Capital Gain

Capital Gain
“Any profit and gain arising on Transfer of a
capital asset”
known as Capital Gain

There are two types of Capital Gain

1. Short Term Capital gain
2.Long term Capital gain
 Sections Applicable
1.Sec 45- Provides Chargeability
( Defines what is transfer of a capital asset for Capital Gain)

2. Sec 46 , 47 – Provides transactions, which are

not transfer of capital asset.

3. Sec 54, 54 B, 54 D, 54 EC, 54 F, 54 G, 54 GA &

54H - Gives the list of exemptions.
 Conditions for
Capital gain tax liability
• There should be a capital asset
• The capital asset is transferred by the assessee
• Such Transfer takes place during the previous
year
• Any profit or gain arises as a result of transfer
• Such profit or gain is not exempt from tax
under Sec 54, 54B, 54D, 54EC, 54F, 54G, 54GA.
 Important definitions
• Capital Assets:
• Short term / Long Term Capital Asset:
• Transactions are not regarded as Transfer:
• Cost of Acquisition (Sec 49):
• Cost of asset for the previous owner Sec 49(1):
• Transfer of Capital Assets:
• Slump sales ( Sec 50)
• Meaning of net worth
 Capital Assets:

• A capital asset is defied to include property of

any kind, whether fixed or circulating,
movable or immovable, tangible or intangible
Short term / Long Term Capital Asset:
 Transactions are not regarded as Transfer:

• Cost of Acquisition (Sec 49):

• Cost of asset for the previous owner Sec 49(1):
• Transfer of Capital Assets:
• Slump sales ( Sec 50)
• Meaning of net worth
Cost of Acquisition (Sec 49):
Cost of asset for the previous owner Sec 49(1):
Transfer of Capital Assets:
Slump sales ( Sec 50)
Meaning of net worth
 Cost of Acquisition being the fair market value as on
April1, 1981:

The assessee may take at his option, either actual cost or the
fair market value of the asset ( other than a depreciable
asset) as on April 1, 1981 as cost of acquisition:

• Where the capital asset became the property of the

assessee before April 1, 1981.

• Where the capital asset became the property of the

assessee by any mode referred to in sec 49(1) and the
property was originally acquired before Aril 1, 1981.
Capital Gain in case of conversion of capital asset into stock in trade:

• The fair market value of the capital asset on

the date on which it was converted or treated
as stock in trade shall be deemed to be full
value of the consideration received or
accruing as a result of the transfer of the
capital asset
 Important Situations of CG arrise
• Transfer of capital asset by a Partner to a firm:
• Distribution of capital asset on dissolution:
• Capital gain in case of self generated assets:
• Capital Gain arising form the transfer of the
residential Property (Sec
• Exemptions under following conditions are met.
• Capital Gain not to be charged on investment in
certain bonds (sec 54EC)
 Calculation of CG
Computation of short term capital
gains ( STCG)
Computation of long term capital
gains (LTCG)
XXX
Full value of XXX
Full value of
consideration received consideration received or
or accrued accrued
XXX
(-) Expenses on Sale XXX
(-) Expenses on Sale
XXX
Net Sale Consideration XXX
Net Sale Consideration
XXX
Indexed cost of XXX
Indexed cost of
acquisition acquisition
XXX
Indexed cost of XXX
Indexed cost of
improvement improvement
XXX
Short term capital gain XXX
Long term capital gain
XXX
(-) deductions u/s 54B, XXX
(-)deductions u/s 54B,
54D, 54G,54GA 54D,54EC,54F
54G,54GA, 54GB
XXX
Net taxable STCG XXX
Net taxable LTCH
 .

• Indexed cost of acquisition

Cost of acquisition x CII of the year of transfer
= ----------------------------------------------------------
CII of the year of acquisition

• Indexed cost of improvement

Cost of improvement x CII of the year of transfer
= ------------------------------------------------------------
CII of the year of improvement
• Cost of Transfer
= Cost of advertising + Brokerage paid + Legal
expenses incurred
 Concept of Cost Inflation Index (CII)

Cost Inflation Index (CII) is an indexation declared every

year by the government for calculating capital gains
on long-term assets.
• Indexation is the procedure of adjusting prices based
on a standard index to factor in the inflation rate also
while calculating profits earned on the sale of assets.
• Indexation considers inflation and gives us a more
reasonable figure for long-term capital gains.
• Budget 2017 has revised the base year for
indexation from 1981 to 2001 and new index will be
notified in due course.