3. summary of capital gains for final ca -- 11 pages

8/13/2019 3. Summary of Capital Gains for Final CA -- 11 Pages

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Capital Gains

Any profit or gain arising on transfer of Capital Asset is chargeable to tax as Capital Gains in thePrevious Year in which transfer takes place. (sub. to exceptions and exemptions

Capital Assets [Sec. 2(14)]

Any property movable or immovable! tangible or intangible except"# $tock! consumables! spares! raw materials etc. held for business or profession (because itgets reflected in %usiness &ncome

'# Personal ffects i. e. movable property held for personal use of assessee or any familymember dependent on him.

xceptions )ewellery! Archaelogical collections! *rawings! paintings! sculptures or anywork of Art.Case +aw silver utensils consisting of thalis! ,atoris and tumblers meant for personal useconstituted personal effects - the gains arising on sale of such utensils cannot be taxed asCapital GainsCase +aw of C& vs. %enarashilal katarkula "/0 &1 234 (Calcutta&t may be noted that all personal effects need to be used on a daily basis. $o long as they

are meant - used for personal purposes! they 5ualify as 6Personal ffects7'. Gold! silver coins used for poo8a are 6Capital Assets7 9ahara8a 1ana :emant $ingh8ivs. C& ";4 &1 <" ($C

4# 1ural agricultural +and (at the time of sale it should rural agricultural land i. e.i not situated within municipality = central boards 8urisdiction having >>>>.of ";!;;; ormore

ii not situated in certain areas notified by the government2# Gold bonds! ?ational *efense Gold %onds! $pecial %earer %onds! Gold *eposit %onds

Transfer $ale! xchange! extinguishment of right etc. :owever in spite of this". here are some transactions where there may be a sale or extinguishment of right but it is

specifically not considered as transfer for the purpose of Capital Gains'. here are some transactions where there may not be any sale or exchange still it isconsidered and taxed as transfer for the purpose of Capital Gains

Capital Gain is taxed in the Previous Year in which transfer takes place even thoughconsideration may be received at a later stage (sub8ect to exceptions

Capital Gains+ong term capital Gains $hort erm Capital Gains

@n sale of long term capital assets @n sale of long term capital assets

Capital Assets?on depreciable *epreciable Assets+and (whether used in business or not orother assets not used in business e. g.building! )ewellery! securities! goodwill etc.of a business

Assets used in %usiness = Profession on whichdepreciation is claimed e.g. Plant = machinery!furniture! intangible assets (patents! copy rights etc.

Can be short term or long term Always short term

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?on depreciable assets

&n case of assets other than shares! listeddebentures! listed government securities! unitsof & - specified 9utual Bunds! ero Coupon%onds (e. g. +and! %uilding! )ewellery

&f Period of :olding D 4 years it is shortterm capital asset&f Period of :olding E 4 years it is longterm capital asset

Bor shares! +isted debentures! $hares! +istedgovernment securities! units of & = 9B! eroCoupon %onds

&f Period of :olding D " years it is shortterm capital asset&f Period of :olding E " years it is longterm capital asset

Period of :oldings (P@: is period from date of purchase to date of sale.%ut in certain situations P@: includes P@: of previous owner - Cost of Ac5uisition is costto previous owner.". Ac5uisition of property on any distribution of assets on the total or partial partition of a

:indu ndivided family.'. Ac5uisition of property under gift or will4. i Ac5uisition of property on succession! inheritance etc. ii @n any distribution of assets on the li5uidation of co. iii under a transfer to a revocable or an irrevocable trust

iv on any transfer by a wholly owned &ndian subsidiary co. from its :olding co. - viceversa

v @n any transfer under the scheme of amalgamation2. Ac5uisition of property by :B where one of its members has converted his self

ac5uired property into 8oint family property after *ec. 4"! "3<3.

Calculation of Capital Gain

$hort erm Capital Gain

$ale Consideration FF( xpenses of transfer (FF

?et $ale Consideration FF( Cost of Assets (FF

( Cost of &mprovements (FF$hort erm Capital Gain xx

+ong erm Capital Gain

$ale Consideration FF

( xpenses of transfer (FF

?et $ale Consideration FF( &ndexed Cost of Assets (FF

( &ndexed Cost of &mprovements (FF+ong erm Capital Gain FF

%enefits of &ndexation are not available in certain cases.

" %onds or debenture other than Capital &ndexed %onds issued by the government' $hares or *ebentures of an &ndian Co. ac5uired by ?1& using convertible foreign

exchange4 *epreciable Assets2 ndertaking transferred by way of slump sale0 nits purchased in foreign currency by offshore fund< $ecurities and G*1 purchased in foreign currency

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Calculation of Capital Gains in case of Depreciable Assets" $ec. 0;(" H Ihere $elling Price E (@pening balance J Actual Cost difference is $hort

erm Capital Gain. &n this case there may be assets in the block! but block value is nilhence depreciation is nil.

' $ec. 0;(' H Ihen all the assets in a block are sold! difference is $hort erm CapitalGain or $hort erm Capital +oss.

Case +aw&n the case of common wealth trust ($C it is decided that Bair 9arket Kalue on".;2./" cannot be substituted for any assets which forms part of block of assets. &n ablock the I*K of various assets cannot be identified

ransaction specifically transferred as sale$ec. 20 (&A$ec. 20 ('$ec. 20 (4$ec. 20 (2$ec. 20 (0

$ec. 20 (&A (w. e. f. A. Y. ';;; ;" HCapital Gain arises when any insurance compensation is received if a Capital Asset getsdestroyed on account of any of the following factorL". Bloods yphoon! :urricane! Cyclone! arth5uake or any other convulsion of nature'. 1iots or civil disturbance4. nemy action or war 2. Accidental fire explosion(&f asset is destroyed by any factor other than the above ones! Capital Gain not taxableM$C decision in case of Kania $ilk 9ills Pvt. +td. vs. C&#$ale Consideration N &nsurance money received = B9K or asset received:owever this Capital Gain is taxable in the Previous Year in which compensation is

received. (xception to the general rule! Capital Gain is taxed in the year of ransfer

$ec. 20(' (w. e. f. A. Y. "3/0 /< H Conversion of Capital Asset into stock in trade and subse5uent sale of stockConversion of Capital Gain into stock is considered as capital Gain. :owever it is taxed inthe year when stock is sold. . (xception to the general rule! Capital Gain is taxed in theyear of ransfer$ale Consideration N Bair 9arket Kalue on date of conversionYear of sale N Year when conversion takes place:owever taxed in the year when stock is sold$ec. 20(' is applicable from A.Y. "3/0/<O conversion of Capital Asset into stock was nottreated as Capital Gain (as per $C decision in case of %ai $hirinbai ,ooka

&f stock is sold in parts in different years! tax on Capital Gain will arise in different partsaccordingly C& vs. Crest :otels +td. (';;"

$ec. 20(' would apply when there is loss too H C& vs. Claridges &nvestment - Binance+td. (';;

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$ec. 20(4 H &ntroduction of a Capital asset by a partner=member into a Birm =A@P=%@&$ale Consideration H amount recorded in books (irrespective of any other value givenCapital Gain is taxable in the hands of partner

$ec. 20(2 H*istribution of assets by firm=A@P=%@& to partners=members on dissolution or otherwisetaxed in the hands of a firm$ale Consideration N Bair 9arket Kalue on date of transfer (irrespective of agreedconsideration or amount recorded in booksi &n the event of dissolution of firm and distribution of assets there is no need for

registration unless it is mandatory in certain states. Case law of ?. ,hadervali vs.Gudusaheb (';;4($C

ii Year of chargeability is the year in which distribution takes place and not the yearof dissolution C& vs. Ki8aylakshmi 9etal &ndustries (';;" (9adras

$ec. 20(0 H " &f asset is ac5uired compulsorily under law or' &n asset is transferred - consideration is approved by Central Government or 1%&

Capital Gain is chargeable in the year in which compensation or part is received$ale consideration N Compensation receivedYear of sale N Year when asset is ac5uired&f any extra compensation is received later on (i. e. if compensation is enhanced becauseassessee files a suit for increase in compensation! capital gain is chargeable in the yearwhen extra compensation is received.C@A=C@& H nilxpenses of transfer if any i. e. litigation expenses can be deducted(Any interest on delayed compensation will be taxed under the head 6&ncome from othersources7

$ec. ";(4 H &f a land is owned by individual = :B - used for agricultural purposes for

minimum ' years prior to transfer! any Capital Gain on compulsory ac5uisition of urbanagricultural land is exempt u=s ";(4

Special Points (related to capital ains on securities)

i $ee "; (4/

&f any listed shares or units of @9B are sold on a 1ecog. $tk. xc. - $ecuritiesransaction ax is payable! then +CG is exempt =s "; C 4/

Any $CG is taxable at a concessional rate of "0Q M$ec. """A#

ii ?o &ndexation for bands=debenture unless they are capital indexed bonds.

iii Cost of %onus share ac5uired on or after ".2./" H C@A is ?&+

&f ac5uired prior to ".2./" H C@A is Bair 9arket Kalue as on ".2./"

iv 1ight ntitlement - 1ight $hares H1ight to subscribe to additional shares of the Co.

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&f the right is not fully exercised - renounced to some other person there will be $CG onsale of 1ight ntitlement

$C N Amt. recd. from renouncee

C@A N ?&+

&f right shares are purchased - later on sold by the renouncee

C@A N Purchase Price of shares J Amount paid to renouncer to purchase 1ightntitlement.

v Conversion of debentures into shares - subse5uent sale of those shares.

Conversion of debentures into shares is not considered as transfer.

:owever if the shares are sold! Capital Gain may arise Mif shares are unlisted or if they arelisted but sold outside the $tock xchange or in case of $CG#.

C@A of shares N Proportionate cost of debentures

&ndexation begins from date of conversion.

MPeriod of holding to decide whether +=$ is from the time shares are allotted =converted#.

vi B&B@ method in case of *emat A=c. H he C%* again in circular no. </dated '2 H;< H "33/ ('4' &1 0st. has been clarified that in respect of transaction in securitiesheld in dematerialiRed form u=s 20('A for determination of Sdate of transferT - Speriodof holdingT as detailed below.

(a he B&B@ method will be applied only in respect of the dematerialiRed holdingsbecause in the case of sale of dematerialiRed securities! the securities held in aphysical form canTt be construed to have been sold as they continue to remain inthe possession of investor and are identified separately.

(b &n the depository system! the investor can open and hold multiple accounts. &nsuch a case where an investor has more than one security account! the B&B@method will be applied account wise. his is because in case where a particular

account of an investor is debited for sale of securities! the securities lying in hisother account canTt be construed to remain in that account.

(c &n an existing account of dematerialiRed stock old physical stock is dematerialiRedand entered at a later date under a B&B@ method! the basis for dematerialiRing themovement out of the account is the date of entry into the account.

vii %uyback of shares.

$ale Consideration N Amt. received from the Co. $ince this transaction takes placeoutside a stock xchange! +CG always taxable! $CG taxed at usual rate.

viii $@P = $$ shares gifted

Any gift is not considered as transfer. :owever if $@P shares are gifted they arespecifically considered as transfer.

$ale Consideration N Bair 9arket Kalue of shares on date of gift.

C@A N Kalue at which they were taxed as a per5uisite

his +CG is always taxable since it takes place outside the stock exchange

$CG N usual rate

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ix Amalgamation

&f a shareholder gets shares of Amalgamated Co. against shares of Amalgamating Co.!even though there is an exchange of assets! it is not considered as transfer. u=s 2.

:owever when shares of Amalgamated Co. are sold! while calculating Capital Gain

C@A of shares in Amalgamated Co. N C@A of shares in Amalgamating Co.

Period of :olding to decide +CG = $CG begins from date of ac5uisition of shares in Amalgamating Co.

&ndexation is from date of ac5uisition of shares in Amalgamated Co.

x *emerger

A unit or division is separated from the original co. M*emerged Co.# to form a separate Co.M1esulting Co.# All properties - liabilities of the division are transferred at net book values.he 1esulting Co. issues shares to the existing shareholders of the *emerged Co.

&n this transaction! even though assets are transferred. this transaction is specifically not

considered as transfer.

:owever when shares of 1esulting Co. are sold

C@A N

?et worth of *emerged Co. 8ust before demerger H ?et %ook Kalue of Assets transferred.

C@A of shares in *emerged Co. U

C@A of shares in 1esulting Co. N

toldAssetsof N.B.V.xdemerger before justCo.Dof Net worth

Co.Dinshresof C!A

C@A of shares in *emerged Co. N @riginal cost of shares in *emerged Co. H C@A of

shares in 1esulting Co.- o decide whether shares in 1esulting Co. are +ong erm or $hort erm! P@: begins

from date of ac5uisition of shares in *emerged Co.

- &ndexation beings from date of allotment of shares in 1esulting Co.

xi &n case of demutualiRation or corporatisation of a recogniRed stock exchange wheretrading rights are sold the period for which such person was member of the stockexchange prior to such demutualiRation will be included in the period of holding.:owever cost of assets of trading right is nil. $imilarly if 5uity $hares of such a co.are sold the period of holding will include the period for which such a person wasmember -

C@A of share N C@A of original membership of stock exchange.

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!t"er Special Points

" $lump $ale

$ale of a unit or division for a lump sum consideration without attaching individual salevalues to its assets and liabilities.

Cost of ac5uisition N ?et Iorth (book value= I*K of assets book value=I*K ofliabilities ?o indexation even if it is +CG

&f undertaking which is sold is owned for less than 4 years H $hort erm Capital Gain

lse H +ong erm Capital Gain

' +i5uidation of a co. u=s 2<("

Any distribution pf assets by the co. to its shareholders on li5uidation is not considered astransfer and taxed in the hands of the co. :owever it is taxed in the hands of theshareholders u=s 2<('.

$ale Consideration N Cash J Bair 9arket Kalue of assets received

+ess deemed dividend u=s '('' (e

4 Advance 9oney

Any advance money received by the assessee (- forfeited is deducted from the cost ofassets before indexing it. :owever any advance received and forfeited by previous owneris ignored.

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i $ec. 0;C provide for deeming deeming the guideline value for thestamp duty as the full value of consideration if the actual considerationis less than such value.

ii $ec. 0;C applies to

a consideration received or accruing as a result of transfer of land =building or both

b every transfer of land = building or both whether registered withstamp duty valuation authority or expected through agreement tosell or buy way of power of attorney

iii he value to be adopted for 0;C is as follows

$r.?o.

$ituation Kalue to be adopted for 0;C

" &n a case where property isregistered for stamp duty valueupon transfer

he assessed value adopted for stampduty valuation shall be the full value ofconsideration u=s 0;C

' &n a case where transfer is madethrough agreement of sale or powerof attorney without registration

he assessable adopted for stamp dutyvaluation shall be the full value ofconsideration u=s 0;C

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1eference to Kaluation officer H &f the assessee claims that the stamp duty value exceedthe B9K of the property as on the date of transfer the assessing officer may refer thevaluation of the Capital Asset to valuation officer

&f the value ascertained as per the valuation report exceeds the stamp duty value! then thestamp duty value shall be taken as the value of the consideration for computation ofCapital Gain

0 Cost of self generated assets

Goodwill of business! patents! copyrights! trademark! brand name tenancy rights! 1outepermits! loom hours Cost of Ac5uisition N nil

&f purchased cost of ac5uisition N purchase price

&n case of above assets! option to take B9K as on ".;2./" is not available. &n a casewhere cost of asset is indeterminate! transfer of Capital Asset and the resultant CapitalGain is not chargeable to tax under the head Capital Gain. he Apex court in C& vs. %C$rinivasa $hetty ("3/" "'/ & 1'32 ($C has held that the charging section i.e. $ec.20and the provision dealing with computation of capital Gain constitute an integrated code.

Accordingly! where computation provision canTt apply it shall be understood that the law is

not intended to tax such transactions where cost of asset is not determinable. ransfer ofsuch asset and gain there from shall be sub8ect to Capital Gain.

< $ec. 23(2 where immovable property taxed by way of gift is sold H Iherever in case of agift of immovable property an individual has been taxed under the head S&ncome from othersourcesT! if this property is subse5uently transferred for the purpose of calculation ofcapital gain Cost of Asset shall be deemed to be the stamp duty value as provided u=s23("2 of the &ncome ax Act.

ransaction specifically not considered as transfer Please see the list of these transaction from

theory

Special pro#ision of $%&&n the case of an assessee who is ?1& Capital Gain arising from transfer of Capital Asset beingthe shares and the debentures of an &ndian co. shall be computed by converting Cost of

Ac5uisition! expenses incurred for the transfer - sale consideration into the same foreign currencyas was utiliRed for the purchase of share or debentures as indicated below. he Capital Gain socomputed in the foreign currency shall be reconverted into &ndian currency for the purpose offurther computation H "st proviso to $ec. 2/ and 1ule ""0A

&tems converted = reconverted 1ate of conversion = reconversion" Cost of ac5uisition he average of telegraphic transfer selling rate and

buying rate as on the date of ac5uisition' xpenses incurred for transfer he average of telegraphic transfer selling rate andbuying rate as on the date of transfer

4 $ale Consideration he average of telegraphic transfer selling rate andbuying rate as on the date of transfer

2 Capital Gains (1econversion he buying rate for telegraphic transfer as on thedate of transfer

he conversion or reconversion shall be made on the basis of rate of xchange adopted by $tate%ank of &ndia. he aforesaid manner of computation of capital Gain shall be applicable in respect

$



of capital Gain arising from every reinvestment thereafter in the shares and debenture of an&ndian co. on the sale of such assets. &n this case indexation will not be available in thecomputation of Capital Gain.

''PT&!$S$ec. 02 @n sale of 1esidential :ouse Property

• Available to individual or :B

• @n +CG from sale of 1esidential :ouse Property

• o avail exemption! purchase 1esidential :ouse Property " year prior to date of

sale or within ' years from date of sale or complete construction within 4 yearsfrom date of sale

• xemption N lower of

". +CG or '. Amount invested in one or more 1esidential :ouse Property

• *o not sell the new 1esidential :ouse Property for minimum 4 years from the date

of purchase! else while calculating $hort erm Capital Gain!Cost of Ac5uisition N original cost H exemption claimed earlier

• &f new 1esidential :ouse Property has not been purchased on or before the due

date of furnishing the return of income! invest in Capital Gain Account $cheme.xemption N lower of

". +CG or '. &nvestment in Capital Gain Account $cheme

he Capital Gain Account $cheme amount must be utiliRed within thespecified time limitO else the unutiliRed amount will be taxed in the 4 rd yearfrom date of sale

$ec. 02% @n sale of Agricultural land (in urban area because in rural area it is not acapital asset

• Available to individual

• @n sale of rban Agricultural land

• $CG or +CG but the land should be used for agricultural purposes by the

assessee or his parents for minimum ' years prior to the date of transfer

• o avail exemption! purchase new agricultural land within ' year from the date of

sale. he new agricultural land may be situated in rural area or urban area

•

xemption N lower of". Cost of land or '. Capital Gain

• *o not sell the new land purchased for minimum 4 years from the date of

purchase! else while calculating $hort erm Capital Gain!Cost of Ac5uisition N original cost H exemption claimed earlier

• &f new Agricultural land has not been purchased on or before the due date of

furnishing the return of income! invest in Capital Gain Account $cheme.

%




". +CG'. &nvestment in Capital Gain Account $cheme

he Capital Gain Account $cheme amount must be utiliRed within thespecified time limitO else the unutiliRed amount will be taxed in the 'nd yearfrom date of sale

$ec. 02*

• Available to any assessee

• @n compulsory ac5uisition of +and - %uilding forming part of industrial undertaking

• $CG or +CG but the land or = building should have been used for industry for

minimum ' years prior to the date of transfer

• o avail exemption! purchase new land = building within 4 years from the date of

receipt of compensation. he new asset is used for reestablishing the industrialundertaking or setting up a new one


". Amount invested in new land= building or '. Capital Gain

• *o not sell the new land=building purchased for minimum 4 years from the date of

purchase! else while calculating $hort erm Capital Gain!Cost of Ac5uisition N original cost H exemption claimed earlier

• &f new land = building have not been purchased on or before the due date of

furnishing the return of income! invest in Capital Gain Account $cheme. xemptionN lower of

". +CG'. &nvestment in capital gain account scheme

he Capital Gain Account $cheme amount must be utiliRed within thespecified time limitO else the unutiliRed amount will be taxed in the 4 rd year

from date of sale

$ec. 02G

• Available to all (any assessee

• $CG or +CG

• @n account of sale of plant=machinery=building=land while shifting industrial

undertaking from urban area

•

o avail exemption! purchase new plant=machinery=building=land " year prior to thedate of transfer or within 4 years from the date of transfer


". Amount invested in new land= building or '. Capital Gain

• *o not sell the new plant=machinery=building=land for minimum 4 years from the

date of purchase! else while calculating $hort erm Capital Gain!Cost of Ac5uisition N original cost H exemption claimed earlier

1&



• &f new plant=machinery=building=land has not been purchased on or before the due

date of furnishing the return of income! invest in Capital Gain Account $cheme.xemption N lower of

". +CG'. &nvestment in capital gain account scheme

he Capital Gain Account $cheme amount must be utiliRed within thespecified time limitO else the unutiliRed amount will be taxed in the 4 rd yearfrom date of sale

$ec. 02GA H (similar to $ec. 02GIhile shifting from urban area to $pecial conomic one

$ec. 02C

• Available to all (any assessee

•

Any +CG• o avail exemption purchase within < months from date of transfer bonds of

?ational :ighway Authority of &ndia = 1ural lectrification Corporation


". Capital Gain or '. Amount invested (sub8ect to maximum limit of 1s. 0;+acs p.a.

• *o not sell the bonds or avail any loan on it as a security for minimum 4 years! else

the +CG which was exempt will be taxed.

• ?o Capital Gain Account $cheme

$ec. 02B

• Available to individual or :B

• @n +CG from sale of any asset (except 1esidential :ouse Property

• o avail exemption! invest in " 1esidential :ouse Property " year prior to date of

sale or within ' years from date of sale or complete construction within 4 yearsfrom date of sale

• xemption N Amount invested V +CG = ?et sale consideration

• &f amount is invested in CGA$! then unutiliRed amount will be taxed in the 4rd year

as nutiliRed amount V +CG = ?et sale consideration

•*o not sell the new 1esidential :ouse Property for minimum 4 years from the dateof purchase! else +CG which was exempt will be taxed in the year of sale(besides calculating $CG on sale of new house

• his exemption is not available if on the date of transfer of original asset! if

assessee owns more than one 1esidential :ouse Property (other than the onepurchased to claim exemption he assessee should also not purchase within 'years or complete construction within 4 years any other 1esidential :ouseProperty other than the one purchased to claim the exemption.

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$pecific xemptions H$ec. 02$ec. 02%$ec. 02*$ec. 02G$ec. 02GA

General xemptions$ec. 02C$ec. 02B&f there are many assets eligible for $ec. 02C! order of priority is not important. :owever it isimportant if exemption u=s 02B is to be given.Bind (+CG V ";; = ?et sale consideration for each asset! rank them and accordingly allot $ec.02B

VVVVVV

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3. summary of capital gains for final ca -- 11 pages

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