CAPITAL GAINS
Any profit derived from the sale of a capital asset will result in CAPITAL GAINS.
A Capital Asset is any movable or immovable property owned by the assessee but excludes the
following:
1. Rural agricultural land situated in India
2. Stock in trade of the business
3. Personal effects like clothing, furniture, motor car for personal use, etc
(jewellery made of precious metals, though a personal effect will not be exempt from Capital
gains)
4. Gold Bonds issued by the Central Government
There are two types of Capital Assets
a) Short term capital assets
b) Long term capital assets
Whether a capital asset is a short term capital asset or a long term capital asset depends on the
holding period [Section 2(42A)]
In the case of the following assets the holding period will be taken as twelve months
i) Security (other than a unit) listed in a recognised stock exchange
ii) Unit of equity oriented fund / Unit of UTI
iii) Zero Coupon Bond
In the case of the following assets the holding period will be taken as 24 months
i) Unlisted shares
ii) Land or Building or both
In the case of the following assets the holding period will be taken as 36 months
i) Unit of debt oriented fund
ii) Unlisted securities other than shares
iii) Other capital assets
The short term capital gains resulting from the transfer or sale of short term capital assets will be
computed as follows:
Full value of the consideration received or accruing as a result of transfer/sale
Less: Expenses incurred wholly or exclusively in connection with such transfer/sale
(eg. Brokerage on sale)
= Net Sale consideration
Less: Cost of acquisition / cost of improvement
= Short term capital gain / (loss)
The long term capital gains resulting from the transfer or sale of long term capital assets will be
computed as follows:
Full value of the consideration received or accruing as a result of transfer/sale
Less: Expenses incurred wholly or exclusively in connection with such transfer/sale
(eg. Brokerage on sale)
= Net Sale consideration
Less: Indexed Cost of acquisition /Indexed cost of improvement
= Long term capital gain / (loss)
Indexed cost of acquisition = Cost of acquisition x CII for the year in which the asset is transferred
CII for the year in which the asset was first held
by the assessee or P.Y. 2001-02 whichever is later
Indexed cost of improvement = Cost of improvement x CII for the year in which the asset is transferred
CII for the year in which improvement took place
Indexed cost of acquisition [Explanation (iii) to section 48]
In the case of short term capital gain, cost of acquisition and cost of improvement are deducted from
the full value of consideration for computation of capital gain. On the other hand, in the case of long
term capital gain, indexed cost of acquisition and indexed cost of improvement are deducted instead
of cost of acquisition and cost of improvement.
The cost of acquisition and cost of improvement are indexed on the basis of certain percentage of
the consumer price index, which is determined keeping in view the rise in prices due to inflation.
Indexed cost of acquisition means an amount which bears to the cost of acquisition the same
proportion as cost inflation index for the year in which the asset is transferred bears to the cost
inflation index for the first year in which the asset was held by the assessee or for the year beginning
on 1-4-2001 whichever is later.
Cost inflation index as notified by the Central Government is as under:
F.Y. CII F.Y. CII F.Y. CII
2001-02 100 2007-08 129 2014-15 240
2002-03 105 2008-09 137 2015-16 254
2003-04 109 2009-10 148 2016-17 264
2004-05 113 2010-11 167 2017-18 272
2005-06 117 2011-12 184 2018-19 280
2006-07 122 2012-13 200 2019-20 289
2013-14 220 2020-21 301
The benefit of indexation will, however, not be available in respect of LTCG from transfer of bonds or debentures other than
capital indexed bonds issued by the Government and sovereign gold bonds issued by RBI. In such case the rate of tax will be
@ 10% without indexation
Exemption of capital gains can be availed u/s 54, 54B, 54D, 54EC, 54EE, 54F, 54G, 54GA, 54GB, 54H
Cost of acquisition of assets acquired before 1-4-2001 [Section 55(2)(b)]
In the following cases, the assessee has an option to take either the actual cost of acquisition or the
fair market value of the asset as on 1-4-2001 to be the cost of acquisition for computation of capital
gains:
a) Where an asset has been acquired by the assessee himself before April 1, 2001, he has the
option to take either the actual cost of acquisition or the fair market value of the asset as on
1-4-2001 to be the cost of acquisition for computation of capital gain. (For availing the
option the assessee will obviously opt for that value which is more)
b) Where the assets were acquired by the assessee through a mode given u/s 49(1) and the
previous owner acquired that asset before 1-4-2001. In this case also, the assessee has an
option to take the cost of acquisition as the cost to the previous owner or the fair market
value of that asset as on 1-4-2001 for the purpose of computation of capital gain.
Treatment of advance money received [Section 51]
Where any capital asset, was on any previous occasion, the subject of negotiations for its transfer,
any advance or other money received and retained by the assessee in respect of such negotiations,
shall be deducted from the cost for which the asset was acquired or the written down value or the
fair market value, as the case may be, in computing the cost of acquisition.
However, w.e.f. A.Y. 2015-16, where any sum of money received as an advance or otherwise in the
course of negotiations for transfer of a capital asset, has been included in the total income of the
assessee for any previous year, in accordance with the provisions of section 56(2)(ix), such amount
shall not be deducted from the cost for which the asset was acquired or the written down value or
the fair market value, as the case may be, in computing the cost of acquisition.
Accordingly, any sum of money, received as an advance or otherwise in the course of negotiations
for transfer of a capital asset shall now be taxable under the head ‘Income from Other Sources’ if
(i) Such sum is forfeited; and
(ii) The negotiations do not result in transfer of such capital asset.
Capital gain on conversion of capital asset into stock in trade [Section 45(2)]
1. The conversion of capital asset into stock in trade is treated as ‘transfer’ within the meaning
of section 2(47).
2. However, section 45(2) provides that although such conversion of capital asset into stock in
trade will be a transfer of the previous year in which the asset is so converted, but the
capital gain will not arise in the previous year in which the asset is so converted, it will arise
in the previous year in which such converted asset is sold or otherwise transferred.
3. Indexation of cost of acquisition and improvement, if required, will be done till the previous
year in which such conversion took place.
4. Further, the fair market value of the asset, as on the date of such conversion, shall be
deemed to be full value of the consideration of the asset.
5. The sale price minus market value as on the date of conversion shall be treated as business
income and taxed under the head ‘Profits and gains of business and profession’.
Conversion of Stock-in-Trade into capital asset
Provisions relating to conversion of inventory into Capital Asset – Section 28(via) [W.e.f. A.Y. 2019-20]
Section 28(via) provides that the fair market value of inventory as on the date on which it is converted into, or
treated as, a capital asset, determined in the prescribed manner shall be chargeable to tax as business income.
Explanation 1A inserted in section 43(1) provides that the actual cost of the inventory converted into capital
asset, if used for business, shall be the fair market value.
The period of holding of such capital asset shall be reckoned from the date of conversion or treatment of such
inventory into capital asset.
Capital gain on transfer of capital asset by a partner / member to a firm/AOP/BOI as capital contribution
[Section 45(3)]
The profits or gains arising from the transfer of capital asset held by a person, to a firm or other AOP or BOI
(not being a company or a co-operative society) in which:
a) He is or
b) Becomes a partner or member
By way of capital contribution or otherwise, shall be chargeable to tax as his income of the previous year, in
which such a transfer takes place and, for the purposes of computation of capital gain, in the hands of the
partner/member, the amount recorded in the books of account of the firm, AOP or BOI for such capital asset
shall be deemed to be the full value of the consideration.
It may be observed that the sale consideration in this case shall be tha amount recorded in the books of the
firm/AOP, etc. And not the market value of the asset as on the date of transfer.
Capital gain on transfer by way of compulsory acquisition of an asset [Section 45(5)]
1. Where a capital asset, other than urban agricultural land, has been compulsorily acquired under any
law, it will be treated as a transfer of the previous year in which the asset is compulsorily acquired.
2. Indexation, if required, will be done till the previous year of compulsory acquisition.
3. However, the capital gain will be taxable in the previous year in which the compensation is received.
4. Similarly, if there is a transfer of capital asset other than urban agricultural land, the consideration for
which was determined or approved by the Central government or the Reserve Bank of India, it will be
treated as transfer of the previous year in which the consideration is determined but capital gain will
be taxable in the previous year in which such consideration is received.
Initial compensation / consideration:
Initial compensation / consideration, as the case may be, shall be taken to be the sale consideration of the
asset and the capital gain shall be computed accordingly. This capital gain shall be the income of the assessee
of that previous year in which either whole or part of the compensation / consideration is actually received
and not the year of compulsory acquisition / determination of consideration by Central Government or RBI.
Enhanced Compensation / Consideration:
Sometimes, the assessee is not satisfied with the compensation / consideration determined and may go in for
an appeal against the amount determined. If on appeal the compensation / consideration is enhanced, the
additional compensation / consideration or further enhanced compensation / consideration is called
‘enhanced compensation’ / consideration. Such enhanced compensation / consideration shall be fully taxable
as capital gain in the year in which it is received. The cost of acquisition and improvement thereto will be taken
as nil, since it has already been deducted at the time of computation of capital gain for initial compensation /
consideration.
The entire amount of enhanced compensation / consideration after deducting expenses of realisation, if any,
shall be taken to be the capital gain of the year in which it is actually received. Such capital gain shall be long
term or short term depending upon the original capital gain.
It is possible that the person may die before the enhanced compensation / consideration is received and the
enhanced compensation / consideration is received by his legal heirs. Such enhanced compensation /
consideration will be taxable in the hands of the person who receives the same.
Special provisions for computation of capital gains in the case of slump sale. [Section 50B]
Any profits or gains arising from the slump sale, effected in the previous year, shall be chargeable to income
tax as capital gains arising from the transfer of long term capital assets and shall be deemed to be the income
of the previous year in which the transfer took place. However, if the undertaking is owned and held by the
assessee for not more than 36 months immediately preceding the date of transfer, then such slump sale will
result into short term capital gain. On the other hand, if such undertaking is owned and held by the assessee
for more than 36 months immediately preceding the date of transfer, it shall be deemed to be long term
capital gains irrespective of the fact that such undertaking has acquired certain assets which are held for less
than 36 months.
What is slump sale? [Section 2(42C)]
‘Slump Sale’ means the transfer of one or more undertakings as a result of the sale for a lump sum
consideration without values being assigned to the individual assets and liabilities in such sales. In other words,
it is a sale where the assessee transfers one or more undertaking as a whole including all the assets and
liabilities as a going concern. The consideration is fixed for the whole undertaking and received by the
transferor. It is not fixed for each of the asset of the undertaking. The assessee may also transfer a division
instead of the undertaking as a whole by way of such sale. Thus it may be noted that the undertaking as a
whole or the division transferred shall be a capital asset.
In relation to capital assets being an undertaking or division transferred by way of such sale, the “net worth” of
the undertaking or the division, as the case may be, shall be deemed to be the cost of acquisition and the cost
of improvement for the purposes of sections 48 and 49 and its cost will not be indexed.
Net worth shall be the aggregate value of total assets of the undertaking or division as reduced by the value of
liabilities of such undertaking or division as appearing in its books of account. However, any change in the
value of assets on account of revaluation of assets shall be ignored for the purposes of computing net worth.
Computation of capital gains in real estate transactions [Section 50C]
Section 50C makes a special provision for determining the full value of consideration in cases of transfer of
immovable property. It provides that where the consideration declared to be received or accruing as a result of
the transfer of land or building or both, is less than the value adopted or assessed or assessable by any
authority of a State Government (i.e. “Stamp Valuation Authority”) for the purpose of payment of stamp duty
in respect of such transfer, the value so adopted or assessed or assessable shall be deemed to be the full value
of consideration, and capital gains shall be computed on the basis of such consideration (i.e. stamp duty value)
u/s 48 of the Income Tax Act.
However, where the value adopted or assessed or assessable by the stamp valuation authority does not
exceed 105% of the consideration received or accruing as a result of the transfer, the consideration so received
or accruing as a result of the transfer shall, for the purposes of section 48, be deemed to be the full value of
consideration.
In other words, if there is any variation between the Stamp Duty price and actual consideration for the
purpose of section 50C which is not more than 5% of the actual consideration, such variation shall be ignored
and consideration price in this case shall be taken to be the actual consideration.
Problems on Capital Gains
1. R purchased a house in Delhi on 16-12-201 for Rs.12,00,000. In March 2013, he entered into an
agreement to sell the property to X for a consideration of Rs.20,00,000 and received earnest money
of Rs.2,00,000. As per the terms of agreement, the balance payment was to be made within 30 days
of the agreement. If the intending purchaser does not make the payment within 30 days, the earnest
money would be forfeited. As X could not make the payment within the stipulated time the amount of
Rs.2,00,000 was forfeited by R. Subsequently on 15-5-2013, R sold the house to M for Rs.25,00,000.
He paid 2% brokerage on sale of the house. Compute the capital gains chargeable to tax for the A.Y.
2014-15.
What will be your answer if R sold the house on 15-5-2019 instead of 15-5-2013 and Rs.2,00,000 was
forfeited during the previous year 2019-20 instead of within 30 days?
GARG 349
2. X is the owner of the following assets:
Year of Cost FMV as on 1-
purchase 4-2001
Rs. Rs.
Gold 1976-77 70,000 3,60,000
Listed shares in A Ltd. 1972-73 11,00,000 9,82,000
X died on 16.8.2008 and as per his will these assets get transferred to his son B. B, now sells these
assets on 10-10-2019 for a total consideration of Rs.44,00,000 (Gold Rs.22,00,000 and shares
Rs.22,00,000) Find out the amount of capital gains chargeable to tax for the A.Y. 2020-21 assuming
that the shares were sold through a recognised stock exchange and securities transaction tax was paid
on such sale. Assume the FMV of shares as on 31.1.2018 is Rs.19,50,000. CII for the F.Y. 2001-02,
2003-04 and 2019-20 is 100, 109 and 289.
GARG P&S 416
3. During the previous year 2019-20 [Link] sells the following capital assets:
Sale Cost of Year of FMV as on
Proceeds acquisition acquisition 1-4-2001
Rs. Rs. Rs.
Land 4,00,00,000 18,50,000 1977 1,19,00,000
Gold 24,86,000 2,40,000 1980 10,26,000
Listed Debentures 2,57,000 1,75,000 1975 1,62,400
Assuming that his business income is Rs.1,46,000 determine his net income for the A.Y. 2020-21.
GARG P&S 417
4. R purchased a home in Banswadha in 1980 for Rs.1,00,000. In June 1990 he gifts the house to his son
S. R had added two rooms and a verandah in the house at a cost of Rs.30,000 in 1980 and S made
improvements in the house and added two bathrooms at the cost of Rs.88,000 in May 2005.
R dies in 1996 and S sells the house on 1-7-209 for Rs.29,00,000. Find out the capital gain or loss if the
fair market value of the house on 1-4-2001 is Rs.8,50,000.
GARG P&S 422
5. [Link] is the owner of a residential house which was purchased in September 2003 for
Rs.7,00,000. He sold the said house on 5 th August, 2019 for Rs.30,00,000. Valuation as per stamp
valuation authority of the said property was Rs.44,00,000. He invested Rs.8,00,000 in NHAI Bonds on
12th January, 2020. He purchased a residential house on 8 th September, 2019 for Rs.12,00,000. He
gives other particulars as follows:
Interest on Bank Deposits Rs.32,000; Investment in PPF Rs.12,000.
Calculate the taxable income for the A.Y. 2020-21.
CA Scanner 4.237
Discuss the treatment of capital gains on distribution of assets by companies in liquidation – section 46
Tax treatment in company’s hands
In case of Sale by Liquidator and distribution of Distribution of Capital Assets in specie (as it is)
sale proceeds to shareholders
Tax Effect Taxable in company’s hands as Capital Not a transfer. Hence not taxable [Section 46(1)]
gains
Tax treatment in shareholders’ hands:
(a) Computation of capital gains on receipt of assets / cash from company
Step 1 Total Value received = FMV of asset received on the date of liquidation and amount received in
cash
Step 2 Determine the shareholders’ interest in accumulated profit on the date of liquidation i.e. deemed
dividend u/s 2(22)(c)
Step 3 Consideration for transfer for determining capital gain = Step 1 – Step 2
Step 4 Capital Gain = Consideration for transfer for determining capital gain (Step 3)
Less: Cost of acquisition of shares (indexed cost in suitable cases
(b) Capital gain on subsequent sale of asset received by shareholders on liquidation:
Capital gain = Net consideration Less Fair Market Value u/s 46(2) and cost of improvement
Problem [7.7 Paduka Question Bank]
[Link] purchased 1,000 Equity shares of Rajesh & Co. Pvt. Ltd. on 28-2-2014 for Rs.1,20,000. The
company was wound up on 31-7-2019. The following is the summarised financial position of the company as
on 31-7-2019
Liabilities Rs. Assets Rs.
6,000 Equity Shares 6,00,000 Agricultural lands 42,00,000
General Reserve 40,00,000 Cash at Bank 6,50,000
Provision for taxation 2,50,000
48,50,00 48,50,000
0
The tax liability (towards dividend distribution tax) was ascertained at Rs.3,00,000, after considering refund
due to the company. The remaining assets were distributed to shareholders in the proportion of their
shareholding. The market value of 6 acres of agricultural land (in an urban area) as on 31-7-2019 is
Rs.10,00,000 an acre.
The agricultural land received above was sold by [Link] on 28-2-2020 for Rs.15,00,000. Discuss the tax
consequences in the hands of the company and [Link].
[CII for FY 2013-14 = 220; CII for FY 2019-20 = 289]
Exemption of Capital Gains
Exemption of capital gains under various sub-clauses of section 10
Exemption of capital gains on compensation received on compulsory acquisition of agricultural land situated
within specified urban limits. – Section 10(37)
Capital gains on transfer of house property used for residence – Section 54
Capital gain arising on the transfer of a residential house is exempt u/s 54 in the following circumstances:
(i) The asset transferred is a residential house, the income of which is chargeable under the head
“Income from house property”.
(ii) The asset transferred is a long term capital asset and hence there is a long term capital gain.
(iii) The asset has been transferred by an individual or a Hindu Undivided Family.
(iv) The assessee has purchased one residential house in India within one year before or 2 years after
the date on which the transfer took place, or constructed one residential house in India within a
period of 3 years after the date on which the transfer took place.
If all these four conditions are satisfied then the assessee can claim the exemption u/s 54.
Amendment made by the Finance Act, 2019 [W.e.f. A.Y. 2020-21]
The Finance Act, 2019 has inserted a proviso u/s 54(1) to provide as under:
Where the amount of capital gain does not exceed Rs.2 crore, the assessee, may at his option, purchase or
construct two residential houses in India, and where such an option has been exercised –
a) The provisions of this sub-section shall have effect as if the words “one residential house in India”, the
words “two residential house in India had been substituted.
b) Any reference in this sub-section and sub-section (2) to “new asset” shall be construed as a refrence
to the two residential houses in India.
Further, where during any assessment year, the assessee has exercised the option referred to in the first
proviso, he shall not be subsequently entitled to exercise the option for the same in any other assessment
year.
Therefore, now the exemption can be claimed for purchase/construction of two residential houses instead of
one. This benefit is available only when the capital gain does not exceed Rs.2 crore. Further, this benefit is
available only once in a life time.
Capital gain on transfer of land used for agricultural purposes – Section 54B
Exemption u/s 54B is available in respect of capital gains (both long term and short term) arising from transfer
of agricultural land, if following conditions are satisfied:
(i) The agricultural land has been transferred by an individual or HUF
(ii) The agricultural land has been used by the individual or his parents or by HUF for agricultural
purposes during the 2 years immediately preceding the date of transfer.
(iii) The assessee had purchased another agricultural land (rural or urban) within a period of 2 years
after the date of transfer of the original agricultural land to be used for agricultural purposes.
Capital gain will be exempt to the extent of capital gains or the amount invested in acquiring a new agricultural
land, whichever is less.
Capital gain on compulsory acquisition of land and buildings forming part of an industrial undertaking –
Section 54 D
The capital gain arising from the transfer, by way of compulsory acquisition under any law, of land and
buildings forming part of an industrial undertaking belonging to the assessee are exempt, if the following
conditions are satisfied:
(i) The transfer is by way of compulsory acquisition of the asset;
(ii) The asset transferred is land or buildings forming part of an inductrial undertaking belonging to
the assessee;
(iii) Such land or buildings were in use by the assessee for the purpose of the business of the
inductrial undertaking for at least two years immediately preceding the date of transfer;
(iv) Capital gain on compulsory acquisition of land and buildings can be short term or long term.
However, since building is being used for business, it isa depreciable asset and therefore, capital
gain on transfer of such building, even if, it is held for more than 3 years, will be short term
capital gain. Land is however, not a depreciable asset and as such the period of holding will be
important for computing long-term/short-term capital gain;
(v) The assessee purchases/constructs other land and buildings within a period of 3 years after the
date of transfer for the purpose of shifting or re-establishing the said industrial undertaking or
setting up another industrial undertaking
Quantum of deduction:
1. If the amount of capital gain is equal to or less than the cost of the new asset, the entire capital gain
shall be exempt.
2. If the amount of capital gain is greater than the cost of the new asset, the cost of the new asset shall
be allowed as an exemption.
In other words, capital gain shall be exempt to the extent it is invested in the purchase / construction of
new land / building for the industrial undertaking
Capital gain on transfer of long term capital assets being land or building or both not to be charged on
investment in certain bonds – Section 54EC
Long term capital gain arising from the transfer of any capital asset being land or building or both is exempt u/s
54EC in the following circumstances:
(i) The asset (land or building or both) transferred is a long term capital asset and hence, there is a
long term capital gain.
(ii) The asset is transferred by any assessee.
(iii) The assessee has within a period of 6 months after the date of such transfer invested the capital
gain in the long-term specified assets.
The capital gain shall be exempt to the extent it is invested in the long term specified assets within a period of
six months from the date of such transfer.
“Long term specified asset” means the bonds redeemable after 5 years issued on or after 1.4.2018 by the
National Highways Authority of India (NHAI) and the Rural Electrification Corporation Ltd. (RECL) or the bonds
issued by the Power Finance Corporation Limited.
Investments in bonds is limited to Rs.50,00,000.
Where the long term specified asset is transferred or converted (otherwise than by transfer) into money at any
time within a period of five years from the date of its acquisition, the amount of capital gain exempt u/s 54EC
earlier, shall be deemed to be long term capital gain of the previous year, in which the long term specified
asset is transferred or converted (otherwise than the transfer) into money.
The Board has decided that the period of six months for making investment in specified assets for the purpose
of section 54EC should be taken from the date such stock in trade is sold or otherwise transferred and not
from the date when it is converted into stock in trade.
Capital gain not to be charged on investment in units of a specified fund [Section 54EE]
In order to promote the start-up ecosystem in the country, it is envisaged in ‘start-up India Action Plan’ to
establish a Fund of Funds which intends to raise Rs.2,500 crore annually for four years to finance start-ups.
Keeping this object in view, the Act has inserted a new section 54EE which provides that:
Long-term capital gain arising on the transfer of any capital asset is exempt u/s 54EE in the following
circumstances:
(i) The asset transferred is a long-term capital asset and hence, there is long term capital gain;
(ii) Such asset is transferred on or after 1.4.2016;
(iii) The asset is transferred by any assessee
(iv) The assessee has within a period of 6 months after the date of such transfer invested the capital
gain in long-term specified assets.
Provided that the investment made on or after 1.4.2016 in the long term specified asset by an assessee
during any financial year cannot exceed Rs.50 lakhs.
Further, provided that the investment made by an assessee in the long term specified asset, out of capital
gains arising from transfer of one or more original asset, during the financial year in which the original
asset or assets are transferred and in the subsequent financial year does not exceed Rs.50,00,000.
Quantum of deduction:
(i) If the amount of capital gain is equal to or less than the cost of the long term specified assets
acquired within 6 months of the date of transfer, the entire capital gain shall be exempt
(ii) If the amount of capital gain is greater than the cost of the long-term specified assets, then the
cost of long term specified assets shall be allowed a sexemption.
In other words, capital gain shall be exempt to the extent it is invested in the long term specified assets
within a period of 6 months from the date of such transfer.
“Long term spciifed asset” means a unit or units, issued before 1.4.2109, of such fund as amy be notified
by the Central Government in this behalf.
Capital gain on the transfer of asset, other than a residential house – Section 54F
Where an individual or HUF transfers any long term capital asset, not being a residential house, and invests the
net sale proceeds to acquire a residential house, the exemption u/s 54F is available provided the following
conditions are satisfied.
(i) The asset is transferred by an individual or HUF
(ii) The asset transferred is a long term capital asset
(iii) The asset transferred is any capital asset other than a residential house
(iv) The assessee has purchased one residential house in India within one year before or two years
after the date on which the transfer took place or constructed one residential house in India
within a period of 3 years after the date on which the transfer took place.
(v) The assessee does not own more than one residential house on the date of transfer of the
original asset, exclusive of the one purchased for claiming exemption under this section i.e.
section 54F
(vi) The assessee should not purchase, within a period of two years after the date of transfer of
original asset or construct within a period of three years after the date of transfer of the original
asset, any other residential house other than the new asset.
The exemption shall be granted proportionate to the amount of sale proceeds invested in the
residential house.
Note: Capital gain on the sale of plots are also eligible for exemption.
Capital gain on transfer of assets in cases of shifting of industrial undertakings from urban areas
[Section 54G]
Any capital gain (short-term / long-term) arising to any industrial undertaking from the transfer of asset being
machinery or plant or building or land or any rights in building or land effected in the course of or in
consequence of shifting from an urban area to any other area, shall be exempt to the extent, such capital gain
is invested for the specified purpose within one year before or 3 years after the date of transfer, provided the
new asset purchased for the specified purpose is not transferred within a period of 3 years from the date of its
acquisition.
In other words, the exemption is available to all categories of assessees in respect of capital gain arising on the
transfer of fixed assets other than furniture and fixtures of industrial undertaking effected to shift it from an
urban area
The conditions for claiming exemption are as under:
(i) The transfer is effected in the course of or in consequence of shifting the undertaking from an
urban area to any other area. Any other area means an area not declared as an urban area.
(ii) Asset transferred is machinery, plant, building, land or any right in building or land used for the
business of the industrial undertaking in the urban area.
(iii) The capital gain arising on the asset transferred may be short-term or long-term capital gain.
Normally, it will be short term capital gain because most of the assets of the industrial
undertaking will be depreciable assets.
(iv) The capital gain is utilised within one year before or 3 years after the date of transfer for the
specified purpose.
Specified purpose includes the following:
(a) For purchase of new machinery or plant for the purpose of business of the Industrial Undertaking in
the area to which the said undertaking is shifted.
(b) Acquisition of building or land or construction of building for tax payer’s business in that other area
(c) Expenses on shifting of the old undertaking and its establishment to the other area
(d) Incurring of expenditure on such other purposes as specified by the Central Government for this
purpose.
Quantum of deduction:
Capital gain shall be exempt to the extent it is spent for the specified purpose.
Special rates of tax on Capital gains
u/s 111A - Any short term capital gain derived from the sale of listed equity shares sold through a
recognised stock exchange on which security transaction tax is paid shall be taxed at a flat rate of 15% of
such capital gains and the same will not be available for Chapter VI-A deduction.
u/s 112 - Any long term capital gain derived from the sale or transfer of any long term capital asset
shall be taxed at a flat rate of 20% of such capital gain and the same will not be available for Chapter VI-A
deduction.
u/s 112A - Any long term capital gain on the sale or transfer of listed equity shares sold through a
recognised stock exchange on which security transaction tax is paid shall be charged at a flat rate of 10%
on the capital gains exceeding Rs.1,00,000. There will be no tax on such capital gains up to Rs.1,00,000.
Such long term capital gains will not be available for deduction under Chapter VI-A and also Rebate u/s
87A will not be allowed
Please note that although the above capital gains are not eligible for claiming Chapter VI-A deductions,
these incomes will be adjustable against basic exemption limit unlike in the case of income u/s 115BB (anti
social incomes like lottery incomes, TV Shows, etc)
Short term capital loss can be adjusted against short term capital gain or long term capital gain but long
term capital loss can be adjusted only against long term capital gain. In either case, whether short term
capital loss or long term capital loss, both cannot be adjusted inter-head. Only intra head adjustment is
available for Capital loss.
Cost of acquisition for purpose of computing long term capital gain u/s 112A [Section 55(2)(ac)]
The cost of acquisition for the purpose of computing capital gains in relation to long term capital asset,
being
(a) An equity share in a company; or
(b) A unit of an equity oriented fund; or
(c) A unit of a business trust
Referred to in section 112A, acquired by the asssessee before 1.2.2018 shall be higher of –
(i) The actual cost of acquisition of such asset; and
(ii) The lower of –
(a) The fair market value of such asset
And
(b) The full value of consideration received or accruing as a result of the transfer of the capital
asset.
115BB – Anti Social Income 30% flat
1,00,000 lottery @30%
Property purchased and sold within a period of 24 months resulting in short term capital gain
Rs.
Sale Consideration 1,50,00,000
Less: Expenses on transfer (brokerage) 10,00,000
Net Sale Consideration 1,40,00,000
Less: Cost of acquisition 90,00,000
Less: Cost of improvement 10,00,000
Short term capital gains 40,00,000
Tax will be on normal rates i.e. slab rate
Property purchased on 1.4.2014 and sold on 1.4.2019 60 months i.e. long term capital asset
Improvement carried out on 1.4.2016
Rs.
Sale Consideration 1,50,00,000
Less: Expenses on transfer (brokerage) 10,00,000
Net Sale Consideration 1,40,00,000
Less: Indexed Cost of acquisition 90,00,000/240 x 289 1,08,37,500
Less: Indexed Cost of improvement 10,00,000 /264 x 289 10,94,697
Long term capital gains 20,67,803
Tax will be @ 20% flat
Exemption u/s 54 can be availed
Sale of property 1.8.2019
1. Construction of a new house within 3 years from date of transfer
2. Purchase of a ready property – one year before the date of transfer i.e. between 1.8.2018 and
31.7.2019 or 2 years form date of transfer
31.3.2019 PY 2019-20 2 years time to purchase new property and 3 years time to construct new
property. 31.3.2021
Due date of filing return of income for PY 2019-20: 31 st July 2020
Capital Gains Deposit Scheme: 4% interest