CAPITAL GAINS

U/S 45SECTION 45INCOME FROM TO 54 OF TO 54 OF INCOME TAXTAX ACT ACT

CHARGEABILITY U/S 45
ANY PROFIT OR GAIN ARISING FROM THE SALE OR TRANSFER

OF A CAPITAL ASSET IS CHARGEABLE TO TAX UNDER THE HEAD CAPITAL GAINS. IT IS DEEMED TO BE INCOME OF THE PREVIOUS YEAR IN WHICH TRANFER OF CAPITAL ASSET TAKES PLACE.

CAPITAL GAINS ARISING FROM TRANSFER OF IMMOVABLE

PROPERTY AARE CHARGEABLE TO TAX IN THE PREVIOUS YEAR, IN WHICH THE EFFECTIVE TRANSFER OF TITLE IS CONVEYAED AND REGISTERED.

CAPITAL ASSET
Capital Asset is defined to include property of any kind, whether fixed or circulating, movable or immovable, tangible or intangible. The following assets are however, excluded from the definition of Capital Assets
Any Stock-In-Trade, Consumable stores or raw material held for

the purpose of business or profession.

Personal effects of the Assessee, movable property including

wearing apparel and furniture held for his personal use or for the use of any member of his family dependent upon him( Jewellery, archeological collections, drawings, paintings, sculptures, or any work of art are treated as capital asset even though it is meant for personal use of the Assessee)
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CAPITAL ASSET
Agricultural land in India provided it is not situated:-

a) in any area within the jurisdiction of a municipality or a cantonment board having population of 10,000 or more or; b) in any notified area 6 per cent Gold Bonds, 1977 or 7 Percent Gold Bonds, 1980 or National Defence Gold Bonds, 1980 issued by Central Government. Special Bearer Bonds, 1991 and Gold Deposit Bonds Issued under Gold Deposit Scheme, 1999.
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TRANSFER OF CAPITAL ASSET

Transfer, in relation to a Capital Asset, includes Sale, Exchange or Relinquishment of the asset or the Extinguishment of any rights therein or the compulsory acquisition thereof under any law. Reduction of Share Capital by reducing face value amounts to extinguishment of rights. Redemption of Preference Share amounts to Relinquishment of rights. Conversion of Capital Asset into Stock-In-Trade of a business carried on by the Assessee amounts to transfer of Capital Asset.
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EXEMPT - TRANSFERS
Distribution of assets in kind by company to its

shareholders on its liquidation Any distribution of capital asset in kind by a Hindu Undivided family to its members at the time of total or partial partition. Any distribution of capital asset under a gift or will or an irrevocable trusts Any transfer of capital asset by holding wholly owned subsidiary to Holding company or vice versa. Other transfers u/s 47(vi) to 47(xvi)
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TYPES OF CAPITAL ASSET

Short-Term capital asset means a capital asset held by an Assessee for not more than 36 months immediately prior to its date of transfer. However, in the following cases, an asset, held for not more than 12 months, is treated as short-term capital asset: Equity Shares & Preference Shares Securities (Debentures, Government Securities) if listed in a

recognized stock exchange Units of UTI or Mutual Fund Zero coupon bonds

An asset other than short term capital asset is regarded as long term capital asset
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FORMULAE-CAPITAL GAIN
Short term Capital Gain Find Full Value of Consideration Deduct: 1. Expenditure incurred wholly and exclusively in connection with such transfer 2. Cost of Acquisition 3. Cost of Improvement Less: Exemptions:U/s 54B, 54D, 54G Balance amount is Short-Term Capital Gain Long Term Capital Gain Find full Value of Consideration Deduct: 1. Expenditure incurred wholly and exclusively in connection with such transfer 2. Indexed Cost of Acquisition 3. Indexed Cost of Improvement Less: Exemptions:U/s 54,54B,54D,54EC,54ED, 54F and 54G Balance amount is Long-Term Capital Gain
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INDEXATION
SITUATION 1

If Capital Asset is acquired by the Assessee before 1st April 1981

Fair Market Value on 1st April 1981 or Cost of Acquisition Which ever is more x C.I.I .of year of Transfer C.I.I . of Financial Year of Purchase

INDEXATION
SITUATION 2

If Capital Asset is acquired by the Assessee on or after 1st April 1981

Fair Market Value on 1st April 1981 or Cost of Acquisition Which ever is more C.I.I . of 1981-1982 (100)

C.I.I . of year of Transfer

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C.I.I.- COST INFLATION INDEX

Financial Year 1981-82 1982-83 1983-84 1984-85 C.I.I. 100 109 116 125 Financial Year 1992-93 1993-94 1994-95 1995-96 C.I.I. 223 244 259 281 Financial Year 2003-04 2004-05 2005-06 2006-07 C.I.I. 463 480 497 519

1985-86 1986-87
1987-88 1988-89 1989-90 1990-91 1991-92

133 140
150 161 172 182 199

1996-97 1997-98
1998-99 1999-2000 2000-2001 2001-02 2002-03

305 331
351 389 406 426 447

2007-08 2008-09
2009-10 2010-11 2011-12 2012-13

551 582
632 711 785 Budget
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Example
Determine the amount of exemption under section 54 and capital gains chargeable to tax in respect of the following Transactions/Cases: 1. X sells a residential house property in Agra for Rs. 25,40,000 on April 23, 2009 which was purchased by him on April 20, 1985 for Rs. 2,90,000. On June 16, 2009, he purchases a house in Delhi for Rs. 12,00,000 for the purpose of residence of his daughter. 2. On July 18, 2010, X sells the house property in Delhi for Rs. 16,90,000. Can he also claim exemption under section 54 in respect of transaction.
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Example
Case 1
Sale Proceeds Less: Indexed cost of acquisition (290000 x 632/133) Long -Term Capital Gain Less: Exemption U/s 54 Capital Gain Chargeable to tax for AY 2010-2011 25,40,000 13,78,045 11,61,955 11,61,955 Nil

As Mr. X has invested more than 11,61,955 in purchase of a house in Delhi within two years from the transfer of House in Agra, entire amount of capital gain will be exempt.
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Example
Case 2
Sale Proceeds Less: Cost of Acquisition (12,00,000 being actual cost minus 11,61,955 being exemption granted u/s 54 withdrawn) Short Term Capital Gain 38,045 16,90,000

16,51,955

Exemption u/s 54 cannot be availed because the new house property is sold within 3 years.
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Capital Gains Exempt u/s 10

Capital gain on Transfer of US64 u/s 10(33)
Long-Term Capital Gain on Transfer of BSE-500 Equity Shares u/s

10(36)

Capital Gain on Compulsory Acquisition of Urban Agriculture

Land u/s 10(37) provided following conditions are satisfied:1. The Assessee is an Individual or a HUF. 2. He or it owns an agriculture land situated in urban area mentioned in section 2(14)(iii)(a)/(b) 3. There is transfer of the agriculture land by way of compulsory acquisition or the consideration for transfer is approved or determined by the Central Government or RBI 4. The Agriculture land was used by the Assessee (and/or his parents if the land was owned by an individual) for agricultural purposes during 2 years immediately prior to the date of transfer

Capital Gains Exempt u/s 10

Long Term Capital gain on Transfer of Securities not

Chargeable to tax in cases covered by Transaction Tax U/s 10(38) provided following conditions are satisfied:1. Taxpayer is an Individual, HUF, Firm or Company or Any other taxpayer. 2. The asset which is transferred is a long-term capital asset. 3. Such asset is equity share in a company or units of equity oriented mutual fund. 4. At the time of transfer, the transaction is chargeable to Securities Transaction Tax. 5. Else Short Term Capital Gain is Taxable u/s 111A @ 15% plus Surcharge plus Education Cess

Exemptions U/s 54
U/s 54 U/s 54B U/s 54EC u/s 54F

Who can Claim

Eligible assets sold

Individual/HUF
A residential House property (minimum holding period 3 year)

Individual
Agriculture land which has been used by Assessee himself or by his parents for agriculture purposes during last 2 yrs of transfer

Any Person
Any longterm capital assets (minimum holding period 3 years)

Individual/HUF
Any long term asset (other than a residential house property ) provided on the date of transfer the taxpayer does not own more than one residential house property from the assessment year 2001-02 (except the new house)

Exemptions U/s 54
Assets to be Residential acquired for house exemption property Time limit for acquiring the new assets Purchase :1 year back or 2 year fo rward , Construction: 3 year forward Investment in the new assets or capital gain, which ever is lower Yes Another agriculture land (urban or rural) 2 yrs forward Bond of NHAI or REC Residential house property 6 months forward Purchase :1 year back or 2 year forward, Construction:3 year forward

Exemption Amount

Investment in the agriculture land or capital gain, which ever is lower Yes

Investment in the new assets or capital gain, which ever is lower (Max. Rs.50 Lacs in FY) Not Applicable

Investment in the new assets / Net Sale consideration X capital gain Yes

"Capital gain deposit

TAX PLANNING - HINTS

Long-Term Capital Gain Bears Lower Tax If a Property is transferred by an individual to his

minor son without adequate consideration, it should be sold only after his son attains majority in order to avoid clubbing of income under section 64. The Assessee should take advantage of exemption u/s 54 by investing the capital gain arising from the sale of Residential House Property by purchasing another house (even outside India) with in the specified Time. The new house should not be transferred within 3 years of Purchase.

Thanking You!
From: CA RAJIV BANSAL ACA, ACMA, LCS, AIIA, ACFA, M.COM, B.COM M/S GARG BANSAL & CO. WWW.GARGBANSALCOMPANY.ICAI.ORG.IN CARAJIVBANSAL@ICAI.ORG 9888074316

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