Chapter-6 Capital Gains

S3 B.
COM PROFESSIONALS
INCOME TAX LAW AND ACCOUNTS
CAPITAL GAINS
CAPITAL GAIN [Sec.45-54]
Any profit or gain arising from the transfer of
Capital Asset affected during the previous
year to an assessee is taxable under the
‘Capital Gain’.
Elements of Capital gain
There should be a transfer of Asset
The transferred asset should be a Capital
Asset
The transfer must be affected during the
previous year.
Capital Asset
Capital asset means property of any kind
including movable, immovable, tangible or

intangible and includes personal assets. They
may or may not be related to
Asset not considered as Capital asset
Stock in trade or commercial goods
Consumable stores
Raw material held for the business or profession of the
assessee
Agricultural land in India situated in rural area (urban area is
capital gain)
Bond notified by govt.
Personal assets like wearing apparel, furniture, Car, home
appliances (excluding jewelry made of gold, silver, platinum

or any other precious metal.)
Type of capital asset
Capital assets are classified in to two;
1. Short term capital asset
It means capital asset held by an
assessee for not more than 36 months

immediately preceding the date of
transfer.
2. Long term capital asset
A capital asset held by an assessee for
36 months or more. It is taxable at a
concessional rate of 20% (plus surcharge
if applicable, educational Cess)
In case of immovable property , like,
house property or building, land, etc the
period of holding should be more than 24
months to qualify as LTCA.
Short term capital gain (STCG / STCL))
Capital gain arising from the transfer of short term capital
asset is called short term capital gain. It is added with the

income of the assessee from other heads of income and
taxable at normal rates.
Long term capital gain (LTCG / LTCL)
Capital gain resulting from the transfer of long term capital
asset is called long term capital gain.

Transfer
Capital gain taxed only if there is a transfer of capital
asset.
For this transfer of capital assets include the flowing;
Sale and exchange of capital asset
Extinguishment of any rights in a capital asset
Compulsory acquisition of capital asset under any law
Conversion capital asset into stock in trade
Maturity of zero coupon bond
When a business is converted into a limited company.

Full value of consideration
It is the price for which a capital asset is transferred. The
amount left after deducting the selling expense is net
consideration.
Selling expense
Selling expenses like commission to brokers, registration
fee, advertisement expanse etc. can be deducted from the full
value of consideration to ascertain the capital gain.
Cost of Acquisition
It simply means the price at which the assets was purchased,
constructed, or acquired. It may also include the expenditure
incurred to buy the asset, transportation charges (if any) list of
installation of the asset (if any.
Cost of improvement
Any cost of improvement incurred before 1.04.2001 by the
assessee shall be ignored while computing capital gain.
Indexation
Indexation is process of estimating the present value of the
transferred asset on the basis of the “Cost Inflation Index”

(CII).
base year for CII is 2001-02. The index is taken as100. The
index of the previous year 2023-24 is 348.

COMPUTATION OF CAPITAL
GAIN
Short Term Capital Gain (STCG)
Full value of consideration XXX
Less: expenditure in connection with the transfer XXX
(selling expense)
Net Value of XXXX
Consideration
Less: cost of acquisition XXX
Less: cost of improvement XXX
XXXX
Less deduction u/s 54B, 54D, 54G and 54GA XXX
STCG XXXX
2. Long Term Capital Gain
(LTCG)
Full value of consideration XXX
Less: expenditure in connection with the transfer XXX
(selling expense)
Net Value of XXXX
Consideration
Less: Indexed cost of acquisition XXX
Less: Indexed cost of improvement XXX
XXXX
Less deduction u/s 54,54B, 54D,54EC,54F, 54G and 54GA XXX
LTCG XXXX
Calculation of indexed cost of acquisition & improvement
Note:
Indexation is not allowed for bonds and
debentures.
EXEMPTED CAPITAL GAIN
1. Section 54- Long term capital gain on
transfer of residential house
Applicable to individual / HUF
Long term capital gain on transfer of
residential house and invested in new house

within 2 years or one year before (3 years in
case of construction) or invested in Capital
Gain Accounts Schemes (CGAS) within 2
years.
The actual cost of new house is exempted.
2. Sec 54 B - Capital gain from sale of

agricultural land
Applicable to individual / HUF
Capital gain from sale of agricultural land is
used to purchase new agricultural land or

invested in CGAS within 2 years.
3. Sec 54D- Capital gain on compulsory acquisition of land
or building of industrial undertaking
 The asset is held by assessee for at least 2 years preceding
the date of transfer.

 With in a period of three years after the transfer purchased
land or building or constructed any other building.

 The cost of new land or building is exempted.
4. Sec 54EC- Long term capital gain is used to acquire long

term specified asset or bond
 Long term capital gain is used to acquire long term specified
asset or bond notified by central govt. within 6 months
(maximum 50 lakh)
 Bonds issued by NHAI, RECL, Power Finance
Corporation.
 The amount invested in capital assets is exempted
(maximum 50 lakh)
5. Sec 54F-capital gain on transfer of long term asset
other than residential house.
 Long term capital gain is used for acquiring residential
house within 2 years or one year before (3 years in case of
construction)
 Exempted amount = Capital gain ×cost of new house
Net sale consideration

(If the cost of new house is less than the net consideration)
6. Sec 54G
 Capital gain on transfer of asset on shifting of industrial
undertaking from urban area to non-urban area.

 The actual cost of new asset acquired is exempted.
7. Sec 54GA- for shifting of industrial undertaking to
Special Economic Zone (SEZ)
 The actual cost of new asset acquired is exempted.
8. Sec 54GB- long term capital ( residential property) gain

used for subscribing equity shares in an eligible company.
 Exempted amount = Capital gain ×investment in new
asset
Net consideration

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S3 B.

INCOME TAX LAW AND ACCOUNTS

The transferred asset should be a Capital

including movable, immovable, tangible or

Raw material held for the business or profession of the

Personal assets like wearing apparel, furniture, Car, home

appliances (excluding jewelry made of gold, silver, platinum

assessee for not more than 36 months

asset is called short term capital gain. It is added with the

asset is called long term capital gain.

Extinguishment of any rights in a capital asset

Compulsory acquisition of capital asset under any law

Conversion capital asset into stock in trade

Maturity of zero coupon bond

When a business is converted into a limited company.

transferred asset on the basis of the “Cost Inflation Index”

index of the previous year 2023-24 is 348.

Long term capital gain on transfer of

residential house and invested in new house

2. Sec 54 B - Capital gain from sale of

Capital gain from sale of agricultural land is

used to purchase new agricultural land or

the date of transfer.

land or building or constructed any other building.

4. Sec 54EC- Long term capital gain is used to acquire long

Net sale consideration

undertaking from urban area to non-urban area.

8. Sec 54GB- long term capital ( residential property) gain

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