Capital gains will be attracted:1. If there is a transfer2. … of a capital assetAnd it will be taxable… in the year of transfer.Check if a transaction is:a. considered as transfer as per section 2(47);b. not covered by section 47 which consider a transaction as notbeing ‘transfer’.If both are satisfied, then capital gains may arise.Section 2(47): Transfer includes:-1. Sale, Exchange or relinquishment of asset;2. Extinguishment of rights;

LAXMIDEVI RATANI (MP): damages for not demanding specificperformance= Extinguishment of rights.ANARKALI SARABHAI (SC): Redemption of Preference shares-extinguishment of rights, hence “transfer”.3. Compulsory acquisition under any law;4. Conversion of Capital Asset into stock-in-trade;If 30 assets are converted last year and only 10 sold in the currentyear: Proportionate amount shall be taxable. (i.e. capital gains will ariseonly on 10 property).5. Transfer involving allowing the possession of any Immovable property.6. Acquiring shares of a co-operative society/ company having effect oftransfer, enabling the enjoyment of any immovable property permanently.7. Maturity or redemption of ZCB.Capital assets mean:a. Property of any kind by assessee; orb. Any security held by a foreign institutional buyer (FII).

Securities held by FII: They are always Capital Asset. It can’t betreated as Stock-in-trade in any caseCapital assets exclude the following:a. Gold deposit bonds;b. Stock-in-trade;c. Personal effects except Sculptures, Archeological collections,Drawings, any work of art, paintings and jewellery.d. Agricultural land in IndiaAgricultural land in Nepal- taxable.Sec 10(37): Capital gain (ST/ LT) arising out of compulsoryacquisition of urban agricultural land- must have been used byIndividual/ HUF for 2 years.

Whether surplus on sale of shares are taxable as stock-in-trade or a Capital Asset? Over the years, the courts have laid down different parameters to distinguish the shares held asinvestments from the shares held as stock-in-trade. Disputes however continue to exist. With a view to reduce litigation, CBDT has issued Circular No. 06/2016:-a. If assessee wants to opt hisinvestment as Stock-in-trade It would be treated as business income;b. In case of listed shares, debenturessold after 1 year Assessee can treat it as Capital Asset and it won’t bedisputed by AO. However, stand once taken byassessee can’t be changed

c. Other cases As per circulars issued before- parameters likePeriod of Holding, quantity of purchase and sale, etc. The above shall not apply in respect of such transactions in shares/securities wherea. the genuineness of the transaction itself is questionable; orb. transfer is related to an issue pertaining to lifting of corporate veil; orc. the transfer is made along with the control and management of underlying businessand the AO would take appropriate view in such transactions

If the charging section is satisfied, capital gains will be computed as per section 48.Full value of consideration XXXLess: Expenses incurred in connection with transfer (X)Net sales consideration XXXLess: (Indexed) Cost of Acquisition (XX)Less: (Indexed) Cost of Improvement (XX)Capital Gains XXLess: Exemption (XX)Taxable capital gains XX

The capital gains are normally taxable in the year of transfer. However, there are certain exceptions to therule to provide relief from taxability even in case of non-receipt of payment. Also, the full value ofconsideration for these cases is specially defined.Section Situation Year of Transfer (hence

indexation upto)Taxable in the year ___ Fair value of

consideration45(1A) InsuranceCompensationreceived Year of destruction ofAsset of Receipt FMV of assets + Moneysreceived45(2) Conversion ofCapital Assetinto stock-in-tradeYear of Conversion [Asper section 2(47),conversion is also‘transfer’]

when Stock in trade issold FMV of assets on thedate of conversion.45(5) CompulsoryAcquisition Year of first CompulsoryAcquisition first compensationreceived Compensation received.45(5A) Jointdevelopmentagreement Transfer involvingallowing the possession ofany Immovable property. in which the certificateof completion isreceived. SDV on the date onwhich the certificate ofcompletion +consideration receivedNOTICE: Year of transfer & taxability inabove cases are not the same. AVOID MISTAKE: In all the 4 cases above, for indexation, theNumerator should be of date of transfer.

Joint development agreement [Sec. 45(5A) and 49(7)]:1. Assessee is Individual or HUF.2. Cost of acquisition of the asset received in consideration will be full value of considerationconsidered above. [49(7)]3. The deferment is not allowed if the owner transfers his share in the project on or before the date ofissue of the completion certificate.4. In such case,- for the original asset, section 45(5A) won’t apply. (i.e. original sale of plot will be taxable)- for the new asset, section 49(7) won’t apply.Sec. Situation Transferor

toTransferee

Year oftransfer &taxability

Full value AVOID MISTAKE Other - IOS.

45(3) CapitalContribution(CC) Partner tofirm Year of CC Amountrecorded inthe books ofaccounts offirm.FMV on the date ofcontribution isirrelevant. Checkapplicabilityof 56(2)(x) inhands ofpartner.45(4) Distributionondissolution

orotherwise

Firm topartner Year ofdistribution FMV on thedate ofdistribution Partner retirementdate & dissolutiondate of firm are notrelevantCheckapplicabilityof 56(2)(x) inhands ofpartner.

Full value of consideration:1. Normally, full value of consideration is the amount received/receivable for the asset transferred.2. Section 50CA: Where the consideration from transfer by an assessee of

a unquoted share of a company, is less than the fair market value ofsuch share, for the purposes of section 48, the fair value of such shareshall be deemed to be the full value of consideration received.

3. Section 50D: If consideration received/ accruing as a result of transferis not ascertainable/ cannot be determined, FMV= Full value ofconsideration.In case of immovable property being land or building or both, the sales value is often manipulated to showlower taxable income. Section 50C and section 43CA address this manipulation for the capital gains and PGBPrespectively:

SITUATIONSSDV exceeds

105% of salesvalue

Sales value ismore than orequal to SDV

Referred to Valuation Officer Date of agreement fixingthe consideration &

registration not sameSeller holding it as __CapitalAsset:sec. 50C

SDV shall betreated as Salesvalue Sales Value asgiven will beadopted. Example:S.

ValueSDV V.

OfficerFinalValue100L 120L 110L 110L100L 120L 130L 120L100L 120L 90L 100L100L 102L - 100L

SDV on the date ofagreement can be takenStock-in-trade:sec. 43CA

SDV on the date ofagreement can be taken

50C and 43CAare applicable. 50C and 43CAare notapplicable. Condition: Value hasn’t beendisputed in any appeal/revision or no reference hasbeen made before anyauthority, court.Condition: Some part oramount of considerationhas been received by anymode other than cashaccount payee cheque/account payee draft/ ECSon or before the date ofagreement

Cost of acquisition and cost of improvement:a) Cost of acquisition will be Nil for goodwill of business, right to manufacture,process, produce, right to carry on business or profession, loom hours,stage carriage permits, Tenancy rights, Trade mark, Brand name.(SELF GENERATED)b) B.C. Srinivasa Shetty, SC: Self- generated goodwill of profession= Capitalgains won’t be applicable

In case of shares, cost of acquisition will be:-a) Shares: Amount paid;Section 2(42A) provides that for the above, the period of holding willstart from date of allotmentb) Bonus shares: Nil;c) Sale of rights:- COA= Nil;Holding period for CG on renunciation of right shares:Navin Jindal, SC- From the date on which date on which such right tosubscribe comes into existence.d) Person using purchased rights: Amount paid for right + Amount paid forshares.

Cost of improvement:1. Nil for goodwill of business, right to manufacture, process, produce; rightto carry on business or profession. (SELF GENERATED or NOT)Asset acquired before 01.04.2001:I. Cost of Acquisition: FMV as on 01.04.2001 can be taken [Not for assetsmentioned above in point (1)]II. Cost of improvement: To be ignored [Nil].

Notes:1. Section 48- 2nd proviso For long-term asset, take indexed cost of acquisition/ improvement.COA x CII for the year of transferCII for acquisition or year2001-02, whichever is later COI x CII for the year of transferCII for year of improvementCII for the FY 2001-02 is 100 and CII for the FY 2018-19 is 280.2. Section 48- 3rd proviso Indexation is not allowed on Bonds and debentures. However, available onCapital Indexed bonds.Indexation is also available on Sovereign Gold bonds issued by RBI under the SGB Scheme, 2015,Assessee TreatmentIndividual Redemption of bonds are tax-free. [Whether short term or long-term]Others Indexation available on long-term bonds.Capital Gains will arise to as Individual if bonds are transferred before maturity. Hence, indexation benefitshall be available.

To determine what rate of tax or to decide whether indexation benefit would be available, it is necessary toclassify the asset into short-term capital asset and long-term capital asset.If period of holding exceeds ___ months preceding the date of transfer, then theasset shall be treated as Long-term capital asset:1. 12 months in case of listed securities (other than units), units of UTI andEquity oriented funds, ZCB2. 24 months in case of Unlisted shares of company or immovable propertybeing land or building or both3. 36 months in case of other assets.Section 2(42A) is covered alongwith section 47:Is 2(42A) only for categorization or also for Indexation benefit?MANJULA J. SHAH (BOM): It is by way of deemed holding period fiction.Hence indexation will also be available from the date from when he isdeemed to be the owner.

Short-term/ Long-term:

After the charging section is satisfied, the asset will be categorized.For calculating tax, use the following rates of tax:Rates of tax:

Other pointsa. Exemption u/s 10(38) is withdrawn.b. Section 112A provides for taxation if:(i) STT is chargeable on transfer; and(ii)STT is paid on acquisition;c. 1st & 2nd proviso to section 48 won’tapply.d. Cost of acquisition of shares acquiredbefore 01.02.2018 will be higher of:(i) Actual cost; and(ii) Lower of:- FMV of asset on 31.01.2018;- Full value of consideration.e. Rebate u/s 87A is available.Notes:1. In case of unlisted securities or shares of a closely held company, long-term capital gains is taxable @- 20% - Sec. 112 will apply (for Residents)- Rate of tax to a NR or a foreign company is 10% without the benefit of indexation. (compulsory)2. Special points for section 111A and 112 and 112A:

Particulars Resident Non-ResidentSlab rate benefit for Individual & HUF Available Not availableSlab rate benefit for others Not availableChapter VI-A deduction Not available3. 1st Proviso to Section 48: for Non-residents:

Steps: Calculate gain in foreign currency by converting COA, sales consideration & expense. If it is a gain, convert CG (in $) into Indian currency. Following are the rates for conversion:COA Average TTBR & TTSR on DOASale consideration & transfer expense Average TTBR & TTSR on DOTCapital Gain TTBR on DOTOther points:(i) Where conditions are satisfied, application of 1st proviso is compulsory;(ii) Not covered: Units of UTI/ business trust/ Mutual fund/ Government bonds, securities u/s 112A.

Assesse = NR timeof transfer Purchased inforeign currency Shares/ Deb inIndian company

(iii) Indexation benefit is not available where first proviso is applicable.Rupee-denominated BondWith a view to provide relief to non-resident investor who bears the risk of currency fluctuation, it is providedthat gain arising due to appreciation of rupee between date of issue and date of redemption against foreigncurrency in which investment is made shall be exempt from tax on capital gains.

Examples:-Asset sold Applicable provisionsLong-term listed shares- STT applies Section 112A is applicable if STT applies.Long-term listed debentures Proviso to sec. 112: 10% (indexation is not available)

MCQs (For free MCQs, subscribe to my telegram channel: HimalGoyalDT)An equity share on which STT is chargeable is acquired on 1st of March, 2018 at Rs. 110,000 its fair marketvalue is Rs. 120,000 on 31st of January, 2018 and it is sold on 1st of May, 2018 at Rs. 250,000. What is theamount of tax payable if other income of Jay (Resident- age 24) is 200,000? (Hint- 112A, rebate, slab benefit)a. 11,960 b. 6695c. 6760 d. 9360 Answer- (c)vExamples:

Ref Situation Answer1. A piece of land located in Chennaipurchased in April, 2004 for Rs. 25lacs was sold in April, 2018 for Rs.35 lacs, but sale deed thereofcould not be executed by31.03.2019. The value for thepurpose of stamp duty to be appliedby the stamp valuation authoritywas 40 lakh. The CIIs for the F.Y:2004-05 is 113, FY 2018-19 is 280

COMPUTATION OF CAPITAL GAINSale of land at Chennai (Section 50C) 40,00,000Less: Indexed cost of acquisition[25,00,000 x 280/ 113] 61,94,690Long-term Capital Loss 21,94,690

Notes:1. The execution of sale deed is not compulsory for thepurpose of charge of capital gain because the transfer of rightenabling enjoyment of immovable property gives rise tocharge of capital gains as held by the Kerala High Court inthe case of CIT v. C.F. Thomas (2006) 284 ITR 557.2. The loss shall be carried forward to be set off against futurelong-term capital gains.2. Site purchased on 21.4.2003 for Rs.2,00,000. He completedconstruction of a building thereonon 14.04.2016 at a cost of Rs.10,00,000. Property sold consistingof site and building on 07.04.2018for Rs. 20,00,000. What is the natureof capital gains?

a. Alps Theatre (SC): Site and building are separate capitalassets for the purpose of capital gains.b. In this case, the site is a long-term capital asset since it is heldfor more than 24 months and the building is a short-termcapital asset since it is held for less than 24 months.c. Even though the property consisting of site and building wassold as a single asset for a consolidated price of Rs. 20,00,000,such price can be attributed to the site and building separately.3. The proprietary firm of aprofessional was converted intopartnership on 01.09.2018 when hisson joined him in the firm for 50%share. Payment of Rs. 5,00,000 iscredited in his account from thefirm. What if the amount is

A. Transfer of business into partnership: the transfer ofcapital assets by a sole proprietary concern consequent to itsconversion into a partnership firm constitutes a transfer. Theamount of Rs. 5,00,000 would be the full value ofconsideration received as a result of transfer.B. Goodwill by the incoming partner: Since the considerationof Rs. 5,00,000 is paid towards goodwill of a profession,

transferred as ‘goodwill’? whose cost is NOT to be taken as “Nil‟ since it is not coveredu/s 55(2)(a), the liability to capital gains tax will notarise.[B.C. SRINIVASA SHETTY, SC]

Special method of computing capital gains:

Depreciable capital asset:Sec. 50: Gain in following situations, gain is short-term capital gains:1. Block of asset ceases to exist.2. If block does not cease to exist and sales value > (Op. WDV + additions +expenditure).

Q. Can the assessee claim exemption u/s 54F, on account ofcapital gain arising on transfer of depreciable assets held formore than 36 months i.e., a long-term capital asset?

RAJIV SHUKLA (DEL): Yes, exemption can be claimed.- The deeming fiction created by section 50 that the capital gainarising on transfer of a depreciable asset shall be treated ascapital gain arising on transfer of short-term capital asset isonly for the purpose of sections 48 and 49 and not for thepurpose of any other section.- Section 54F being an independent section will not be boundby the provisions of section 50.

50B: Slump sale:Sec. 50B: Profits/ Gains from slump sale effected in the previous year deemedto be income of the previous year in which transfer took place.Slump sale: Transfer of undertaking + Lumpsum consideration + value is notassigned to individual assets and liabilities.- Undertaking: Part/ Unit/ Division of undertaking or business activityas a whole but does not include individual A & L or combination notconstituting business activity.- Value not assigned to individual assets and liabilities: If for the solepurpose of stamp duty, registration fees, etc, if individual values aredetermined for A & L & the fact is clarified in the agreement, then suchwill not amount to assignment of values (The provision of Slump salewill still be applicable)If undertaking is held for > 36 months, then it will be considered as long termcapital gains:A. Indexation is not allowed.B. Hence, relevant only for rateIn case of slump sale, WDV shall be reduced by:i. Actual cost of the asset transferred block - Dep allowed till1988 - Depreciation on the asset transferred assuming it isthe only asset.ii. If reduction is < WDV, the reduction will be limited to WDV.IMP.- Indexation is not available under both the above sections.- Benefit of lower rate of taxation is available in case of section 50B.

Section 47- Transactions not regarded as transfer & Special provisionsSection 47 provides exemption in the hands of transferor. To provide a tax neutral position, the cost of acquisition and holding period in the hands of receiveris specially considered. In these cases, you will see interplay of 3 different sections.Transferor Asset Transferee Cost of acquisitionSection 49 read with Section 55 Period of holding: Section

2(42A)Special points:

DEMUTUALIZATION OR CORPORATIZATION OF RSE AS A RESULT OF SUCCESSION carried out in accordance with a scheme which is approved by the SEBI.(xiii) AOP/ BOI Capital asset Company Cost to AOP/ BOI Previous years’ owners holdingperiod is to be included, Option to take FMV as on 01.04.2001 isnot available in this case.Condition:All the A & L of AOP/BOI relating to business become A & L of Company.(xiiia) AOP/ BOI Membership right

CompanyCOA of Equity shareacquired= Cost of hisoriginal membership.COA of trading/clearingrights= Deemed to be nil

Capital Asset= Clearing rights/Trading rights/ Equity shares:Period for which the person wasa member of the RSE in Indiaprior to D/C also to be included.Equity shares + Trading &Clearing rights(viib) Non-Resident Transfer outside India of CA:Govt security carrying periodicinterest through an Intermediary Non-Resident If NR sells the asset in Indiaagain, COA= as per55.(Purchase price) Holding period as per normalprinciples(viia) Non-Resident Transfer outside India ofBonds/ GDRs referred in115AC(1). Non-Resident(x)

Any personBonds/ Debentures/ Depositcertificates of a company

CompanySection 49(2A): COA= shallbe that part of the cost ofdebenture, debenture stock,bond or deposit certificatein relation to which suchasset is acquired by theassessee.

Rule 8AA [N/N 18/2016]Period of holding of bonds/Debentures/ Deposit certificates,are to be included in the Holdingperiod.Shares or debentures of THATCompany(xb) Any person Preference Shares

Company49(2AE): COA= shall be thatpart of the cost of thepreference share in relationto which such asset isacquired by the assessee.

Period for which the preferenceshares were held by the assesseeis to be included. 1. The exemption shall not applyin case the equity shares areconverted into preferenceshares.2. In case only part of thepreference shares areEquity shares

converted, proportionate valueof preference shares is to beassigned to converted numberof equity shares.(xa) Non-Resident Bonds referred to in 115AC(1)(a)Company

Section 49(2A): COA= shallbe that part of the cost ofdebenture, debenture stock,bond or deposit certificatein relation to which suchasset is acquired by theassessee.

Holding period from the date onwhich such redemption wasmade. 1. Shares of ANY company maybe issued.Example: Shares of TATA Steelcan be issued against FCEB ofTATA Motors.Shares or debentures of ANYCompanyNote: Both 47(x) & 47(xa) are not applicable in the case below. Hence capital gains will apply.Non-Resident Bonds referred to in 115AC(1)(b)

CompanySection 49(2ABB): COA=price of such share orshares prevailing on anyrecognised stock exchangeon the date on which arequest for suchredemption was made.Shares or debentures of THATCompany

Definition of GDR-I. Issued against ordinary shares of issuing company listed in (RSE).II. Issued against Foreign currency convertible bonds of issuing company.

Summary of treatment of bonds/ GDRs of 115AC115AC(1)(a) 115AC(1)(b)No cap gains Cap gains is applicableCOA= 49(2A) COA= 49(2ABB)Interest bearing Hence, BONDS Dividend bearing, Hence, SHARES(xii) Sickindustrialcompany Capital Asset= LAND of sickindustrial company made under ascheme of Sick industrialcompanies act.

Proviso:If the transfer is made in theabove period, then only theexemption is available.

Any person Section 55 Normal provisions

(xv) Transfer in a scheme for lending of securities under anarrangement/ agreement with the borrower of suchsecurities and which is subject to SEBI guidelines. Section55 Normal provisions

Normal Co Net worth >= Accloss in this PY

Sick Industrial company asper 17(1) in this PY

NO

T EX

EMPT

Treatment of other transactions

Transferor Asset Transferee Conditions Special points Treatment oflosses

Conditions not satisfied:47A

Transferor Transferee(xiii) PartnershipFirm IntangibleAssets &CapitalassetCompany(Succession) Proviso to 47(xiii)i. All the A & L relating to businessbecome A & L of company.ii. All Partners = Shareholders ANDin equal proportion of capital.iii. Partners do not benefit other thanissue of shares.iv. Aggregate of Shareholding ofpartners in company should beatleast 50% of the voting powerfor the next 5 years.

a. No benefit if fractionalshares received incash.b. Section mentions‘business’. Hence, incase of profession,exemption is notavailable

Section 72AOverruling allsections, whereconditions in47(xiii), (xiiib) &(xiv) are satisfied,then, accumulatedloss & accumulateddepreciation=Deemed to be theloss ordepreciationallowance of thesuccessorcompany in theyear in whichbusiness re-organisation wasgiven effect. (Newlife)If conditionsmentioned arenot compliedwith: the set off oflosses=deemed to bethe income ofthe year ofdefault; and the c/f losseswill no longerbe c/f.

Gain exemptearlier=Taxable Year of non-complianceTransfer is

exemptCost= cost toprevious owner& holdingperiod ofprevious owneris alsoincludible(xiv) ProprietaryConcern IntangibleAssets &CapitalassetCompany(Succession) Proviso to 47(xiv)i. All the A & L relating to businessbecome A & L of company.ii. Proprietor = holds atleast 50% ofthe voting power for the next 5years.iii. The proprietor does not benefitother than issue of shares.

Gain exemptearlier=Taxable Year of non-complianceTransfer is

exemptCost= cost toprevious owner& holdingperiod ofprevious owneris alsoincludible(xiiib) Pvt orUnlistedpublic Co IntangibleAssets &CapitalassetLLP as aresult ofconversion

Cost= cost topreviousowner &holding periodof previousowner is alsoincludible

Proviso to 47(xiiib)i. All the A & L relating to businessbecome A & L of LLP.ii. All Shareholders = partners ANDcapital contribution & PSR inequal proportion of shareholdingon the date of conversion.iii. Shareholders do not benefit otherthan PSR & contribution.iv. Aggregate of PSR in LLP should beatleast 50% of the PSR for thenext 5 years.v. Sales, turnover, Gross receipts in

Gain exemptearlier=Taxable Year of non-complianceTransfer is

exempt(xiiib) Shareholder Shares Gain exemptearlier=TaxableYear of non-complianceTransfer isexempt

any of the 3 previous years do notexceed 60 lakhsvi. Book value of assets in any of thepreceding three years in whichthe conversion takes place doesnot exceed five crore rupeesvii. No amount is paid fromaccumulated profits standing inthe accounts of the company tothe any partner for 3yearsOther Miscellaneous provisions:

Reverse Mortgage: Section 47(xvi) Not a transfer. Borrower will beliable to CG at the point of alienationof property by the mortgagee bankfor recovery of loan. (can be done byowner or legal heir) Cash flows from loan: Nature ofcapital receipt: Section 10(43)exempt.

Case 1: The legal heir pays off the loan:As per RM. ARUNACHALAM, SC: The legal heir inherits only the mortgager's interest in the property. By discharging theloan, the legal heir acquires interest of the mortgagee in the property. Hence to be added to COA.Case 2: The senior citizen himself pays the loansAs per V.S.M.R. JAGADISHCHANDRAN, SC: The mortgage was created by the assessee himself, there will no tax treatmentand the same cannot be added to COA or COI.

Exemptions from capital gainsS.No.

Particulars Section 54 Section 54F Section 54B Section 54D Section 54EE/EC Section 54G

1. EligibleAssessee

Individual / HUF Individual / HUF Individual / HUF Any assessee Any assessee Any assessee2. Asset

transferredand conditionattached toasset

Residential House(Long term) - Incomeshould be chargeableunder the head“Income from houseproperty”.Long-term capital asset notbeing Residential HouseAssessee should not ownmore than one R, houseon the date of transfer.They should not purchasewithin 2 years orconstruct within 3 yearsafter the date of transfer,another residential house.

Urban AgriculturalLandLand has been usedfor agriculturalpurposes by assesseeor his parents or HUFfor 2 yearsimmediatelypreceding the date oftransfer.

Compulsoryacquisition ofland & buildingor right in themforming part ofan industrialundertaking

54EC: Long-term capitalasset being land orbuilding or both.54EE: Long-term capitalasset

Transfer ofmachinery, plant,building or land inshifting of industrialundertaking fromurban areas to non-urban area in thecourse of shiftingindustrialundertaking.Qualifyingasset i.e., assetin which toinvest.

One ResidentialHouse situated inIndia. One Residential Housesituated in India. Land for being usedfor agriculturalpurposes. Land or Buildingor right in landor building. 54EC: REC, NHAI or CGnotified bonds redeemableafter 3 5 years.

54EE: CG notified bonds.New plant andmachinery building,land.

3. Amount ofExemption

Cost of new ResidentialHouse or CG,whichever is lower, isexempt.Where, cost of newResidential House ≥ Netsale consideration, entireCG is exempt. Otherwise,proportionate CG isexempt.

Cost of newAgricultural Land orCG, whichever islower, is exempt.Cost of new assetor CG, whicheveris lower. Cost of new asset or CG,whichever is lower.Maximum deduction = 50lakhs.

Cost of new asset orCG, whichever islower.4. Time limit for

purchase/construction

Purchase within 1 yearbefore or 2 years afterthe date of transfer(or) construct within 3years after the date oftransfer.Purchase within 1 yearbefore or 2 years after thedate of transfer orConstruct within 3 yearsafter the date of transfer.

Purchase within aperiod of 2 years afterthe date of transfer. Purchase/construct within3 years after thedate of transfer,for shifting or re-establishing theexistingundertaking or

Within 6m from the date oftransfer. If convertedCapital Asset to stock intrade=> 6months from Saleof SIT (CBDT circular).Assessee has oneyear before or 3 yearsafter date of transfera) Purchased newplant/ machine;b) Acquiredbuilding/ land

setting up a newone.Capital Gains account scheme: If amount is unutilized within the due date of filing return u/s 139(1), then amount must be deposited intocapital gains a/c scheme. The proof of deposit must be attached to the return. If the amount is not used within 3/2 years, then unutilized amountwill be taxable in the year in which 3/2 years expire. In case of 54F, proportionate amount is taxable.

CBDT Circular: In the event of death, the unutilized amount is not taxable in the hands of legal heirs of deceased individual.5. Condition to

maintain assetandconsequence ifnot

New house should be heldfor 3 or more years fromthe date of purchase. Ifsold before the date, thenreduce cost of asset byexempt capital gains.

- New house should beheld for 3 or moreyears from the date ofpurchase. If sold beforethe date, then- If assessee purchases/constructs within 2/3years,then capital gains exemptearlier will be taxable inthe year of transfer.

If the new asset issold within 3 years,then reduce cost ofasset by exemptcapital gains.

If the new asset issold within 3years, thenreduce cost ofasset by exemptcapital gains.

If the new asset is soldwithin 54EC: 5years/ 54EE: 3 years,then exempted capitalgain will be taxablein the year oftransfer.

If the new asset issold within 3 years,then reduce cost ofasset by exemptcapital gains.

Section 54GB Asset sold Assessee Condition for assessee Condition for company ExemptionLong-termResidentialpropertybefore01.04.2019Individual& HUF before due date for ROI,utilises the net considerationfor subscription in theequity shares of an eligiblecompany

1. Eligible business.2. Within 1 year from the date of subscriptionin equity shares by the assessee, utilisedthis amount for purchase of new asset.DEFINED Unutilized amount at the time of ROIfiling shall be deposited separately in anaccount.

Exemptionproportionate tonet considerationwill be available.- If amount deposited by company is not utilized within the specified period, the capital gains exempt earlier will be taxable in the year in which1 year expires.- If assessee sells the shares within 5 years, the capital gains exempted earlier will be taxable in the year of sale of shares.

ELIGIBLE COMPANY:-a. Incorporated in India during the year orbefore due date of u/s 139(1). NEW ASSET EXCLUDES:1. 2nd hand plant or machinery.

b. Assessee has more than 50% sharecapital OR more than 50% voting rights inthe company after the subscription inshares by him;c. Eligible business as per sec. 80IAC.D. Eligible start-up as per sec. 80IAC.

2. Plant or machine installed in office premises/ residential accommodation (including a guest house);3. Office appliances including computer and computer software;4. Vehicle; or5. Any machinery or plant, the whole of the actual cost of which is allowed as a deduction,In case of a technologically driven start-up, the company can utilize the amount invested in shares to purchasecomputers or computer software.Example:

Situation Answer1. Comparison between 54 and 54F

Individual (Mr. A and Mr. B) sold:1. Mr. A: House purchased on 01.03.2010 for 40Lis sold @ 100L on 01.07.2018 & purchased newresidential house on 01.09.2018 for 15L.2. Mr. B: Listed shares purchased on 01.03.2017for 40L is sold @ 100L on 01.07.2018 &purchased new residential house on 01.09.2018for 65L.If the house purchased is sold before expiry of 3 years(say 20.06.2019) for:(1) Mr. A- House @ 30L;(2) Mr. B- Shares @ 90LCost inflation index are:FY 2009-10: 148FY 2016-17: 264FY 2017-18: 272FY 2018-19: 280

Computation of capital gainsMr. A- House Mr. B-SharesFull value of consideration 100,00,000 100,00,000

Less: Indexed COA(1) House: 40L*280/148(2) Shares: 40L*280/264 75,67,568 42,42,424Long-term capital gains 24,32,432 57,57,576Less: ExemptionsSection 54: HouseSection 54F: Shares(65L/100L * 57,57,576) 15,00,000 37,42,424Chargeable LTCG 9,32,432 20,15,152

Taxability – FY 2019-20Mr. A- House Mr. B-SharesFull value of consideration 30,00,000 90,00,000Less: Indexed COA1. 15L-15L2. 65L* CII of 19-20/ 280 0

Long-term capital gains 30L XAdd: Capital gains exempted earlier taxable now NA 37,42,424Chargeable LTCG 30L X+37,42,424

Select case laws and other important case laws

Section Matter litigated Decision Rationale1. 10(37) Will receipt of higher compensationafter notification of compulsoryacquisition change the character oftransaction into voluntary sale?BALAKRISHNAN V.UNION OF INDIA &OTHERS (SC): No

Receipt of higher compensation onnegotiation after compulsory acquisitionwould not change the character oftransaction into a voluntary sale. Hence, theassessee can still claim the exemption undersection 10(37).2. 50C Is the assessing officer bound toconsider the report of departmentalvaluation officer (DVO) when it isavailable on record?RAVJIBHAINAGJIBHAI THESIA(GUJ HC): Yes

When the Assessing Officer has referred thematter to DVO, the assessment has to becompleted in conformity with the estimategiven by the DVO.If the DVO estimates the value of the capitalasset at an amount lower than the valueassessed by the stamp valuation authority,as per 50C(2), it is such valuation which isrequired to be taken into consideration forthe purposes of assessment.3. 48- 2ndproviso Whether indexation benefit in respectof the gifted asset shall apply from:- the year in which the asset wasfirst held by the assessee or- from the year in which the samewas first acquired by the previousowner?

MANJULA J. SHAH(BOM): Indexationwill also be availablefrom the date fromwhen he is deemed tobe owner.

By way of ‘deemed holding period fiction’created by the statute, the assessee isdeemed to have held the capital asset fromthe year the asset was held by the previousowner and accordingly the CII for the yearthe asset was first held by the previousowner would be considered for determiningthe indexed cost of acquisition4. 54 &54F Where a building, comprising ofseveral floors, has been developed andreconstructed, would exemption undersection 54/54F be available in respectof the cost of construction of -(i) the new residential house(i.e., all independent floorshanded over to the assessee);or(ii) a single residential unit (i.e.,only one independent floor)?

GITA DUGGAL(DEL):Assessee is entitledto exemption ofcapital gains inrespect ofinvestment in theresidential house.

Sections 54 and 54F use the expression“residential house” and not “residential unit”Sections 54 and 54F require the assessee toacquire a "residential house" and so long asthe assessee acquires a building, which maybe constructed, for the sake of convenience,in such a manner as to consist of severalunits which can, if the need arises, beconveniently and independently used as anindependent residence, the requirement ofthe section should be taken to have beensatisfied.5. 54 &54F Would an assessee be entitled toexemption u/s 54 in respect ofpurchase of two flats, adjacent to eachother and having a common meetingpoint?SYED ALI ADIL(A.P.): Yes Assessees were entitled to exemption u/s 54in respect of both the residential flats sincethey are intended to be used as a singleresidence & necessary modification had alsobeen effected so that 2 flats located side byside are used as a residence.6. 54B Can exemption under section 54B bedenied solely on the ground that thenew agricultural land purchased is notwholly owned by the assessee, as theassessee’s son is a co-owner as per thesale deed?GURNAM SINGH (P& H): No, exemptionshall still be available Agricultural land sold belonged to theassessee and the sale proceeds were alsoused for purchasing agricultural land. Thepossession of the said land was also taken bythe assessee.It is not the case that the sale proceeds wereused for other purposes or contrary to theprovisions of law.7. 54F Can exemption under section 54F bedenied solely on the ground that thenew residential house is purchased bythe assessee exclusively in the name ofhis wife?KAMAL WAHAL(DEL): No,exemption shall stillbe available

Section says “should be purchased byassessee” & not “in the name of Assessee”.Hence, exemption shall be allowed.Asset was not purchased in the name ofstranger. Hence, exemption is allowed to theAssessee.8. 54F In case of a house property registeredin joint names, whether the exemptionunder section 54F can be allowed fullyto the co-owner who has paid whole ofRAVINDER KUMARARORA (DEL):Allowed fully to theco-owner who has

Section says “should be purchased byassessee” & not “in the name of Assessee”.Hence, exemption shall be allowed.Assessee was the real owner of the

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the purchase consideration of thehouse property or will it be restrictedto his share in the house property? paid whole of thepurchaseconsideration residential house in question and mereinclusion of his wife’s name in the sale deedwould not make any difference.SHORTCUT TIP FOR ABOVE 3 CASE LAWS: Exemption available to person who uses funds for the purchase of property.9. 54F Can exemption under section 54F bedenied to an assessee on the groundthat the construction was notcompleted within three years after thedate on which transfer took place, onaccount of pendency of certainfinishing work like flooring, electricalfittings, fittings of door shutter, etc.?

SAMBANDAMUDAYKUMAR(KAR): No,exemption shall stillbe available

If he has invested the money in theconstruction of a residential house, merelybecause the construction was not completedin all respects and possession could not betaken within the stipulated period, wouldnot disentitle the assessee from claimingexemption under section 54F10. 54EC In a case where a depreciable assetheld for more than 36 months istransferred, can benefit of exemptionunder section 54EC be claimed, if thecapital gains on sale of such asset arereinvested in long-term specifiedassets within the specified time?

V.S. DEMPOCOMPANY LTD (SC):Yes Section 50 provides the fiction of taxationand it is created for only sections 48 and 49.Section 54EC does not make any distinctionbetween depreciable and non-depreciableasset for the purpose of re-investment ofcapital gains in long term specified assets foravailing the exemption thereunder.11. 54F Where the stamp duty value u/s 50Chas been adopted as the full value ofconsideration, can the reinvestmentmade in acquiring a residentialproperty, which is in excess of the

Actual net sale consideration, beconsidered for the purpose ofcomputation of exemption u/s 54F,irrespective of the source of funds forsuch reinvestment?

GOULIMAHADEVAPPA(KAR): Amountinvested out of saleproceeds plus otheramounts invested arealso allowed asexemption

Capital gain is assessed on notional basis asper the provisions of section 50C, and thehigher value has been adopted as the fullvalue of consideration, the entire amountreinvested should be considered for thepurpose of exemption u/s 54F, irrespectiveof the source of funds for such reinvestment.12. 54EC Can exemption under section 54EC bedenied on account of the bonds beingissued after six months of the date oftransfer even though the payment forthe bonds was made by the assesseewithin the six month period?

HINDUSTANUNILEVER LTD(BOM): Exemption isavailable

For the purpose of the provisions of section54EC, the date of investment by the assesseemust be regarded as the date on whichpayment is made.13. 54G Can advance given for purchase ofland, building, plant and machinerytantamount to utilization of capitalgain for purchase and acquisition ofnew machinery or plant and buildingor land, for claim of exemption undersection 54G?

FIBRE BOARDS (P)LTD (SC): Yes,requirement will besatisfied by advance.

For the purpose of availing exemption, allthat was required for the assessee is to“utilise” the amount of capital gain forpurchase and acquisition of new machineryor plant and building or land. Since theentire amount of capital gain, is utilized theassessee is entitled to avail exemption u/s54G.Other important cases

Section Matter litigated Decision Rationale14. 2(42A) In determining the period of holding ofa capital asset received by a partner ondissolution of firm, can the period ofholding of the capital asset by the firmbe taken into account?P. P. MENON (KER):No

Period of holding of the asset received by thepartner on dissolution of the firm has to bereckoned only from the date of dissolution ofthe firm.15. 2(42A) What would be the period of holding todetermine whether the capital gains onrenunciation of right to subscribe foradditional shares are short-term orlong-term?NAVIN JINDAL (SC):From the date onwhich date on whichsuch right tosubscribe comes intoexistence.

Right to subscribe for shares on the strengthof existing shareholding in a company,comes into existence when the companydecides to come out with the rights offer.