capital gains basic conditionsbasic conditions –there must be a capital asset. –there must be...

CAPITAL GAINS

• Basic Conditions– There must be a Capital Asset.

– There must be Transfer of the asset.

– Transfer During the previous year.

– Due to transfer Gain/ Profit arises.

CAPITAL ASSET

• Meaning Section 2 (14)– Property of any kind

• Tangible or Intangible– Whether connected to business or not– Held by Assessee

• Subject to certain exceptions

Exceptions• Stock in trade, consumables or raw

material held for business.

• Agricultural Land in rural area

• Special bearer bonds 1991

• 6.5 % Gold Bonds 1977, 7% Gold Bonds 1980, National Defence gold bonds

Contd.

• Personal effects of the assessee i.e.– Movable property including furniture,

wearing apparel , held for personal use of assessee or his dependents

– Excluding Gold, Silver, Semi Precious Stone, Real Stone, Metal Jewellery, Ornaments

TRANSFER 2(47)• Sale or Exchange or Relinquishment• Extinguishment (like due to fire,

theft etc.)• Compulsory Acquisition• Conversion into stock• Transfer of capital asset by a person

to a firm in which he is a partner• Distribution of capital assets on

dissolution of firm

PREVIOUS YEAR

• To decide the previous year Date of Transfer is Important except– In case of receipt of insurance claim –

Date of Receipt– In case of conversion of Capital asset

into stock – Date of sale of Stock– In case of Compulsory Acquisition –

Date of receipt of compensation.

TYPES OF ASSETS

• Short term asset– Asset held for less

than 36 months– Subject to

exception

• Long term asset– Asset held for more

than 36 months– Subject to

exception

EXCEPTION

– With respect to • Equity shares/ Pref. shares any Co.• Securities such as Deb. & others of Govt.

listed on Stock Exchange• Units of Unit Trust of India (Quoted or not)• Units of Mutual Funds specified U/s.10

(23D) (Quoted or not)– Held for a period less than 12 months-

Short Term otherwise Long Term

Problems

Computation of Gain

• Short Term Gain– Full value of

consideration– Less: Transfer Exp.– Less: Cost of

Acquisition– Less: Cost of

Improvement

• Long term Gain– Full value of

consideration– Less: Transfer Exp.– Less: Indexed Cost

of Acquisition– Less: Indexed Cost

of Improvement

Full Consideration• Full = Gross• Means Sale consideration / Sale

price / Value received or receivable on transfer.

• Special cases– Transfer of asset between firm and

partners (amount in firm’s book)– Conversion of capital asset into stock

(F.M.V. on date of conversion)– Compulsory acquisition (Amount of

compensation)

Cost of Acquisition

• Actual Cost • Deemed Cost

– Transfer of asset under will/gift/inheritance holding & subsidiary etc. [49(1)]

– Amalgamation of companies- cost for amalgamated company

– Conversion of Debentures (Cost of Debentures)

– Assets received by a member on liquidation (F.M.V.)

Cost of Improvement 55(1)(b)

• Intangible Assets– Nil

• Tangible Asset– Exp. Which are

Capital in nature– Incurred to do

additions or alterations to the asset

– Allowed only if incurred after1st April 1981.

Indexing

• Formula– Cost of acq.*

index no. of year of transfer/ index no of year of acquisition

• No indexing possible– Short term gain– Transfer of

Debentures or bonds

– Transfer by NRI

Problems

Shares & Capital Gain

• Initial Shares

• Right Shares

• Bonus Share

• Sale of Right to Right Shares

Depreciable Assets (Sec.50)

• Depreciation under Income tax

• Previous year last day , W.D.V. of block zero [50(1)]

• Block of the assets is empty on last day of previous year [50(2)]

Problems

Conversion of assets into stock

• Date of sale of Stock = year of taxability of gain

• Full consideration on conversation = Fair market value as on conversation

• For indexing year of conversation to be considered

• Actual sale of Stock = Business income