Get Income Under The Head Capital Gains (Sec 45-55) Notes / ebook :

| November 17, 2016 | 2 Comments

Get Capital Gains (Sec 45-55) Notes / ebook:

In previous post we have given PGBP (Profits and Gains from Business or Profession) ebook / Notes, Income From House Property (Sec 22-27) ebook / notes,  Income From Salaries (Sec 15-17) Notes / ebook and Income Tax Act 1961, notes for CA & CMA students. Today we are providing Capital Gains (Sec 45-55) ebook / Notes for CA & CMA students.

                                                                        Capital Gains (Sec 45-55)

Chargeability u/s 45

Profits or gains arising from the transfer of a capital asset is chargeable to tax in the year in which transfer take place under the head “Capital Gains”.

Definitions in Capital Gains

Transfer: Sec. 2(47):

Transfer in relation to a capital asset includes sale, Exchange, or relinquishment of the asset or extinguishment of any rights therein or the compulsory acquisition thereof under any law or conversion of the asset by the owner in stock-in-trade of a business carried on by him or the maturity or redemption of a zero coupon bond.

Capital Asset: Sec.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 the following

a. Stock-in-trade

b. Personal effects of the assessee

c. Agricultural land in a rural area

d. 6½% Gold Bonds, 1977 or 7% Gold Bonds, 1980 or National Defence Bonds, 1980 issued by the Central Government

e. Special Bearer Bonds, 1991 issued by the Central Government.

f. Gold Deposit Bonds issued under Gold Deposit Scheme 1999

CAPITAL  ASSETS  ARE  TWO  TYPES  LONG  TERN  &  SHORTERM
Capital gains arises from the transfer of any capital asset. Short-term capital gains is a gain arising from the transfer of an asset which is held by the assessee for not more than: 12 months from the date of its acquisition in case of shares, units and any other listed securities and for not more than 36 months in the case of other assets . otherwise it is long term capital gains Distribution of assets by a company at the time of liquidation shall be regarded as a transfer and subject to capital gains in the hands of the shareholders.
Transfer by holding company to its subsidiary company or by a subsidiary company to its holding company shall not be regarded as transfer if the holding company owns: 100 % shares of the subsidiary companyAmalgamation of company as per the scheme of amalgamation shall not be regarded as transfer provided the amalgamated company is: an Indian companyTransfer of capital asset in the scheme of demerger shall not be regarded as transfer for the purpose of capital gain if the resulting company is an Indian company The assessee is allowed to opt for market value as on 1.4.1981 in case of: all capital assets other than depreciable assets, goodwill of a business, right to manufacture,etc.Where the capital asset became the property of the assessee in any mode given under section 49(1), the cost of acquisition of such assets shall be: cost for which the previous owner of the property acquired it .
Period of holding would be considered from the date of which property was held by the previous owner but index would be available the year in which the property is acquired by the assessee
Computation of capital gains: (Sec. 48):

The method of computation depends on the nature of capital asset transferred. It is as follows:—

Short-term Capital Gains

Long-term Capital Gains

A. Find out Full Value of Consideration

A. Find out Full Value of Consideration

B. Deduct:

B. Deduct:

(i) expenditure incurred wholly and exclusively
in connection with such Transfer.

(ii) Cost of Acquisition

(iii) Cost of Improvement

(iv) Exemption provided by Ss. 54B, 54D & 54G, 54GA

(i) expenditure incurred wholly and exclusively in connection with
such Transfer.

(ii) Indexed Cost of Acquisition

(iii) Indexed Cost of Improvement

(iv) Exemption provided by Ss. 54, 54B, 54D, 54EC, 54ED, 54F & 54G, 54GA

C. (A-B) is short-term capital gain

C. (A-B) is a long-term capital gain

Computation of Long Term Capital Gains

Computation of  Short Term Capital Gains

In computing capital gains arising from transfer of a long term capital asset deduction can be claimed for the cost of acquisition and cost of improvement after indexing the same.

Indexed cost of acquisition means an amount which bears to the cost of acquisition the same proportion as cost inflation index for the year in which the assets is transferred bears to the cost on inflation index for the first year in which the asset was held by the assessee or

for the year beginning on the 1St day of April 1981, which is later.

The benefit of indexation can be availed either from the year of acquisition of the asset by the assessee or from the base year 1981-82, which ever is later. if an asset is acquired prior to 01-04-1981 and if the cost is higher than market value as on 01-04-01981 then the assessee can adopt the cost and be entitled indexation with effect from 1981-82. In the alternative, if the market value as on 01-04-1981 is higher than the cost the assessee may be choose to adopt the market value as on 01-04-1981 and entitled to indexation of such value of the asset from 1981-82

Indexation Benefit is not available in the following cases:
  1. Short term Capital Assets
  2. Bonds and debentures
  3. Where option of 10% tax rate is availed u/112 IV. Slump sale u/s50B
  4. Sale of shares by non resident

Tax on Short Capital Gains: Sec.111A:
Any short term capital gains arising from the transfer of an equity share in a company or a unit of an equity oriented fund shall be liable to tax @15% if the following conditions are satisfied:
  1. The Transaction of sale should take place through a recognized stock exchange.
  2. Such transaction is chargeable to Securities Transaction Tax.
If the total income of an assessee includes such short term capital Gains and other income ,the tax payable by the assessee in such a case shall be the aggregate of-
  1. The amount of income Tax calculated on such short term capital gains (15%)
  2. The amount of income tax payable on the balance amount of the total income as if such balance amount were the total income of the assessee.
In the case of an individual or HUF, being a resident, where the total income as reduced by such short term capital gains is below the basic exemption limit then the short term capital gain shall be reduced by the amount of basic exemption limit not exhausted by any other income and only the balance short term capital gain shall be chargeable @15%. For a non resident assessee adjusting of basic exemption limit against short term capital gains shall not be applicable .Hence the entire amount of STCH shall be subject to tax @15%.
Tax on Long Term Capital Gains:  Sec.112:
Where the total income of an assessee includes any income, arising from the transfer of a long-term capital asset, which is chargeable under the head Capital gains, such long term capital gains shall be charged to tax at 20% rate.
Any L.T.C.G araising from transfer of equity share of a company or a unit of equity oriented fund which are listed in a recognized stock exchange is excempt from tax u/s 10(38).
Where the transferred L.T.C.A is in the nature of listed securities or Units of UTI or Mutual fund or Zero coupon bond ,the gain arising from transfer of such securities or units shall be liable to tax at the rate of 10% on such LTCG computed without the benefit of indexation or at the rate of 20% on such LTCG computed availing the benefit of indexation whichever is more beneficial to the assessee.
The possibility of Applying 10% or 20% tax rate shall arise only in case where the listed shares are not traded through a recognized stock Exchange and not chargeable Securities Transaction Tax.

CAPITAL GAINS – VARIOUS EXEMPTIONS DETAILS

Section 54 54B 54D 54EC

(a)

Kind of assets transferred

Long-term Capital
Assets being House
Property used for
residential purpose

Land used for
agricultural purposes

Land and Building or any right therein used by an industrial undertaking
compulsorily acquired
under any law

Any Long Term Capital
Assets

(b)

Eligible Assessees

Individual & HUF

Individual & HUF

All

All

(c)

Condition of
period of
holding of
original Asset

3 years

2 years

2 years

1 year for Shares, Listed Securities, Units of UTI/
Mutual Fund specified
u/s 10(23D), Zero
coupon bonds, 3 years for any other capital assets

(d)

Condition of
utilization of
consideration

Purchase of
Residential House
within 2 years after
or 1 year prior to
date of transfer: or
construction of
residential house
within 3 years from
the date of transfer

Purchase of
Agricultural Land
within 2 years from
the date of transfer

Purchase/construction
of land, building, or
any right therein
within 3 years from the date of transfer by way of compulsory
acquisition for the
purpose of shifting/
re-establishing/
setting up another
industrial undertaking

Investment of whole or
any Part of Capital Gain
in ‘specified assets’ as
stipulated in the section.

Investment should be
made within 6 months
from the date of transfer

(e)

Exempt
Amount

The amount of gain
or, the cost of new
asset, whichever is
less

Lower of the Capital
Gain or the Cost of
acquisition of new
agricultural land

Lower of the Capital Gain or the Cost of
acquisition of new
land and building

Lower of the Capital
Gain or the investment
in specified assets subject to a maximum of Rs. 50 lakhs.

(f)

Other requirements

See notes 1, 2 & 4

Assessee or his
parents must have
used the land for
agricultural purpose
for preceding two
years

See notes 1, 2 & 4
Must have been
used for business of industrial undertaking
for preceding 2 years

See notes 1, 2 & 4
Rebate u/s 88 or
deduction u/s 80C not to be granted for the same investment. New Asset must be retained for a
period of 3 years

CAPITAL GAINS – VARIOUS EXEMPTIONS DETAILS

Section 54F 54G 54GA
(a) Kind of asset transferred Any long term capital asset other than residential house Land or Building or any right therein or Plant or Machinery in Urban Area used for the business Land or Building or any right therein or Plant or Machinery in Urban Area used for the business
(b) Eligible Assessees Individual & HUF Industrial undertakings in urban area shifting to an area other than urban area Industrial undertakings in urban area shifting to any Special Economic Zone
(c) Condition of period of holding of original asset 1 year for Shares, Listed
Securities, Units of UTI/
Mutual Fund specified
u/s 10(23D), Zero-coupon
bonds, 3 years for other
capital assets
No period specified No period specified
(d) Condition of utilization of consideration Purchase of Residential House within 2 years after or 1 year prior to date of transfer; or construction of residential house within 3 years from date of transfer Acquire similar assets & incur expenses on shifting original asset, within 1 year before, or 3 years from the date of transfer Acquire similar assets & incur expenses on shifting original asset, within 1 year before, or 3 years from the date of transfer
(e) Exempt Amount Refer Note No. 5 The amount of gain or the aggregate cost of new asset, and shifting expenses, whichever is lower The amount of gain or the aggregate cost of new asset, and shifting expenses, whichever is lower
(f) Other Requirements Must not own more than 1 residential house other than the new asset on the date of transfer of original asset Must have been shifted to non-urban area. See Notes 1 & 2 See Notes 1, 2, 3 and 4

NOTES:

1. In case New Asset is transferred before 3 years from date of purchase/construction, the Capital Gains exempted earlier will be chargeable to tax in year of transfer of new asset.

2. In order to avail the exemption, gains are to be reinvested, before the due date of return u/s 139(1). If the amount is not so reinvested, it is to be deposited on or before that date in account of specified bank/institution and it should be utilised within specified time limit for purchase/construction of new asset.

3. U/s 54F Capital Gains exempted earlier shall be chargeable to tax — if

a) If the assessee purchases within 2 years or constructs within 3 years any residential house other than the one in which reinvestment is made &

b) If the new asset is transferred within a period of 3 years from the date of its purchase/construction.

4. As per Section 54H, where the transfer is by way of compulsory acquisition, the period available for acquiring the new asset u/ss. 54, 54B, 54D, 54EC and 54F shall be computed from the date of receipt of compensation and not the date of transfer.

5. If cost of new house is more than the net consideration of original asset, the whole of the gains is exempt. If cost of specified asset is less than net consideration, proportionate amount of the gains will be exempt i.e. Capital Gain X cost of New Asset/Net consideration on sale of asset.

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