer of depreciable assets heldfor more than 36 months Exemptionu/s 54EC available: Section 50 nowhere mentions that the depreciable assetsare short term capital assets but only states that capital gains arising from

transfer of depreciable asset shall be deemed to be arising out of transfer ofshort term capital asset. Section 54EC is independent section and exemptiontherein is available if there is a transfer of long term capital asset andconsideration is invested in specified assets within time limit. Therefore,depreciable assets held for more than 36 months are long-term capital assetsand capital gains arising therefrom will be eligible for the benefit envisaged u/s54EC CIT v. Assam Petroleum Industries P. Ltd. [2003] 131 Taxman 699

(Gau.)

Extension oftime in case of compulsory acquisition [Section 54H]: Wheretransfer of original assets referred to in Sections 54, 54B, 54D, 54EC and 54F,is by way of compulsory acquisition under any law, the period for acquiringnew asset referred to in those sections or the period available under thosesections for depositing or investing the amount of capital gain in relation tosuch compensation, which is not received on the date of the transfer, shall bereckoned from the date of receipt of such compensation.


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27 capital gain pcc

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