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CAPITAL GAINS

CAPITAL GAINS. CAPITAL ASSET U/S 2(14). Property of any kind held by the assessee whether or not connected with the business or profession. and includes: Plant and machinery Building – whether business premises or residential All assets of a business Goodwill, patent rights etc

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CAPITAL GAINS

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  1. CAPITAL GAINS

  2. CAPITAL ASSET U/S 2(14) • Property of any kind held by the assessee whether or not connected with the business or profession. and includes: • Plant and machinery • Building – whether business premises or residential • All assets of a business • Goodwill, patent rights etc Capital asset doesnot include: • Stock in trade • Personal effects- household goods except jewellary • Agricultural land situated in rural areas • Gold bonds • Special bearer bonds

  3. TRANSFER OF ASSETS • Transfer of assets includes sale, exchange, relinquishment of any rights therein or the compulsory acquisition under any law. • The transfer must be effected during the current previous year.

  4. TRANSFER NOT REGARDED AS TRANSFER • Transfer of assets on partition of HUF • Transfer of assets to the shareholders on liquidation of a company • Transfer of assets under a gift, will or irrevocable trust • Transfer of assets by a subsidiary company to a parent company and by a parent company to the subsidiary company • Transfer of assets on amalgamation of companies • Transfer of shares on amalgamation of companies • Transfer of agricultural land before 1.3.1970 • Transfer of assets of historical importance to a museum, achieves or National Gallery of Art • Conversion of bonds and debentures into shares or debentures.

  5. TYPES OF CAPITAL GAIN • Short term capital gain Gain on asset held by the assessee for a period upto 36 months( in case of shares, debentures, units, securities etc, this period is 12 months) • Long term capital gain Gain on assets held by an assessee for a period exceeding 36 months. For shares etc this period is 12 months.

  6. COST OF ACQUISITION • In case asset is acquired without paying any price( partition of HUF, gift, inheritance etc), the cost of acquisition will be the price paid by the previous owner plus the cost of improvements , if any • The cost of shares of amalgamated company will be the cost of acquisition of shares of amalgamating company • In case , cost of acquisition is unascertainable, the FMV on the date of acquisition will be taken as the cost of acquisition. • In case of assets acquired before 1.4.1981, the assessee has the option to adopt the FMV on 1.4.1981 as the cost of acquisition • Cost of bonus shares and on renunciation of right shares is to be taken as nil • Advance money is to be adjusted against the cost of acquisition

  7. COMPUTATION OF CAPITAL GAIN • Capital Gain= sale price Minus • Indexed cost of acquisition • Indexed cost of improvement • Expenses on transfer Indexed cost of acquisition= Cost of acquisition x CII of the year of sale/ CII of the year of acquisition Indexed cost of improvement= Cost of improvement x CII of the year of sale/CII of the year of improvement

  8. NO INDEXING No indexing is required in the following situations: • Short term capital assets • Depreciating capital assets • Bonds and debentures

  9. EXEMPTED CAPITAL GAINS • SEC 10(36)- income from sale of shares in certain cases: Any income arising from the transfer of a long term capital asset, being an eligible equity share in a company ,purchased on or after the 1st day of March2003 and the 1st day of march 2004 and held for a period of twelve months or more, will be exempted from tax.

  10. SEC 10(37) • In the case of an assessee being an individual or Hindu Undivided Family,capital gains arising from the compulsory acquisition of self cultivated urban agricultural land shall be fully exempted from tax.

  11. SEC 10(38) • Any income arising from the transfer of a capital asset being shares and the transfer of sale of such securities being entered into in a recognised stock exchange in India on or after 1.10.2004 shall be fully exempted.

  12. SEC 10(40) • Income from transfer of capital asset of an undertaking engaged in the business of generation, transmission or distribution of power where such transfer takes place on or before 311.3.2006 and transfer is made to an indian company is fully exempted from tax.

  13. SECTION 54( sale of residential house property) • In case of an individual and HUF that part of capital gain from sale of such house property which is long term capital asset is exempted which is invested in: • Purchase of another house one year before or two years after the sale • Construction of another house within 3 years after the sale such exempted gain will be added to the new capital gain if the new house purchased or constructed is sold or transferred within 3 years from the date of purchase or construction.

  14. SEC 54B( sale of self cultivated urban agricultural land) • That part of capital gain from the sale of self cultivated urban agricultural land is tax free which is reinvested in purchase of another piece of land within 2 years after the sale.

  15. SEC 54 D( compulsory acquisition of capital assets) • That part of capital gain arising from the compulsory acquisition of land, building or right in such asset used by the Assessee for 2 years for his own business, shall be tax free which is reinvested in the purchase of another land or building or right in land or building within 3 years from the acquisition. • The new asset so acquired cannot be sold or transferred for a period of 3 years otherwise the old exempted gain will become taxable.

  16. SEC 54 EC( sale of any long term capital asset) • Investment of long term capital gain, within 6 months from the date of sale in Bonds issued by the National Highway authority of India or by National Rural Electrification Corporation Ltd, shall be exempted • The new bonds so acquired cannot be sold, transferred or plegded for 3 years. Exemption u/s 54EC shall be restricted upto Rs 50 lakhs on investments made on or after 1.4.2007.

  17. 54F( Sale of any long term capital asset) • Where a long term capital asset is sold or transferred and the sale price is invested in construction of a residential house within 3 years or purchase of another house within one year before sale or 2 years after sale, so much of capital gains shall be exempted as is in proportion of amount received to net consideration. • No exemption if the assessee owns another house or acquires another house in one year before or 2 years after the sale or constructs another house within 3 years.

  18. SEC 54 G • In case the assessee has to transfer his assets due to the shifting of his factory from urban to n on urban areas and he purchases new machinery or plant or acquires land or building or incurs expenses on shifting , within one year before or 2 years after the sale, the capital gain shall be treated as follows: • Difference between capital gain and the cost of the new asset is taxable • If capital gain is less than cost of new asset , then the total amount of capital gain is exempted.

  19. SEC 54 GA • In case an individual undertaking transfers its assets with the intention of shifting its premises from urban areas to special economic zone, capital gain arising from such transfer if invested within specified time frame to set up an industrial unit in a special economic zone, shall be fully exempted.

  20. SEC 54 H • In case compensation on compulsory acquisition is received after the date of transfer, the period available for investment will be counted from the date of receipt of such compensation.

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