CAPITAL GAIN
Income under the Capital Gains
1. Chargeability:
Capital gains shall be chargeable to tax if following conditions are satisfied:
a) There should be a capital asset. In other words, the asset transferred should be a capital asset on the date of transfer;
b) It should be transferred by the taxpayer during the previous year;
c) There should be profits or gain as a result of transfer.
2. Meaning of Capital Asset [Sec 2(14)]
Capital Asset is defined to include:
a) Any kind of property held by an assessee, whether or not connected with business or profession of the assessee.
b) Any securities held by a FII which has invested in such securities in accordance with the regulations made under the SEBI Act, 1992.
However, the term ‘capital asset’ shall exclude the following:
b) Movable property held for personal use of taxpayer or for any member of his family dependent upon him. However, jewellery, costly stones, and ornaments made of silver, gold, platinum or any other precious metal, archaeological collections, drawings, paintings, sculptures or any work of art shall be considered as capital asset even if used for personal purposes;
c) Specified Gold Bonds and Special Bearer Bonds;
d) Agricultural Land in India, not being a land situated:
a. Within jurisdiction of municipality, notified area committee, town area committee, cantonment board and which has a population not less than 10,000;
b. Within range of following distance measured aerially from the local limits of any municipality or cantonment board:
i. not being more than 2 KMs, if population of such area is more than 10,000 but not exceeding 1 lakh;
ii. not being more than 6 KMs , if population of such area is more than 1 lakh but not exceeding 10 lakhs; or
iii. not being more than 8 KMs , if population of such area is more than 10 lakhs.
e) Deposit certificates issued under the Gold Monetisation Scheme, 2015
3. Type of Capital Assets
A. Short Term Capital Asset
Capital asset held for not more than 36 months immediately prior to the date of transfer shall be deemed as short-term capital asset. However, following assets held for not more than 12 months shall be treated as short-term capital assets:
a) Equity or preference shares in a company which are listed in any recognized stock exchange in India;
b) Other listed securities;
c) Units of UTI;
d) Units of equity oriented funds; or
e) Zero Coupon Bonds.
Note: Unlisted shares and immovable property (being land or building or both) held for not more than 24 months immediately prior to the date of transfer shall be treated as short-term capital asset.
B. Long Term Capital Asset
Capital Asset that held for more than 36 months or 24 months or 12 months, as the case may be, immediately preceding the date of transfer is treated as long-term capital asset.
4. Period of Holding
The period of holding shall be determined as follows:
| Different situations | How to calculate the period of holding |
| Shares held in a company in liquidation | The period subsequent to the date on which the company goes into liquidation shall be excluded. |
| Capital asset which becomes the property of the assessee in the circumstances mentioned in section 49(1) read with section 47 [i.e., when an asset is acquired by gift, will, succession, inheritance or the asset is required at the time of partition of family or under a revocable or irrevocable trust or under amalgamation, etc.] | The period for which the asset was held by the previous owner should be included (cost of acquisition in this case shall be computed in the manner provided in Para 4.10) |
| Allotment of shares in amalgamated Indian company in lieu shares held in amalgamating company | The period of holding shall be computed from the date of acquisition of shares in the amalgamating company. |
| Right shares | The period of holding shall be computed from the date of allotment of right shares. |
| Right entitlement | The period of holding will be considered from the date of offer to subscribe to shares to the date when such right entitlement is renounced by the person. |
| Bonus shares | The period of holding shall be computed from the date of allotment of bonus shares. |
| Issue of shares by the resulting company in a scheme of demerger to the shareholders of the demerged company | The period of holding shall be computed from the date of acquisition of shares in the demerged company. |
| Membership right held by a member of recognised stock exchange | In case of shares as well as trading/clearing rights, the period for which the person was a member of the stock exchange immediately prior to such demutualization/corporatization shall be included. |
| Flat in a co-operative society | The period of holding shall be computed from the date of allotment of shares in the society. |
| Sweat equity shares allotted by employer | The period of holding shall be reckoned from the date of allotment or transfer of such equity shares (applicable from the assessment year 2008-09) |
| Unit of a business trust [allotted pursuant to transfer of shares as referred to in section 47(xvii)] | The period of holding shall include the period for which shares were held by the assessee. |
| Conversion of preference shares into equity shares | The period of holding of equity shares shall include the period for which preference shares were held by the assessee |
| Units allotted to an assessee pursuant to consolidation of two or more scheme of a mutual fund as referred to in Section 47(xviii) | The period of holding of such units shall include the period for which the unit or units in the consolidating scheme of the mutual fund were held by the assessee. |
| Shares in a company acquired by the non-resident assessee on redemption of Global Depository Receipts referred to in Section 115AC(1)(b) | The period of holding of such shares shall be reckoned from the date on which a request for such redemption was made. |
| Transactions in shares and securities not given above: | |
| 1) Date of purchase (through stock exchanges) of shares and Securities 2) Date of transfer (through stock exchanges) of shares and securities 3) Date of purchase/transfer of shares and securities (transaction taken place directly between parties and not through stock exchanges) 4) Date of purchase/sale of shares and securities purchased in several lots at different points of time but delivery taken subsequently and sold in parts 5) Transfer of a security by a depository (i.e., demat account) | a) Date of purchase by broker on behalf of investor. b) Date of broker’s note provided such transactions are followed up by delivery of shares and also the transfer deeds. c) Date of contract of sale as declared by parties provided it is followed up by actual delivery of shares and the transfer deeds. d) The FIFO method shall be adopted to reckon the period of the holding of the security, in cases where the dates of purchase and sale cannot be correlated through specific number of scrips. e) The period of holding shall be determined on the basis of the first-in-first-out method. |
| Conversion of stock-in-trade into capital asset | The period of holding of such converted asset shall be reckoned from the date of conversion. |
5. Meaning of Transfer [Section 2(47)]
“Transfer”, in relation to a capital asset, includes:
(i) Sale, exchange or relinquishment of the asset;
(ii) Extinguishment of any rights in relation to a capital asset;
(iii) Compulsory acquisition of an asset;
(iv) Conversion of capital asset into stock-in-trade;
(v) Maturity or redemption of a zero coupon bond;
(vi) Allowing possession of immovable properties to the buyer in part performance of the contract;
(vii) Any transaction which has the effect of transferring an (or enabling the enjoyment of) immovable property; or
(viii) Disposing of or parting with an asset or any interest therein or creating any interest in any asset in any manner whatsoever.
6. Transactions which are not regarded as transfer [Section 47]
Following transactions shall not be regarded as transfer (subject to certain condition). Hence, following transaction shall not be charged to capital gains:
| Section | Particulars |
| 46(1) | Distribution of asset in kind by a company to its shareholders at the time of liquidation |
| 47(i) | Distribution of capital asset on total or partial partition of HUF |
| 47(iii) | Transfer of capital asset under a gift or will or an irrevocable trust |
| 47(iv) | Transfer of capital asset by a company to its wholly owned subsidiary company |
| 47(v) | Transfer of a capital asset by a wholly owned subsidiary company to its holding company |
| 47(vi) | Transfer of capital assets in a scheme of amalgamation |
| 47(via) | Transfer of shares in an Indian company held by a foreign company to another foreign company under a scheme of amalgamation of the two foreign companies |
| 47(viab) | Transfer of share of a foreign company (which derives, directly or indirectly, its value substantially from the share or shares of an Indian company) held by a foreign company to another foreign company under a scheme of amalgamation (subject to conditions) |
| 47(viaa) | Transfer of capital assets in a scheme of amalgamation of a banking company with a banking institution |
| 47(vib) | Transfer of capital assets by the demerged company to the resulting company in a demerger |
| 47(vic) | Transfer of shares held in an Indian company by a demerged foreign company to the resulting foreign company |
| 47(vica) | Any transfer of a capital asset by the predecessor co-operative bank to the successor co-operative bank in a business reorganization. |
| 47(vicb) | Any transfer of capital asset (being shares) held by a shareholder in the predecessor co-operative bank if the transfer is made in consideration of the allotment to him of any shares in the successor co-operative bank in a scheme of business reorganization |
| 47(vicc) | Transfer of share of a foreign company (which derives, directly or indirectly, its value substantially from the share or shares of an Indian company) held by a demerged foreign company to resulting foreign company in case of demerger (subject to conditions) |
| 47(vid) | Transfer or issue of shares by the resulting company to the shareholders of the demerged company in a scheme of demerger |
| 47(vii) | Allotment of shares in amalgamated company in lieu of shares held in amalgamating company |
| 47(viia) | Transfer of capital assets (being foreign currency convertible bonds or GDR) by a non-resident to another non-resident |
| 47(viiaa) | Any transfer made outside India, of a capital asset (being rupee denominated bond of an Indian company issued outside India) by a non-resident to another non-resident |
| 47(viiab) | Any transfer of following capital assets by a non-resident on a recognised stock exchange located in any International Financial Services Centre: a) Bond or GDR b) Rupee Denominated Bond of an Indian Co. c) Derivative d) Such other Securities as may be prescribed. |
| 47(viib) | Transfer of capital assets (being a Government security carrying periodic payment of interest) outside India through an intermediary dealing in settlement of securities by a non-resident to another non- resident |
| 47(viic) | Redemption of capital asset being sovereign gold bond issued by RBI under the Sovereign Gold Bond Scheme, 2015 |
| 47(ix) | Transfer of a capital asset (being work of art, manuscript, painting, etc.) to Government, University, National museum, etc. |
| 47(x) | Transfer by way of conversion of bonds or debentures into shares |
| 47(xa) | Transfer by way of conversion of bonds [as referred to in section 115AC(1)(a)] into shares or debentures of any company |
| 47(xb) | Any transfer by way of conversion of preference shares into equity shares |
| 47(xi) | Transfer by way of exchange of a capital asset being membership of a recognized stock exchange for shares of a company |
| 47(xii) | Transfer of land by a sick industrial company which is managed by its workers’ co-operative |
| 47(xiii) | Transfer of a capital asset by a firm to a company in the case of conversion of firm into company |
| 47(xiiia) | Transfer of a capital asset being a membership right held by a member of a recognized stock exchange in India |
| 47(xiiib) | Transfer of a capital asset by a private company or unlisted public company to an LLP, or any transfer of shares held in the company by a shareholder, in the case of conversion of company into LLP |
| 47(xiv) | Transfer of a capital asset to a company in the case of conversion of proprietary concern into a company |
| 47(xv) | Transfer involved in a scheme of lending of securities |
| 47(xvi) | Transfer of a capital asset in a transaction of reverse mortgage made under a scheme notified by the Government |
| 47(xvii) | Transfer of a capital asset (being share of a special purpose vehicle) to a business trust in exchange of units allotted by that trust to the transferor |
| 47(xviii) | Transfer of units of a mutual fund pursuant to consolidation of two or more schemes of equity oriented mutual fund or of two or more schemes of a mutual fund other than equity oriented mutual fund |
| 47(xix) | Transfer of units of a mutual fund from one plan to another pursuant to consolidation of plans within scheme of mutual funds. |
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