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.

capital gain

 

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:

    a) Stock-in-trade, consumable stores, raw materials held for the purpose of business or profession;

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.

https://taxguru.in/income-tax/capital-gain.html

Deductions

 Chapter VI A of Income Tax Act contains various sub-sections of section 80 that allows an assessee to claim deductions from the gross total income on account of various tax-saving investments, permitted expenditures, donations etc. Such deductions allow an assessee to considerably reduce the tax payable.

The Chapter VI A of Income Tax Act contains the following sections:

80C: Deduction in respect of life insurance premium, deferred annuity, contributions to provident fund (PF), subscription to certain equity shares or debentures, etc. The deduction limit is Rs 1.5 lakh together with section 80CCC and section 80CCD(1).

80CCC: Deduction in respect of contribution to certain pension funds. The deduction limit is Rs 1.5 lakh together with section 80C and section 80CCD(1).

80CCD(1): Deduction in respect of contribution to pension scheme of Central Government – in the case of an employee, 10 per cent of salary (Basic+DA) and in any other case, 20 per cent of his/her gross total income in a FY will be tax free. Overall limit is Rs 1.5 lakh together with 80C and 80CCC.

80CCD(1B): Deduction up to Rs 50,000 in respect of contribution to pension scheme of Central Government (NPS).

80CCD(2): Deduction in respect of contribution to pension scheme of Central Government by employer. Tax benefit is given on 14 per cent contribution by the employer, where such contribution is made by the Central Government and where contribution is made by any other employer, tax benefit is given on 10 per cent.

80D: Deduction in respect of Health Insurance premium. Premium paid up to Rs 25,000 is eligible for deduction for individuals, other than senior citizens. For senior citizens, the limit is Rs 50,000 and overall limit u/s 80D is Rs 1 lakh.

80DD: Deduction in respect of maintenance including medical treatment of a dependent who is a person with disability. The maximum deduction limit under this section is Rs 75,000.

80DDB: Deduction in respect of expenditure up to Rs 40,000 on medical treatment of specified disease from a neurologist, an oncologist, a urologist, a haematologist, an immunologist or such other specialist, as may be prescribed.

80E: Deduction in respect of interest on loan taken for higher education without any upper limit.

80EE: Deduction in respect of interest up to Rs 50,000 on loan taken for residential house property.

80EEA: Deduction in respect of interest up to Rs 1.5 lakh on loan taken for certain house property (on affordable housing).

80EEB: Deduction in respect of interest up to Rs 1.5 lakh on loan taken for purchase of electric vehicle.

80G: Donations to certain funds, charitable institutions, etc. Depending on the nature of the donee, the limit varies from 100 per cent of total donation, 50 per cent of total donation or 50 per cent of donation with a cap of 10 per cent of gross income.

80GG: Deductions in respect of rent paid by non-salaried individuals who don’t get HRA benefits. Deduction limit is Rs 5,000 per month or 25 per cent of total income in a year, whichever is less.

80GGA: Full deductions in respect of certain donations for scientific research or rural development.

80GGC: Full deductions in respect of donations to Political Party, provided such donations are non-cash donations.

80TTA: Deductions in respect of interest on savings bank accounts up to Rs 10,000 in case of assessees other than Resident senior citizens.

80TTB: Deductions in respect of interest on deposits up to Rs 50,000 in case of Resident senior citizens.

80U: Deduction in case of a person with disability. Depending on type and extent of disability maximum deduction allowed under this section is Rs 1.25 lakh.