Commerce

Lecture No.- 02
- For CA Intermediate

Subject Name
Income Tax

Capital Gain

Jasmeet Singh
 Income Under The Head Capital Gains
Chargeability of capital Gains Section 45(1) Asset purchased before 01.04.2001
Any profits or gains arising from the transfer of a capital asset effected in the If any capital asset has been purchased or constructed before 01.04.2001, in that
previous year shall be deemed to be the income of the previous year in which the case cost of acquisition shall be Higher Of:
transfer took place. a) Actual Cost of Acquisition.
b) FMV as on 1/4/2001.
Capital assets Section 2(14) Note: In case of land and building, COA shall not exceed SDV as on 1/4/2001
 COI Shall be Considered only if incurred on/after 1.4.2001
A. Capital asset" includes all assets Except  COI by Previous Owner shall also be Considered I
i) any stock-in-trade
ii) Personal movable effects. However, following personal movable assets Section 2(47) Meaning of Transfer
shall be capital asset— (a) jewellery; (b) archaeological collections; (c) 1. the sale, exchange or relinquishment of the asset.
drawings; (d) paintings; (e) sculptures; or (f) any work of art. 2. the extinguishment of any rights therein. Extinguishment covers destruction
iii) Rural Agriculture Land. of the assets. E.g. Termination of a lease; Redemption of preference
iv) Gold Deposit Bonds shares/debentures.
B. ULIP issued on or after 1.2.2021 where premium or aggregate premium 3. the compulsory acquisition of the asset by the Govt.
payable exceed ₹ 2,50,000 4. Conversion of asset into stock-in-trade.
C. any securities held by a Foreign Institutional Investor 5. Possession of any immovable property in part performance of a contract.
6. any transaction which has the effect of transferring, or enabling the enjoyment
Types Of Capital Assets of, any immovable property. [It is by becoming a member in a co-operative
society, company or other association of persons]
Short-term capital asset = Capital asset held by an assessee for not more than 36 7. Maturity or redemption of zero coupon bond.
months, except in the following cases:
Short Term upto 12 Months Short Term upto 24 Section 47. What is not transfer
(a) Shares Listed in Recognised Stock Exchange; Months (i) Gift, will or inheritance of property
(b) A unit of the Unit Trust of India or an equity oriented a) Land or (ii) Distribution of capital assets on the partition of a Hindu Undivided Family.
mutual fund; Building or
(c) A zero coupon bond both Section 49(1). Deemed cost of acquisition
(d) Any other security listed in a recognized stock b) Unlisted Shares
exchange in India In case the asset is acquired through a mode given in section 47 (Gift to relative or
will) then cost of acquisition is cost to the previous owner. Previous owner is the
Computation of Short term Capital Gains & Long Term Capital Gains Section 48 person who acquires the asset by paying the price. Period of holding shall be
Short Term Capital Gain Long Term Capital Gain computed from the date the previous owner acquires the asset.
Full Value Of Consideration - Full Value Of Consideration -
Less: Transfer Expenses - Less: Transfer Expenses - Treatment Of Advance Money Forefieted
Net Consideration - Net Consideration - Forfeited Before 1.4.2014 Reduced from Original COA before Indexation
Less: Cost Of Acquisition(COA) - Less: Indexed COA - Forfeited on/after 1.4.2014 Taxable u/h IFOS u/s 56(2)(ix)
Less: Cost Of Improvement(COI) - Less: Indexed COI -
Gain Before Exemption - Gain Before Exemption - No Indexation In Following Cases
Less Exemption Claimed - Less Exemption Claimed - 1. Zero Coupon Bonds
STCG Taxable LTCG Taxable 2. Debentures/ Bonds
ICOA /ICOI means the cost adjusted as per cost inflation index 3. Slump Sale [Section 50B]
ICOA = COA x Inflation Index Of Transfer Year / Inflation Index Of purchase year 4. Depreciable Assets
ICOI = COI x Inflation Index Of Transfer Year / Inflation Index Of improvement year 5. Long term capital assets specified u/s 112A. [AY 2019-20].
Expenditure incurred on transfer of asset. E.g. Brokerage on transfer of asset
etc. However STT is ignored

Tax By: CA Jasmeet Singh Instagram @cajasmeetsingh16

 Capital Gain In Case Of Deemed Transfer

Particulars Destruction of CA [S. 45(1A)] Conversion of CA into SIT S. 45(2) Capital Contribution By Partner S. 45(3)
Sale Consideration Insurance Compensation FMV of CA on Date of Conversion Value of CA recorded in Firm books.
Deemed Transfer In The PY of Destruction In The PY of conversion Year of contribution
Taxability PY of Receipt of Money PY in which SIT is sold/transferred & not in PY of PY in which CA is given to firm
Conversion into SIT
Note : in all of the above cases, Indexation (in case of long term Asset) shall be done upto the year of Transfer.

Compulsory Acquisition of Capital Asset S.45(5) FVC In Case Of Transfer Of Land or building or Both [S.50C]

Full value Of Consideration Compensation Fixed If SDV ≤ 110% Of Sales Consideration

Taxability Year in which initial compensation is received. Yes NO
If compensation is received in installments, then FVC = Actual Sales Consideration FVC = SDV
also Entire Capital Gain on Total Compensation
is taxable in PY of receipt of 1st Instalment If the Date of agreement and date of registration is different and advance has been
Transfer Year In which asset is compulsorily acquired. received by specified mode at the time of agreement
Indexation Shall be done upto the year of transfer Yes NO
Enhanced compensation Taxable in the year of receipt after deducting SDV as on the ‘agreement date’ shall SDV as on the ‘registration date’
litigation expenses. be considered shall be considered

Capital Gain In Case Of Specified Agreement [S.(45(5A)] If the case is referred to the valuation officer then the following shall be the
situations and FVC
Transaction Cap. Gain on Transfer of L&B or Both under Specified Situation FVC
Agreement Value of VO > SDV SDV
Applicable to Individual & HUF Value of VO < SDV but > Actual Sales consideration Value of VO
Taxability Year In which completion certificate is received Value of VO < Actual Sales consideration Actual Sales
Transfer Date of handing over the possession to real estate consideration
developer
FVC SDV of share in project as on date of receiving completion COA of self generated assets.
certificate as increased by money consideration(if any) COA COI
Brand name & Trademark associated with the business or Nil NA
Consequences of Transfer before Date of Issue of Completion Certificate: Benefit profession
u/s 45(5A) is not available if the assessee transfers his share in a project on/before Tenancy rights Nil NA
the issue of the completion certificate to any person. Goodwill of a business or profession Nil Nil
In such case, CG shall arise in the year of such transfer. Right to manufacture, produce or process any article or Nil Nil
In such case, section 45(5A) will not apply and FVC shall be as per S.50C. thing, for a consideration (Patent)
Right to carry on any business or profession Nil Nil
Note :
1. If the asset is purchased then purchase price is the COA. In case of goodwill of a business or profession on which depreciation is claimed, the cost of acquisition
of such goodwill would be the amount of the purchase price as reduced by the total amount of depreciation (upto P.Y.19-20) obtained by the assessee u/s 32(1)
2. FMV as on 1-4-2001 is ignored.

Tax By: CA Jasmeet Singh Instagram @cajasmeetsingh16

 Capital Gain In Case Of Slump Sale [S.50B] Capital Gain IN Case Of Depreciable Asset
All the assets of the block are transferred:
When whole unit is sold at lumpsum without valuing each asset individually is
termed as Slump Sale. In case all the assets in any block are transferred during the previous year
FVC Higher of: then the block shall ceases to exist and no depreciation will be allowed. It
Sales Consideration Received OR FMV of capital asset transferred can happen in the following two cases:
COA Net worth of unit. However, if any asset has been revalued, then a) STCG When Sale price > Block Value
such revaluation shall be ignored
b) STCL When Sale price < Block Value
If unit is sold after holding for more than 36 month, then capital gain shall be long
term capital gain otherwise short term capital gain. However, No indexation benefit Part of block is sold and the sale consideration of assets exceed block Value
shall be available even in the case of long term capital gain. STCG When Sale price > Block Value

Capital Gain In Case Of Sale Of Share

 In case of original shares, cost of acquisition shall be the actual cost but if it Listed Equity Shares Sold Through Recognized Stock exchange and Security
was purchased before 1/4/2001, cost of acquisition shall be the actual cost or Transaction Paid
FMV as on 01.04.2001, whichever is higher.
 In case of bonus shares, cost of acquisition shall be nil but if bonus shares STCG: As per section 111A, such capital gains shall be taxed @ 15%.
are issued before 01.04.2001, COA = FMV on 1/4/2001 LTCG: As per section 112A, such capital gains shall be taxed @ 10% in excess of
 In case of right shares, cost of acquisition shall be the amount for which ₹ 1,00,000 and indexation is not applicable also no deduction under chapter VI A
such shares have been purchased. is allowed.
 If right to purchase right shares has been renounced, amount received shall
be considered to be short term capital gains. Cost of Acquisition in case of Capital Gains u/s 112A
 Cost of acquisition for the right renouncee shall be the amount paid to the As per section 55(2) (ac), In case of equity shares or units of equity oriented
person renouncing the right and amount paid to the company. mutual funds or units of business trust which have been sold w.e.f.
01.04.2018 onwards, cost of acquisition shall be higher of:
1. Cost of acquisition
2. Lower of
(a) Fair market value of such asset on 31.01.2018
(b) Actual sale value

Tax By: CA Jasmeet Singh Instagram @cajasmeetsingh16

 Exemptions

S. 54 S.54B S.54D S.54 EC S.54F

Asset LT – Residential House Agriculture land (Urban) L/B – Ind. Und. – LT – Land/Building Any LT CA Except
Transferred Property Compulsory Acquired Residential House Property
Assessee Individual / HUF Individual / HUF Any Assessee Any Assessee Individual / HUF
Investment New Residential House New Agriculture Land New L/B – Ind. Und. Specified Bonds New RHP
Property (Note 1) (U/R)
Time Limit For Purchase – within 1 yr Within 2 years from Within 3 years from Date Within 6 months from Same as S.54
Invest. before or within 2 year From Transfer Date of Receipt of transfer date
transfer date compensation
Construct – within 3 years
from Transfer Date
Quantum Of Lower of Lower of Lower of Lower of LTCG x Amt Invested
Exemtion (i) Amount Invested (i) Amount Invested (i) Amount Invested (i) Amount Invested Net Consideration
(ii) Capital Gain (ii) Capital Gain (iii) Capital Gain (ii) Capital Gain
Subject to Max = 50 Lacs

Lock in period of 3 Years. Otherwise LTCG Same as Sec. 54 Same as Sec. 54 5 Years. Otherwise LTCG 3 Years. Otherwise LTCG
new asset exempted earlier shall be exempted earlier shall be exempted earlier shall be
reduced from COA of new Taxable in the year in Taxable in the year in which
Asset which asset is sold or asset is sold
converted into money
CGAS Available Available Available Not Available Available

Note 1: If LTCG is less than 2 crore, then assessee can claim exemption for 2 house property. In other cases he can only purchase one house for claiming exemption
under this section.

CAPITAL GAINS A/C SCHEME (CGAS):

 If Investment is not made before Due Date of filing of ROI, then to claim exemption assessee can deposit the amount in CGAS if not invested for the specified
purpose.
 Such deposit in CGAS should be made before filing ROI or before DD of filing ROI, whichever is earlier.
 If amount deposited is not utilized for specified purpose within stipulated period, then unutilized amount shall be taxed as capital gain of PY in which specified
period expires.
 If Individual dies before stipulated period, unutilized amount is not taxable in the hands of legal heirs of deceased individual

Tax By: CA Jasmeet Singh Instagram @cajasmeetsingh16