income from capital gain by vishal goel

8/8/2019 Income From Capital Gain by Vishal Goel

1/57

INCOME UNDER THE HEAD

CAPITAL GAIN

Prepared :By Vishal Goel


2/57

INCOME UNDER THE HEAD CAPITAL GAIN

Any profit and gain arising on Transfer of a capital asset ischargeable under sec 45.Usually capital receipts are not liable to tax.

Certain gains on transfer of capital assets are taxable.Sec 46, 47 gives such transactions which are not considered asTransfer.While Sec 54, 54 B, 54 D, 54 EC, 54 F, 54 G, 54 GA & 54H gives

the list of exemptions.Two important aspect- Capital Assets Transfer


3/57

Basis of ch arge se c 45

Capital gain s gain tax liability arises only wh en the fo llow ing conditi ons are satis f ied:

1 . There should be a c apital asset 2. The capital asset is transferred by the assessee3. Such Transfer takes place during the previous

year

4. Any profit or gain arises as a result of transfer.5. Such profit or gain is not exempt from tax under

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


4/57

Capital Assets:

A capital asset is defined to include property of any kind, wh et her fixed or c ir c ulating, movable or immovable, tangible or intangible.The fo llow ing assets are, how ever, ex cluded f rom the de f initi on of

Capital Assets .

Any stock and Trade, consumable or raw material held for the purpose of Business or profession.Personal effects such as Movable property including wearing apparels and

furniture held for his personal use or for the use of any member of is family.

Agricultural land in India, which is situated in rural area.

6 .5% Gold Bonds, 1977 or 7% Gold Bonds, 1980 or national defense Bonds,1980 issued by Central Government.

Spe c ial bearer bonds, 1991.

Gold Deposit Bonds issued under Gold Deposit Scheme, 1999 .


5/57

Property of any Kind: It includes not only tangible but also intangible rights. It may be either corporeal or incorporeal Corporeal: It means of a material nature like physical things like land,

building jwellery, shares, cars ,scooter etc. N on-Corporeal: Like route permits for buses, tenancy rights, lease hold

rights, copyright

Property held to be capital assets: Assets meant purely for personal use and which are of movable like

household utensils, appliances, furniture, carpets, TV Sets,refrigerators, musical instruments for personal use, vehicles like motorcycle, scooter, car only for personal use

Are not treated as capital assets.

The Property transferred must be capital asset on the date of transfer.


6/57

Sho rt ter m / Lo ng Ter m Capital Asset:

Sec 2(42 A): Short Term capital assets means acapital asset held by an assessee for not more than 36 months immediately prior to its date of Transfer .

Any asset which is held by assessee for more than 36month is known as Long Term Capital A sset .

Ex ception:In the following cases an asset held for not morethan 12 months is treated as short term capital

asset .y Equ ity or preference share in a Company .y Sec urities (like debent u res, government sec urities)y Units of UT Iy Units of a m u tual f und specified under section 10(23D)y

Zero Co upon bonds


7/57

Exclusion/ Inclusion of certain period for computing the period of holding of an asset:

Cases Exclusion/ Inclusion of Period S hares held in a co. in liquidation Exclude the period subsequent to the date

liquidationProperty acquired in any mode given include the holding period of previousu/s 49(1) i.e. by way of gift will owner also

S hares in Indian Amalgamated Co. Include the holding period of shares in theacquired in a scheme of Amalgamation Amalgamating Co. by the Assessee

S hares in Indian Resulting Co. Include the holding period of shares inacquired in case of demerger the Demerged Co. by the Assessee

(a) Trading or clearing rights of Include the period for which the personrecognized stock exchange pursuant to its was a member of the R S E in Indiademutualization or corporatization(b) Equity shares in a co. acquired Include the period for which the person was a

by a person to the demutualization or member of R S E in INDIA


8/57

Q ue 1: In the following cases, determine wh et her t he asset held w as s hort termor long term c apital asset.R holds 1000 shares in G Ltd., which goes in to liquidation on 3 1 -10 -2009 . R purchased these shares on 3 1 -01 -2009 . The company made the payment to R on31 -0 3-2 010 .

R got a diamond ring by way of gift from his uncle on 01 -01 -2009 . This ring waspurchased by his uncle on 3 0 -1 2-2 00 6. R sold this ring on 3 1 -1 2-2 009 .

R acquires 1000 shares in G Ltd. On 28- 0 2-2 009 . He surrenders these shares to thecompany on 3 1 -0 8-2 009 in pursuance of scheme of amalgamation. He is allotted500 shares in G Ltd., the amalgamated company in lieu of such shares surrendered.R sells these shares on 3 1 -0 3-2 010 .

R acquires 1000 shares in G Ltd. On 2 9 -0 3-2 009 . He is allotted 5 00 shares of aresulting company S Ltd., in the scheme of demerger on 01 -0 4-2 009 . He transfersthese shares on 3 1 -0 3-2 010 .


9/57

Trans f er of Capital Assets:

Transfers in relation to capital assets include sale, ex change or

relinquis hm ent of asset o r the extinguis hm ent of any rights thereinor the compulsory acquisition thereof under any law {Sec 2 (47)}.

What is transfer:1 . The sale, exchange or relinquishment of the assets; or2. The extinguishment of any rights therein or;3. The compulsory acquisition thereof under any law or ;


10/57

F ollo w ing transa c tions are not regarded as Transfer:Distribution of capital assets at the time of liquidation of a Company.Distribution of assets at the partition of HUF.Transfer of a capital asset under a gift or will or under an irrevocabletrust.Transfer of a capital asset by a Company to its 100% subsidiary.Transfer of share of Indian Company held by a foreign company toanother foreign company in case of amalgamation.Transfer of capital asset of a banking Company to another bankingcompany n case of amalgamation.Transfer in a demerger of capital assets by the demerged company tothe resulting company.Transfer of capital assets (being FCCB or GD R) by a non resident toanother non resident.Transfer of agricultural land in India march 1 , 19 70 .


11/57

Transfer of a capital asset (being work of art, manuscript, paintingetc) to government / university / national museum etc.Transfer by way of conversion of bonds or debentures into shares.

Transfer by way of exchange of a capital asset being membership of arecognized stock exchange for shares of a company.Transfer of land by a sick Industrial Company which is managed by itsworkers Co-operative.

Transfer of a capital asset by a firm to Company in case of conversionof firm into Company.Transfer of a capital asset, being a membership right held by amember of recognized stick exchange in India.

Transfer of a capital asset to a Company in the case of conversion of preparatory concern into a Company.

Transfer involved in a scheme of lending of securities.


12/57

Mo de of com putati on of capital gains (Se c48) :C omputation of Short Term

C apital GainC omputation of Long Tern

C apital Gain

y F ind out full value of consideration

y Deduct the followingEx penditure incurred wholly and

e x clusively in connection withsuch transfer C ost of acquisitionC ost of improvement

y F rom the res ulting s un ded uct theexemption provided by section 54B,54D, 54G and 54G A

y The balancing amo unt is short termcapital gain .

y F ind out full value of consideration

y Deduct the followingEx penditure incurred wholly and

e x clusively in connection withsuch transfer Inde x cost of acquisitionInde x cost of improvement

y F rom the res u lting s um ded uct theexemption provided by sections 54,54B, 54D, 54 EC, 54 F , 54G, 54G A .

y The balancing amo unt is long termcapital gain .


13/57

Full value of consideration It means what the transferor receives or is entitled to receive as

consideration for the capital assets transferred. It is not necessarily always the Market value of the asset on the date

of transfer.

Receipt of consideration in installments If full value of consideration ageered upon is received in installments

in different years, the entire value of consideration has to be taken into account for computing capital gain

Consideration in case of exchange The full value of consideration shall be the market value of the

property granted in exchange.

Deemed full value of consideration In some cases, instead actual consideration, the full value of

consideration shall be the deemed value.


14/57

Expenses on Transfer: Any expenditure incurred, whether directly or

indirectly, for the purpose of transfer like: Advertisement

Brokerage Stamp duty Registration fees

Legal expenses


15/57

Cost of Acquisiti on [Se c 55(2)] :Cost of Acquisiti on: of an asset is the value for which it was acquired by theassessee. Expenses in the capital nature for completing the title for the propertyare included in the cost of acquisition.

Cost of asset for t he previ ous ow ner Se c 49(1) :The cost of previous owner is deemed to be t he c ost of a cquisition to t he assesseein cases where capital asset becomes the property of assessee under any of t hemode des c ribed belo w :Acquisition of property in case of partial or total partition of HUFAcquisition of property in case of gift or willAcquisition of property in case of :Succession or inheritanceAny distribution of assets on the dissolution of a firm, BOI or AOPDistribution of assets on the liquidation of a companyUnder a transfer of revocable trust or an irrevocable trust.Any transfer from a wholly owned subsidiary to its holding company or vice versa.Under any scheme of amalgamation.The holding period of the previous owner is also counted for determining whetherthe amount is short term or long term capital asset nut indexation will be allowed

from the time when the asset is acquired by the assessee.


16/57

Cost of Acquisition in case of

Depreciable Asset Sec-50

WDV of the block of asset on last day of the previousyear should be considered.

Excess of sale value over the cost value on the lastday + any expenditure spent for transfer will beconsidered as gain.

Gain from depreciable assets should always betreated as Short term capital Gain .


17/57

Cost of Acquisition being the fair market value as onApril1 , 19 81 :

In the following cases, the assessee may take at his option, eitheractual cost or the fair market value of the asset ( other than adepreciable asset) as on April 1 , 19 81 as cost of acquisition:Where the capital asset became the property of the assessee beforeApril 1 , 19 81 .

Where the capital asset became the property of the assessee by anymode referred to in sec 4 9 (1 ) and the property was originallyacquired before Aril 1 , 19 81 .

In case of depreciable asset cost of acquisition is taken as the WDV atthe end of the previous year along with any expenses on transfer of the asset. Any such capital gain is treated as short term capital gain


18/57

Capital Gain in case of co nversi on of c apital asset int o st ock in trade:The fair market value of the capital asset on the date on which it was converted ortreated as stock in trade shall be deemed to be full value of the consideration receivedor accruing as a result of the transfer of the capital asset.

Trans f er of c apital asset by a Partner t o a f irm :In case an asset is transferred by a partner to a firm then the capital gain is chargeableto tax in the previous year in which such transfer takes place and the amount recordedin the books of account of the firm as the value of asset shall be taken as full value of consideration received as a result of such transfer.

Distributi on of c apital asset on diss o luti on:In case a firm is dissolved and the asset is given/sold to a partner than the capital gainwill be calculated as taxable in the hands of firm and it is taxable as income in the year itis transferred. For computing capital gain the fair market value is taken of the asset is

taken as the full value of consideration.

Capital gain in case of sel f generated assets:If any self generated assets like goodwill or right to carry on business, tenancy rightroute permit etc is sold then the cost of acquisition is taken as nil. Only the cost of transfer is allowed as deduction.


19/57

Cost of Improvement Sec-55( 1 )(b)

Any capital expenditure spent towards additions orimprovements to the existing capital assets.

Note:1 . In relation goodwill of a business should be taken as Nil.2. If the asset became the property before 1 st April 19 81 ,

expenditure on or after 1 st April 19 81 should be considered.

3. Any expenditure incurred prior to 1st

April 19 81 should notbe considered.

4. Expenditure of other heads of income should not beconsidered.


20/57


21/57

Indexed Cost Sec-48Cost which has been proportionately converted with the costinflation index.It includes both cost of acquisition + cost of improvement.

In case of Bonds and debentures except capital indexed bonds issuedby the Government no o ther bonds o r debentures sho uld be indexed.

Cost ( CII) of the year of transfer

Index Cost = X index of theIndex of the Year of Acquisition Year of Sale

or Improvement


22/57

Indexation of cost not allowed in certain cases1 . Transfer of bonds and debentures of a company or Government other

than capital indexed bond issued by the Government.2. Transfer of shares or debentures acquired by a non- resident in foreign

currency in an Indian company.3. Transfer of undertaking or division in a slump sale4. Transfer of units of UTI or Mutual Fund covered u/s 10 (23D) purchases in

foreign currency by overseas financial organization also known asOffshore funds.5. Transfer of Global Depository Receipts or bonds of an Indian Company or

share or bonds of public sector company sold by the Government andpurchased in foreign currency by a non-resident.

6. Transfer of securities by foreign Institutional Investors7. Transfer of foreign exchange asset by non-resident Indian


23/57

Deter m inati on of indexed co st of Acquisiti on /indexed co st of im pr ove m ent:

Indexed Cost of Acquisition=

Indexed cost of improvement=

Cost of A cqu isition x Cost inflation index for the year inCost inflation index for the year in which the asset is sold/ transferred

which the asset is ac qu ired/1981

Cost of improvement inc urred x Cost inflation index for the year in

Cost inflation index for the year in which which the asset is sold/ transferred

the improvement took place


24/57

Capital Gain on transfer of Bonus share

D ifferent Situations Special Provisions

Cost of A cqu isition of bon usshares allotted before A pril 1,1981

F air market val ue on A pril1,1981 is taken as cost of ac qu isition

Cost of A cqu isition of bon usshares allotted on or after A pril1, 1981

Cost of A cqu isition is taken asZero

Period of holding bon us shares The period of holding shall bedetermined from the date of allotment of bon us shares (andnot from the date of ac qu isition

of original shares)


25/57

Exemption of Capital GainsTwo types:Exemption of capital gains under sub-clauses of Section 10

Exemption of capital gains under sections 54

Exe mpti on of capital gains U/ S 10 :Long term capital gain on eligible equity shares exempt if the sharesare acquired within a certain period ( on or after 1 .3.2 00 3 but before1 .3.2 00 4 and held for a period of 1 2 months of more. Sec 10 (36)Exemption of capital gains on compensation received compulsoryacquisition of agricultural land situated within specified urban limits

Sec 10 (37) w.e.f: 1 .4.2 00 4: if compensation received on or after1 .4.2 00 4. It is available only when such land has been used foragricultural purposes during the preceding two year by suchindividual or HUF


26/57

Where the compulsory acquisition has taken place before1 .4.2 00 4 but the compensation is received after 3 1 .3.244, itshall be exempt.But if part of the original compensation has already beenreceived before 1 .4.2 00 4, then exemption shall not beavailable. Even though the balance compensation is received

after 1 .4.2 00 4.However, enhanced compensation received on or after1 .4.2 00 4 against agricultural land compulsory acquired before1 .4.2 00 4 shall be exempt.


27/57

Illus . R acquired land in Delhi, on 1 5.5. 199 2 for Rs.4,00 ,000 . The land is compulsorily acquired by the

Delhi Government on 1 5.4.2 00 2 and thecompensation fixed was Rs. 25, 00 ,000 . Rs.10 ,00 ,000was received by R on 1 5.4.2 00 4 and the balance on6.4.2 00 4. R was not satisfied with the compensation

and filed a suit in the court. The compensation wasenhanced by Rs. 5, 00 ,000 which was received on25.3.2 010 . Compute the capital gain taxable in the hands of R for

various AY. What shall be the answer if the entire original

compensation of Rs. 25, 00 ,000 was received on 6.4.2 00 4


28/57

Ans:(a ) AY 2003-2004 : No capital gains although there is compulsoryacquisition. Capital gain arise in the PY is which the part or whole of the original compensation is received.AS 2004-05 :Full Value of consideration Rs.25, 00 ,000

Less: Indexed Cost of acquisition( 4,00 ,000 X 447/223) = 8, 01 ,79 4

LTCG =1 6,9 8,2 0 6AS 2010-11 : The entire enhanced compensation of Rs.5, 00 ,000 shallbe exempt as per Sec 10 (37) as it is received after 3 1 .3.2 00 4.(b ) As the entire original compensation is received after 3 1 .3.2 00 4 itshall be fully exempt as per sec 10 (37)Similarly, enhanced compensation of Rs.5, 00 ,000 will also be exempt.


29/57

Exem pti on of LTCGarising f rom sale of shares and units:Any income arising on or after 1.10.2004 from the transfer of long termcapital assent, being an equity s hares in a company or a unit of an e quity

oriented fund shall be exempted provided:an e quity oriented fund:

means a fund where the investible funds are invested by way of equity shares indomestic companies to the extent of 65% of the total proceeds

Which has been set up under a scheme of a Mutual Fund specified under clause 23D

Such equity shares are sold through recognised stock exchange and units of an equity oriented fund may either be sold through

recognised stock exchange or may be sold to the mutual fund Such transaction is chargeable to securities transaction tax.


30/57

R purchased 2 00 shares on 1 .4. 19 78 for Rs. 8 0 each. He wasallotted 2 00 right shares on 1 .5. 19 79 for Rs.100 each. He wasalso allotted 4 00 bonus shares on 1 .5. 19 80 . On 4.5. 1990 , hewas further allotted 8 00 right shares for 1 60 each. Again on7.8. 199 6, he was allotted 8 00 bonus shares. The fair marketvalue of these shares as on 1 .4. 19 81 each Rs.1 20 each. All theabove shares are sold by R on 1 6.10 .2009 for Rs. 8 00 per

share. Compute the capital gain for AY 2010

.2011

assuming:a) The above shares are not sold through recognised stock

exchange.b) The above shares are sold through recognized stock

exchange and necessary securities transaction tax was paidby R.


31/57

Ans: (a ) Wh ere shares were no t so ld throug h RSE:Capital gain on original shares boug ht in 1978

Consideration price 2 00 X 800 Rs.1 ,60 ,000 Less: Indexed cost of acquisition:

200 X1 20 (FMV ) = 24,000 X 632 / 100 1 ,51 ,68 0LTCG 8,320

Capital gain on right shares all o tted in May 1979 : Consideration price 2 00 X 800 1 ,60 ,000 Less: Indexed cost of acquisition:

200 X1 20 (FMV ) = 24,000 X 632 / 100 1 ,51 ,68 0

LTCG 8,320

Capital gain on Bonus shares all o tted in May 1980 : Consideration price 4 00 X 800 3,2 0 ,000 Less: Indexed cost of acquisition:

400 X1 20 *(FMV ) = 48, 000 X 632 / 100 3,0 3,36 0

LTCG 1 6,64 0

Capital gain on right shares all o tted in May 1990 : Consideration price 8 00 X 800 6,4 0 ,000 Less: Indexed cost of acquisition:

800 X1 60 = 1 ,28, 000 X 632 / 1 82 4,44,484LTCG 1 ,9 5,5 1 6


32/57


33/57

CAPITAL GAI N - EXEMPTION SC apital Gain arising form the transfer of the residential Property (Sec 54)

Ex emptions under following conditions are met.1 . Only and individual and HU F can claim exemption under this section .2 . Exemption is available only if the capital asset which is transferred is a

residential house property , whose income is taxable under the headIncome from ho use property .

3 . House property sho u ld be a long term A ssets .

4 .A

new house property should be purchased / ac qu ired within a specifiedtime limit .

Particular Time limit

F or purchasing a new residential property

F or constructing a new residentialproperty

W ithin One year before or within 2 years after date of Transfer of house

property.The Constr uction sho u ld be Completewithin 3 years from the date of Transfer of house property.


34/57

Amount of Exemption: The amount of capital gain generated on Transfer of Residential house

property. The amount invested in purchasing or constructing new residential property,

Which ever is lower.If the amount is not utilized for purchase / construction of the newproperty till the due date of submission of Return of Income than it shouldbe deposited in capital gain deposit account scheme.If the new residential property is transferred within a period of three yearsfrom the date of acquisition or completion of construction the amount of assumption given earlier will be taken back.

Example:From the following information compute the capital gains liable to tax inthe A.Y 2 00 3-0 4.(A) Cost of acquisition of residential house in 19 83 -84 -384 000(B) Sale consideration on 2- 0 6-2 00 2 -1 7,00 ,000

( C) Cost of Construction of the new residential house by - 3 00 ,000The due date of filing the return for AY 2 00 3-0 4

The cost of inflation Index in 19 83-84 was 11 6 and 2 00 2-0 3 it was 447.


35/57

Q ue: /7 .38 P 518 : R owns a residential house which was purchased by him in 19 75for Rs.60 ,000 . The fair market value of the house as on 1 .4.19 81 was Rs. 1 ,70 ,000 .This house is sold by him on 1 6.0 7.2 009 for a consideration of Rs.1 5,00 ,000 . Thebrokerage and other expenses on the transfer were Rs. 1 2,000 . The due date of

furnishing the return of income is 3 1 .0 7.2 010 . Compute the capital gain for the AY2010 -2011 in the following situations:1 . He invests Rs.3, 00 ,000 for purchase of a new house on 1 4.5.2 010 .2. He purchased a piece of land for construction of a house on 2 1 .10 .2009 for Rs.

1 ,60 ,000 and deposited Rs. 1 ,30 ,000 in the Capital Gains Accounts Scheme on1

5.7.2010

and a further sum of Rs.1

,50

,000

on 31

.0

7.2011

.3. He invested Rs. 3, 1 5,000 on construction of an additional floor at a residential

house already owned by him. The investment is made during the period 1 .10 .2009to 3 1 .1 2.2 009 .

4. He invested Rs. 3, 1 5,000 on construction of an additional floor at a residentialhouse already owned by him. The investment is made during the period 1 .10 .2009to 3 1 .1 2.2 009 .

5. He invested Rs. 3,4 0 ,000 in capital gains account scheme on 2 9 .0 7.2 010 andRs.1 ,00 ,000 on 1 .8.2 010 . He purchased a house property on 5.8.2 010 for Rs.3,25, 000 by withdrawing this amount from the scheme. No further investmentswere made by him


36/57

Ans: Sale consideration Rs.1 5,00 ,000

Less: 1 . expenses on transfer Rs.1 2,000

2. Indexed cost of acquisitionRs. 1 ,70 ,000 X 632/ 100 10 ,74,4 00 10 ,86,4 00

Long ter m capital gain 4,13 ,600The exemption u/s 54 from LTCG under various situations will be as under:

1 . The exemption will be Rs. 3, 00 ,000 . Hence taxable capital gain will be Rs.1 ,1 3,6 00 .

2. The exemption will be Rs.1

60000

+1

30000

= 290000

. Hence taxable capital gainwill be Rs. 1 ,23,6 00 . No deduction of Rs.1 ,50 ,000 as it is deposited on 3 1 .7.2 011 .3. The exemption will be Rs.3 1 5000 . Hence taxable capital gain will be Rs. 9 8,6 00 .4. Exemption for AY 2 010 -2011 will be Rs.3,4 0 ,000 i.e. the amount deposited in the

Capital Gains Account Scheme before the due date of furnishing the returnspecified u/s 1 39 (1 ) or the amount of capital gain, whichever is less. Hence,taxable capital gain for AY 2 010 -11 will be Rs. 73,6 00 . However, as a sum of Rs.3,25, 000 only has been utilized for purchase of house, the balance amount of Rs. 1 5,000 remaining unutilized for which exemption was claimed u/s 54 shall betaxable capital gain of the AY 2 01 3-1 4


37/57

Assign ment Q ue:G sold a residential house on 28.6.2 009 for Rs. 1 3,00 ,000 . Hehad purchased this house on 1 .10 .19 85 for Rs.1 ,20 ,000 andhad spent Rs.7 0 ,000 on improvement of the house during theyear 19 86-87. He purchased a new house on 2 1 .10 .2009 forRs. 3,5 0 ,000 . This house was also sold by him on 1 6.7.2 010 forRs. 6, 00 ,000 . He purchased another house on 2 1 .11 .2010 for

Rs. 8, 00 ,000 . Compute the capital gains for the AY 2 010 -11and 2 011 -1 2.


38/57

Capital Gain arising fo rm t he trans f er of Agri cultural land (Se c 54 B)

Ex emption under this section are available if following provisions are met:1 . The tax payer is an individ ual2 . he transfers an agric u ltural land it may be a long term / short term capital assets3 . A gric u ltu ral land was used by the taxpayer or his parents for agric ultural p u rpose for

a period of two years immediately preceding the date of Transfer .4 . The tax payer has p urchased another land of agric u ltural p urpose within a period of

two years from the date of transfer .5 . Land may be in urban or r ural area .6 . A mo unt of exemption:

a . The amo unt of capital gain generated on Transfer of agric u ltural land .b . The amo unt invested in p urchasing a new agric u ltural land .W hich ever is lower .

1 . If the amo unt is not u tilized for p urchase of the new agric u ltural land till the d ue dateof s ubmission of Ret u rn of Income than it sho u ld be deposited in capital gain depositacco unt scheme .

2 . If the new agric ultural land is transferred within a period of three years from the dateof ac qu isition the amo unt of exemption given earlier will be taken back .

Example: Agric u ltural land p urchased in 1984-85 for Rs 46500 is sold for Rs 380000 on

01-05-2002 . The assessee p urchased another piece agric ultural land on 1-08-2003 for Rs 70000 and deposited Rs 30000 on 24-06-2003 in capital gain acco unt scheme1998 .Calc u late capital gain chargeable to tax in to tax for AY 2003-04 . The cost InflationIndex in 1984 85 was 125 and 2003-04 was 447 .


39/57

Q ue: R had purchased certain agricultural land in 19 84-85 forRs.3, 00 ,000 . The land was being used for agriculturalpurposes by him. This land is sold by him on 2. 9 .2009 for

Rs.19 ,00 ,000 . He has spent Rs.1 ,70 ,000 for acquiring an urbanagricultural land on 2 1 .10 .2009 and has deposited Rs.2, 00 ,000under the Capital Gains Account Scheme on 1 5.4.2 010 . Out of the amount deposited, he withdrew Rs.1 ,70 ,000 forpurchasing agricultural land on 1 5.3.2 011 . The remainingamount could not be utilized by him for purchase of agricultural land upto 1 4.4.2 01 2.Compute the taxable capital gains for the AY 2 010 -11 , 2011 -1 2, 2 01 2-1 3 and 2 01 3-1 4. if

1 . The agricultural land which was sold is urban agriculturalland.

2. The agricultural land which was sold is rural agricultural land.


40/57

Ans:(A) if land so ld is urban agri cultural land:

(a ) AY 2010-11 :

Full value of consideration Rs.19 ,00 ,000

Less: Indexed cost of acquisition 3, 00 ,000 X 632/ 1 25 1 5,1 6,8 00

LTCG Rs. 3,83,2 00

Less: Capital gain exempt u/s 54:Agricultural land purchased 1 ,70 ,000

Investment in capital gain accountdeposit scheme but limited to CG 2, 00 ,000 3,7 0 ,000

Balance LTCG 1 3,2 00

(b ) AY 2011-12 ; No treatment for this year(c) AY 2012-13; The period of 2 years will end on 1 .9 .2011 i.e. 2 years from the date

of original transfer and not from the date of deposit of the amounts. Therefore, theunutilized amount of Rs.3 0 ,000 will be taxable as LTCG of the PY 2 011 -1 2.(d ) AY 2013-14; No treatment for this year(B) if land so ld is rural agri cultural land: No capital gain, as it is not capital asset.


41/57


42/57

Q ue: ABC Ltd. Purchased a building for an industrialundertaking on 1 .1 .200 8 for Rs. 4, 00 ,000 . Prior to this the

company had taken this building on rent for the last 2 yearsand was using it for industrial activities. There is no otherbuilding in the block. This property was compulsorilyacquired by State Government on 1 4.8.2 009 and a

compensation of Rs. 6, 00 ,000 was given to the company on21 .3.2 010 . The company purchased another building forshifting its industrial undertaking for Rs. 3, 00 ,000 on1 5.9 .2010 . Compute the capital gains for the AY 2 010 -11 .


43/57

Ans: AY 2010 -11 :Full value of consideration Rs. 6, 00 ,000

Less: Cost of acquisition

( W.D.V as on 1 .4.2 009 *) 3 ,42,000 Short term capital gain 2,58, 000

Less: exemption u/s 54 DCost of building purchased or amount of Capital gain which ever is less 2,58, 000 Taxable short term capital gain Nil

*WDV of the building as on 1 .4.2 009 :Purchase price 4, 00 ,000

Less: Depreciation for 2 00 7-0 8( less than 1 80 days) 2 0 ,0003,8 0 ,000

Less: Depreciation for 2 00 8-09 38, 0003 ,42,000


44/57

Assignment:A Ltd. Has an industrial plot which was purchased on 1 4.10 .19 86 for Rs.2,00 ,000 . It has since been used for its industrial purposes as an openstockyard. This plot was compulsorily acquired by the Government on1 5.11 .200 7 and a sum of Rs.9 ,40 ,000 was determined as compensationwhich was received by the company on 4.4.2 009 . The company, not beingsatisfied with the compensation appealed against the above award andthe compensation was enhanced by Rs. 1 ,00 ,000 on 3 0 .01 .2010 but the

enhanced compensation was received on 5.4.2 010 . Meanwhile, theassessee purchased another industrial plot on 1 5.9 .2009 for Rs. 1 ,70 ,000 .On receipt of the enhanced compensation, the company deposited theentire amount under the CGAS on 3 0 .09 .2011 . Till the time the amountwas deposited, the company used the said amount of Rs. 1 ,00 ,000 for itsbusiness purposes. Compute the capital gains for various AY arising on thistransactions.


45/57

Capital Gain n o t t o be charged on invest m ent incertain b onds (se c 54 EC)

The salient features of section are as under:

1 . The taxpayer may be an individ ual,F

irm, Company or any other person2 . A long term capital asset is transferred by an assessee d uring the previo usyear .

3 . W ithin six month from the date of transfer of the assets the assessee sho u ldinvest the whole or any part of the capital gain in long term specified assets .

4 . from the assessment year 2006-07 this specified assets are any bondsredeemable after three years iss ued after march 31, 2006 by

National highway a u thority of IndiaRural E lectrification Corporation Ltd .1 . A mo unt of Exemption:

i. The amo unt of capital gain generated on Transfer of capital asset .ii. The amo unt invested in specified asset as disc ussed above .

W hich ever is lower .1 . The cost of specified assets shall not be eligible under section 88 and

ded uction under section 80C .2 . The investment made on or after 01-04-2007 can not exceed Rs 50 lacs .3 . If the specified asset is transferred / converted into money or any loan or

advance is taken on the sec urity of specified asset within 3 year from thedate of ac qu isition than the exemption given will be charged to tax in theyear in which it was so transferred / converted into money or any loan or advance is taken


46/57

Q ue: R acquired shares of G Ltd. On 1 5.1 2.199 8 forRs. 5, 00 ,000 which were sold on 1 5.5.2 009 for Rs.

1 6,5 0 ,000 . Expenses of transfer were Rs. 2 0 ,000 . Heinvests Rs. 6, 00 ,000 in the bonds of RuralElectrification Corporation Ltd. On 1 6.10 .2009 .

1 . Compute the capital gain for the AY 2 010 -11

2. State the period for which the bonds should be geldby the assessee. What will be the consequences if such bonds are sold within specified period.

3. What will be the consequences if R takes a loanagainst the security of such bonds.


47/57

Ans:(1 ) Sales consideration Rs. 1 6,5 0 ,000

Less: ( 1 ) Expenses of transfer 2 0 ,000

(2) Indexed cost of acquisition5,00 ,000 X 632/35 1 9 ,00 ,285 9 ,20 ,285

LTCG 7,29 ,71 5Less: Exemption u/s 54 EC 6, 00 ,000

1 ,29 ,71 5(2) R should not transfer or convert into money such bonds within 3 yearsfrom the date of their acquisition.If these bonds are transferred or converted into money within 3 years,capital gain of Rs.6, 00 ,000 exempt u/s 54 EC earlier, will be long termcapital gain of the PY in which the such asset is transferred or converted into money.(3) If any loan is taken against the security of such bonds, it will be treatedas if it is converted into money as such capital gain exempt earlier on suchbonds, shall be LTCG of the PY in which the such loan is taken against thesecurity of such bonds.


48/57

Capital Gain on trans f er on a l ong ter m c apital asseto t her t han a ho use pr operty (Se c 54 F) :

Exemption under this section is available if following provisions are met:

Only and individual and HUF can claim exemption under this section.Exemption is available only if the capital asset which is transferred is a long termcapital asset but other than a residential house property (e.g. a plot of land, gold,share etc)A new house property should be purchased / acquired within a specified time limit.

Particular Time limit

F or p urchasing a new ho use

F or constr ucting a new ho use

W ithin One year before or within 2years after date of Transfer of originalasset .The Constr uction sho u ld be Completewithin 3 years from the date of Transfer of ho use property .

The m ti o i il bl o l if on the date of transfer of the


49/57

The exe m pti on is available only if on the date of transfer of theoriginal asset, the taxpayer does not o w n more t han oneresidential house ot her t han t he ne w h ouse.Amo unt of exe m pti on w ill be cal culated as under:

Cost of new house x Capital gainNet sales consideration

If the amount is not utilized for purchase / construction of the newproperty till the due date of submission of Return of Incom e t hanit s ho uld be dep osited in capital gain dep osit a ccount s che me.If the new residential property is transferred within a period of three years from the date of acquisition or completion of construction the amount of assumption given earlier will be takenback.If the assessee purchases a new house, within a period of twoyears of the date of transfer of original asset, or construct within aperiod of 3 years of the transfer of such asset, a residential houseother than the new house then the exemption will be withdrawn.

h h d ll h d


50/57

Q ue: Dinesh purchased jwellery worth Rs. 8 0 ,000 duringthe year 19 84-85. During the year 1990 -91 , he furtherpurchased jewellery worth Rs.90 ,000 . All the jwellery was

sold by him on 1 5.5.2 009 . The jwellery purchased in 19 84-85 was sold for Rs. 5, 00 ,000 and that purchased in 1990 -91was sold for Rs. 5,2 0 ,000 . He purchased a plot of land forRs. 3, 1 5,000 on 4. 1 .2010 for construction of residentialhouse. On 1 5.6.2 010 he deposited Rs.5, 00 ,000 in the CGASand further sum of Rs. 2, 00 ,000 as on 1 5.11 .2010 . He ownsonly one residential house as on 1 5.5.2 009 .Compute the Capital gains for the AY 2 010 -11 .


51/57


52/57

C it l G i t f f t i f h ifti f


53/57

Capital Gain on trans f er of assets in cases of sh if ting of industrial underta king f rom urban area (Se c 54G) :

To claim exemption under this section following conditions need to be f u lfilled:1 . A capital asset used for the p urpose of an ind ustrial undertaking sit uated in an u rban area is

transferred .2 . The transfer is effected in the co u rse of, or in conse qu ence of, the shifting of s uch ind ustrialundertaking to any area other than an u rban area .

3 . The assessee has within a period of one year before or 3 years after the date on which thetransfer took place:

a) P u rchased a new machinery or plant for the p urpose of b usiness of the ind ustrial undertaking inthe area to which the said undertaking has shifted .

b) A cqu ired b u ilding or land or constr ucted b u ilding for the p urpose of his b usiness in the saidarea .

c) Shifted the original asset and transferred the establishment of s uch undertaking to s uch area .d) Inc urred expenses on s uch other p urposes as may be specified in a scheme framed by the

central government .1 . The amo unt of exemption is e qu al to-y The amo unt of capital gain generated on transfer of capital assets in case of shifting of an

ind ustrial undertakingy The cost and expenses inc urred in relation to all or any of the p urposes mentioned in point 3 .

W hichever is lower .

1 . If the amo unt is not u tilized for p urchase / constr uction /ac qu isition of the new asset till the d uedate of s ubmission of Ret urn of Income than it sho u ld be deposited in capital gain depositacco unt scheme .

2 . If the new asset is transferred within a period of three years from the date of itspu rchase/constr uction/ac qu isition the amo unt of exemption given earlier under section 54 Gwou ld be taken back .

F Sh C i l G i [ 54 B 54D 54G d 54 GA]


54/57

For Sho rt -ter m Capital Gain [ 54 B,54D,54G ,and 54 GA]

Sale Consideration of the Asset XXXXXLess:

1 . Expenditure in connection with transfer XXXX2. Cost of acquisition of the asset XXXX

3. Cost of improvement of the asset XXXX XXXXX

STCG XXXXX

F L C i l G i [ 54 54B 54D 54EC 54F 54G d


55/57

For Long -ter m Capital Gain [ 54 ,54B,54D,54EC,54F,54G ,and 54 GA]

Sale Consideration of the Asset XXXXXLess:

1 . Expenditure in connection with transfer XXXX

2. Cost of acquisition of the asset XXXX3. Cost of improvement of the asset XXXX XXXXX

LTCG XXXXX


56/57

Q -1 : X was the owner of the following assets:Year Cost FMV

Purchase Rs. as on 1 /4/8 1

Gold 19 76-77 7 0 ,000 91 ,000Listed sharesIn A Ltd. 19 72-73 2,73, 000 1 ,82, 000

X died on 1 6/8/ 199 3 and as per his will these assets get transferred to hisson B.B now sells these assets on 10 / 10 /2 00 8 for a total consideration of Rs.25, 00 ,000 ( gold Rs. 19 ,00 ,000 and shares Rs. 6, 00 ,000 ). Find out theamount of capital gains chargeable to tax for the AY 2 009 -10 assumingthat shares were sold through a recognised stock exchange and securitiestransaction tax was paid on such sale.


57/57

Q -2: R and S formed a partnership firm during 2 00 8-09 . Soon after itsformation, S brings the following assets as his capital contribution.

Gold Building

Rs. Rs.FMV on the date of transfer 4,4 0 ,000 6,00 ,000

Amount recorded in books 3,7 0 ,000 8,90 ,000

Actual Cost 8 0 ,000 2,4 0 ,000

Year of acquisition 19 85-86 1991 -9 2

Cost inflation index for theYear of acquisition 1 33 199

Compute the taxable capital gain of R assuming he has investedRs.1 ,80 ,000 in the specified securities of NHAI within 6 months for 3years.

income from capital gain by vishal goel

Documents