CAPITAL GAINS (SEC.
45–55)
Sec. 45: Charging
Section
Any
profits or gains arising from the transfer of a capital asset effected in the
previous year, shall be deemed to the income of the previous year in
which transfer took place. The provisions are subject exemption u/s 54,
54B, 54D. 54EC, 54F, 54G and 54H of the Act.
Tansfer : Defined u/s 2(47): Transfer in relation to capital asset
includes:
(i)
The
sale, exchange, relinguishment of the asset; or
(ii)
The
extinguishment of any right therein; or
(iii)
The
compulsory acquisition thereof under any law, or
(iv)
Conversion or treatment of capital asset into stock in
trade; or
(iva) Maturity or redemption of a zero coupon bond; Zero coupon bond is defined u/s 2(48); or
(v)
Transaction
involving allowing retention/ possession of the immovable property u/s 53A of
TPA Act, 1982 i.e (power of attorney)
(vi)
A
transaction which has the effect of transferring or enabling the enjoyment of
any immovable property by becoming member of a co-operative society, company,
AOP/BOI to the member of the society, company, AOP/BOI.
Please
note that the term transfer shall always include disposing of or parting
with an asset and any interest therein.
Capital Asset: Defined u/s 2(14)
Capital asset means property of any
kind held by an assessee, whether or not connected with his business or
profession, but does not include
(i)
Any stock in trade, consumable
store, raw material held for the purposes of business or profession
Personal effect i.e
moveable property (including wearing apparel and furniture) helf for personal
use by the assessee or any member of the family but excludes
(a)
Jewellery
(b)
Archaeological
collections
(c)
Drawings
(d)
Paintings
(e)
Sculptures
(f)
Any work art
Explanation:- For the purposes of this sub clause, jewellery includes:
(a)
Ornaments made of gold,
silver, platinum or any other precious metal of any alloy of precious metal,
stone, diamond whether or not worked in or sewn in wearing apparel;
(b)
Precious or semi precious
stones whether or not set in or fixed in any furniture, utensils or other
article or worked or sewn in wearing apparel.
(ii)
Agricultural land in
India –
(a)
other than land comprised
within the jurisdiction of Municipality M.C, notified area committee,
cantonment board which has population of not less than 10,000 according to the last
census figures of which is published before the First day of previous year in the official gazette; or
(b)
land not being within 8
K.M from local limits of Municipal limits – notified for urban development.
(iii)
6 ½% Gold Bonds, 1977 or
7% Gold Bonds, 1980, National Defence Gold Bonds 1980 issued by Central Govt.
(iv)
Special Bearer Bonds, 1991
issued by Cent. Govt.
(v)
Gold Deposit bonds issued
under Gold Deposit scheme, 1999, notified by Cent. Govt.
EXPLANATION:
It may please be noted that it is clarified that property includes and
shall be deemed to have always included any rights in relation to any Indian
company, including rights of management or control or any other rights
whatsoever.
Capital assets – classified as
(i)
Long term capital Asset {sec. 2(29A)}
Means a capital asset which not a
short-term capital asset
(ii)
Short term capital Asset {sec. 2(42A)}
Means a capital asset held by an assessee
for not more than 36 months immediately preceding the date of its transfer
Capital Gains – classified as
(i)
Long Term capital Gains {sec. 2(29B)}
Means capital arising on transfer of long-
term capital asset
(ii)
Short Term Capital Gains {sec. 2(42B)}
Means capital gain
arising on transfer of a short-term capital asset
Provided:
In
the case of
(a) Shares of company,or
(b) security recognized in stock
Exchange,or
(c) units of UTI or
(d) units of Mutual Funds (MF) or
(e) Zero Coupon Bonds:
Period
of 36 months to be taken as 12 months
MODE
OF COMPUTATION OF CAPITAL GAIN
Section 48 prescribes method of computation:
How to compute short term capital gain:
Sale consideration: 10,00,000
Less
(i)
Cost of acquisition 6,00,000
(ii)
Cost of improvement 80,000
(iii)
Expenses incurred in
Connection with transfer 6,000
6,86,000
Short term
capital gain 3,14,000
How to compute long term capital gain
Please ascertain the CII of purchase year and CII of year in
which improvement is made
Mr. X purchased a house property on 10.07.2005 for Rs.
8,00,000/- He incurred expenditure on its improvement on 31.12.2008 at Rs.
1,00,000/-. He incurred expenditure of Rs. 20,000/- on payment of
brokerage. The property was sold on 7th
of Aug. 2011 for Rs. 10,00,000/- What
is his long term capital gain?
Answer:
Name of the assessee: Mr.
X
Status: Individual
Previous year ended on 31.03.2012
Assessment Year: 2012-13
Computation
of L.T.C.G
Sale consideration (07.08.2011): 10,00,000
Less
(i): Indexed Cost of acquisition(ICA)
COA X CII of sale year
CII of
purchase year
8,00,000
X785 12,63,581
497
(ii): Indexed Cost of improvement(ICI)
COI X CII of sale year
CII of
Improvement year
1,00,000
X 785
582 1,34,879
(iii):Expenses in connection with
transfer: 20,000 14,18,460
Long term capital loss (-) 4,18,460
Exemption from Capital
Gain
Sec. 54: Purchase/construction of new Residential house on sale of
residential house. (house for house)
(a)
This section applies to individual, HUF
only.
(b)
Long term capital gain arises on transfer of a
residential house.
(c)
The long term capital gain is invested
in the purchase of new residential house one(1) year before or two (2) years
after the date of transfer of the original asset. or
(d)
The
assessee constructs a new house within 3 years from the date of transfer of
house.
Capital Gain Scheme 1988:
Under
this scheme, the assessee may deposit any amount in the scheme in any notified
branch of the bank before the due date for filing the return of income u/s
139(1). If the assessee deposits any
amount under the scheme, before the due date of filing of return u/s 139 (1),
the amount so deposited will be deemed to be the cost of new house for the
purposes of exemption u/s 54 of the act.
If the assessee does not purchase a new house
property within two (2) years or constructs a new house within three years from
the date of transfer of original house, the amount so deposited which is not
utilized partly or wholly, will be included in his total income after the
expiry of three (3) years, as the income of the assessee of the previous year
in which the three years expires.
The assessee is entitled to withdraw the
amount deposited after the expiry of three (3) years .
Exemption u/s 54B (Agricultural land for
agricultural land.)
(a)
This section applies to individual only.
W.e.f. A.Y. 2013-14, HUF has also been included.
(b)
Capital gain arises on transfer of
agricultural land, which was used for
two (2) years before the date of transfer for agricultural purposes by him
or any parents.
(c)
The capital gain is invested in the
purchase of another agricultural land within
two (2) years after the date of transfer of the original asset.
Capital Gain Scheme 1988:
Under
this scheme, the assessee may deposit any amount in the scheme in any notified
branch of the bank before the due date for filing the return of income u/s
139(1). If the assessee deposits any
amount under the scheme, before the due date of filing of return u/s 139 (1),
the amount so deposited will be deemed to be the cost of agricultural land for
the purpose of exemption u/s 54B of the act.
If the assessee does not purchase
agricultural land within two (2) years from the date of transfer of original
agricultural land, the amount so deposited, which is not utilized partly or
wholly, will be included in his total income after the expiry of two (2) years,
as the income of the assessee of the previous year in which the two (2) years
expires.
The assessee is entitled to withdraw the
amount deposited after the expiry of two (2) years .
Exemption
u/s 54EC . (Investment in specified bonds)
This section applies to any
long term capital gain. Under this section the assessee may deposit any amount,
out of long term capital gains, in the
purchase of notified bonds within six (6) months from the date of transfer,
such as:
1.
Bonds of NHAI,
2.
Bonds of RECL.
In these bonds, lock in period is not
less than 3 years. After the expiry of
three years, on maturity, the assessee gets back the amount deposited in the
scheme. The amount so received is
not taxable. However the interest accrued on these bonds is taxable on accrual basis
year after year.
He will be allowed exemption of the
amount so deposited u/s 54EC. The maximum amount for deposit is Rs. 50,00,000.
The assessee should not take loan on
these bonds. He should not transfer these bonds within three (3) years from the
date of transfer.
If the assessee violates, the exemption will
be withdrawn in the year in which violation takes place.
Sec. 54F: Purchase/construction of a residential house
on transfer of any long term capital asset other than residential house.
(a)
This section applies to individual and
HUF only.
(b)
The long term capital gain arises on
transfer of any asset other than residential house.
(c)
The assessee purchases a new residential
house one (1) year before of two (2) years after the date of transfer of asset
or constructs a new residential house within three (3) years from the date
of transfer of any asset.
(d)
This section does not apply
(i)
where the assessee owns more than one residential house
other new house
or
(ii)
where assesssee purchases any
residential house, other than new house, within one (1) year from the date of transfer of original asset.
or
(iii)
where assesssee constructs any
residential house other than new house within three (3) year from the date of transfer of original asset.
EXEMPTION:
(a)
if cost
of new house is more than net
consideration, the whole of capital gain is exempt.
(b)
if cost
of new house is less than net
consideration, proportionate capital is exempt.
Proportionate capital gain exempt:
LTCG X
Cost of new house / net consideration
Meaning of net consideration:
Consideration
received or accruing/receivable as reduced by expenses incurred in connection
with the transfer of the asset.
Practical
problems
§ -3- MSE/2013
·
Q 5: Mr. Prasad sold a
residential house in Delhi as per the following details:-
·
Date of transfer
|
·
January 15, 2012
|
·
Date of purchase
|
·
June 15, 2007
|
·
Sale consideration
|
·
Rs. 85,00,000
|
·
Cost of acquisition
|
·
Rs. 28,00,000
|
·
Expenses on transfer
|
·
Rs. 55,000
|
·
Cost of renovation in F.Y. 2008-09
|
·
Rs. 2,00,000
|
o
He purchase a flat for
residential purposes on 25.03.2012 at the cost of Rs. 25,50,000 compute the income under the head capital
gains and tax payable for the A.Y. 2012-13. MSE-2012
Income from capital
gains
Long Term Capital Gains
Sale considerationL
(15.01.2012) 85,00,000
(a): Less Indexed Cost of
Acquisition (15.06.2007)
28,00,000 X 785 /551: 39,89,111
(b): Indexed Cost of
Improvement: ( 2008-09)
2,00,000 X 785/582: 2,69,759
©:
Expenses on transfer: 55,000 43,13,869
Long term capital gain: 41,86,131
Less exemption u/s 54
Cost of new house of LTCG whichever
is less: 25,50,000
Taxable long term capital gain: 16,36,131
Rounded
off u/s 288A: 16,36,130
Computation
of tax liability
Income-tax on Rs. 1,80,000: Nil
Income-tax on Rs. 14,56,130 @
20%
u/s 112: 2,91,226
Education Cess @ 3% 8,737
Total: 2,99,963
Rounded off u/s 288B: 2,99,960
·
Q 6 A piece of land owned by Mr. Kumar
located in Patna purchased on 10.04.2007 for Rs. 27,00,000 was sold by him on
12.02.2012 for Rs. 41,00,000, but sale deed thereof could not be executed by
31.03.2012 though the possession of property was handed over of 08.03.2012. The
Sale deed was finally registered on 14.04.2012. Mr. Kumar paid Rs. 50,000/- to
the property broker for the above transaction on 08.03.2012. The value for the
purpose of stamp duty applied by the Stamp Valuation Authority was Rs.
44,00,000/- which was not disputed by the buyer or seller and Stamp duty @ 8%
was paid by the buyer of the property on the above amount.
(a) Determine the assessment year in which the above transaction related
to the Capital Gain should be taxed by the A.O.
(b) Compute the income chargeable to tax arising as a result of these
transactions in the A.Y. 2012-13 and A.Y. 2013-14. MSE-(2012)
Name of the Assessee: Mr.
Kumar
Status: Individual
Previous year ended on 31.03.2012
Assessment Year: 2012-13
Computation
of income
Income from capital gains
Long Term Capital Gain
Deemed sale consideration u/s 50C
44,00,000
Less
(a):
Indexed cost of Acquisition
COA X CII of sale year
CII of
purchase year
27,00,000
X 785/551: 38,46,643
( b) Expenses in connection
With transfer: 50,000 38,96,643
Long Term Capital Gain 5,03,357
Q. 7: Mr. Ashok Kumar, aged 70 years sold
his only one residential house for Rs. 20,00,000 in April 2011. The house was
purchased for Rs. 2,00,000 in May 1996. He has purchased a flat for his
residential purpose in December 2011. For Rs. 10,00,000. Compute the income
under the head Capital Gains and tax payable thereon for Assessment Year 2012-13 (MSE-2006)
Name of the Assessee: Mr. Ashok Kumar
Status: Individual (Sr. Citizen)
Previous year ended on 31.03.2012
Assessment Year: 2012-13
Computation
of income
Income from capital gains
L.T.C.G on sale of
house
Sale consideration: 20,00,000
Less
(a): ICOA
2,00,000
785/305: 5,14,754
5,14,754
LTCG: 14,85,246
Less exemption u/s 54:
Cost
of new house of LTCG
Whichever
is less: 10,00,000
Taxable LTCG: 4,85,246
Rounded off u/s 288A: 4,85,250
Computation
of tax liability:
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