Computation of capital Gain

 Computation of capital Gain:

Computation of capital gain depends upon the nature of the capital asset transferred during the previous year, vis-à-vis, short-term capital asset, long-term capital asset or depreciable asset. Capital gain arising on transfer of short-term capital asset or depreciable asset is considered as short-term capital gain, whereas transfer of long-term capital asset gives rise to long-term capital gain.

The capital gains on transfer of capital asset shall be computed in the following manner:

Short-term capital assets [Section 48]	Long-term capital assets [Section 48]	Depreciable asset [Section 50]*
Full value of consideration Less: Cost of acquisition of asset Less: Cost of improvement Less: Expenditure incurred wholly and exclusively in connection with such transfer	Full value of consideration Less: Indexed Cost of acquisition (See Note 1) Less: Indexed Cost of Improvement (See Note 1) Less: Expenditure incurred wholly and exclusively in connection with such transfer	WDV of block of asset at the beginning of previous year Add: Actual cost of assets falling within that block acquired during the year Less: Full value of consideration of assets transferred during the year Less: Expenditure incurred wholly and exclusively in connection with such transfer

* Short-term capital gain or loss from sale of depreciable asset will arise only in the following two situations:

a) When on last day of the previous year, WDV of the block of asset is nil; or

b) When on last day of the previous year, block ceases to exist.

Note 1: Indexed Cost of Acquisition and Improvement [Second Proviso to Section 48]

a) In case of transfer of long-term capital assets, indexed cost of acquisition and indexed cost of improvement shall be deducted from the full value of consideration;

b) Indexed cost of acquisition and Indexed cost of improvement shall be computed with reference to Cost Inflation Index (‘CII’) in the following manner:

Indexed Cost of Acquisition =

[(Cost of Acquisition) × (CII for the year of transfer)]
(CII for the year of acquisition or for the Financial Year 2001-02, whichever is later)

Indexed Cost of Improvement =

[(Cost of Improvement) × (CII for the year of transfer)]
CII for the year of Improvement

Note : The base year for computation of capital gains has been shifted from 1981 to 2001 with effect from assessment year 2018-19. Thus, if any capital asset (acquired before April 1, 2001) is transfered then assessee has an option to take its cost of acquisition either as fair market value as on April 1, 2001 or its actual cost.

However, there are some cases where benefit of indexation is not available, which are as under:

Section	Capital Asset	Transferor
Third Proviso to Section 48	Long-term capital gains arising from transfer of an equity share, or a unit of an equity oriented fund or a unit of a business trust as referred to in Section 112A.	Any Person
Fourth proviso to section 48	Bonds or debentures. Note: However, indexation benefit is available on two type of bonds, namely,- Capital indexed bonds (issued by the Government) Sovereign Gold Bond (issued by the RBI under the Sovereign Gold Bond Scheme, 2015)	Any person
112	Capital gains arising from transfer of unlisted shares (which is taxable at concessional rate of 10%) as calculated without giving effect to first proviso to Section 48	Non-resident
44AE	Presumptive income from business of plying, hiring or leasing of goods carriage if assessee does not own more than 10 goods carriage.	For Heavy Goods Vehicle: Rs. 1,000 per ton of gross vehicle weight for every month or part of a month during which the heavy goods vehicle is owned by assessee. For Other Goods Vehicle: Rs. 7,500 for every month or part of a month during which the goods carriage is owned by assessee.
50A	Depreciable asset (other than an asset used by a power generating unit eligible for depreciation on straight line basis)	Any person
50B	Undertaking/division transferred by way of slump sale as covered by section 50B	Any person
115AB	Units purchased in foreign currency as given in section 115AB	Offshore fund
115AC	Global depository receipts (GDR) purchased in foreign currency as given in section 115AC	Non-resident
115ACA	Global depository receipts (GDR) purchased in foreign currency as given in section 115ACA	Resident individual – employee
115AD	Securities as given in section 115AD	Foreign Institutional Investors

CII in relation to a previous year means such index, as Central Government notifies on year to year basis.

The Central Government has notified the following Cost Inflation Indexes

Financial year	Cost Inflation Index
2001-02	100
2002-03	105
2003-04	109
2004-05	113
2005-06	117
2006-07	122
2007-08	129
2008-09	137
2009-10	148
2010-11	167
2011-12	184
2012-13	200
2013-14	220
2014-15	240
2015-16	254
2016-17	264
2017-18	272
2018-19	280
2019-20	289

8. Computation of capital gain in case of sale of shares or debentures of an Indian company purchased by a non-resident in foreign currency [ first proviso to section 48]

In such a case, capital gain shall be determined as under:-

Full Value of Consideration (X)	Find out sale consideration in Indian currency and convert it into same foreign currency, which was used to acquire the capital asset, at average exchange rate* on the date of transfer.
Cost of acquisition (Y)	Find out the cost of acquisition in Indian currency and convert it into foreign currency at average exchange rate on the date of acquisition.
Expenditure on sale (Z)	Find out the expenditure on transfer in Indian currency and convert it into same foreign currency at average exchange rate on the date of transfer (not on the date when expenditure is incurred).
Capital gain (X-Y-Z)	The capital gains as computed in after reducing the cost of acquisition and expenditure from the full value of consideration shall be reconverted into Indian currency at buying rate** on the date of transfer.

* Average exchange rate means the average of the telegraphic transfer buying rate and telegraphic transfer selling rate of the foreign currency initially utilised in the purchase of capital asset.

** Buying rate is the telegraphic transfer buying rate of such currency.