INCOME FROM CAPITAL GAIN
Capital gain’s tax liability arises only when the following conditions are satisfied:
1. There should be a capital assets.
2. The capital asset is transferred by the assesses. (have some exceptions, when deduction given under section 54 etc. is withdrawn)
3. Such transfer take place during the previous year. (have some exceptions,
conversion capital assets into stock in trade and in case of compulsory acquisition of assets).
4. Any Profit or gains arises as a result of transfer.
5. Such profit or gains is nor exempt from tax under section 54, 54B, 54D, 54EC, 54ED, 54F and 54G.
MEANING OF CAPITAL ASSETS
It means property of any kind, held, by assesses, whether or not connected with his business or profession. However it does not included the following: -
1. Stock-in-Trade, consumable stores or raw material held for the purpose of business or profession.
2. Personal effects i.e. Movable property held for personal use by assesses or any member of his family dependent on him but jewellery is not treated as personal effect.
3. Agriculture land in India; It means land in any area (a) more than 8 km. Away from notified municipality or cantonment board and (b) or municipality or cantonment board having population less than 10,000.
4. 6 1/2% Gold Bonds, 1978 or 7% Gold Bonds, 1980 or National Defense Gold Bonds 1980 issued by the Central Government.
5. Special Bearer Bonds 1992
6. Gold Deposit Bonds issued under Gold Deposit Scheme, 2000.
TRANSACTION NOT REGARDED AS TRANSFER
No capital gain arise on the following transactions because these are not treated transfer: -
1. Distribution of assets on partition of HUF
2. Transfer under Gift, will or irrevocable trust.
3. Transfer under amalgamation if amalgamated company is an Indian Co.
4. Transfer under holding co. To subsidiary co. Or subsidiary to holding if
a. Holding co. Holds co. to subsidiary co. or subsidiary to holding if
b. Transferee co. Is an Indian co.
5. Transfer of shares in an Indian Co., by the amalgamating foreign co. To the amalgamated foreign co., or by the damaged company to the resulting company if: -
a. At lest 25% of the shareholders of the amalgamating foreign co. To the amalgamated foreign co., continue to remain shareholders of the amalgamated foreign company and
b. Such transfer does not attract tax on capital gains in the country in which the amalgamating company is incorporated.
6. Conversion of debentures, bonds, deposit certificates etc. Onto shares or debenture of that company.
7. Transfer of capital assets on conversion of firm in company if
a. All assets/liabilities of firm become the assets/liabilities of company.
b. All partners of firm become shareholders in the ratio of their capital account.
c. Partners receive only share as consideration
d. Partners have at least 50% voting power for at least 5 years.
8. Transfer of capital assets on conversion of a sole proprietary concern in a company if above four conditions as mentioned in point No.7 satisfied.
TYPE OF CAPITAL ASSETS
1. Short term capital assets: - A capital assets held by an assessee for not more than 36 months immediately preceding the date of its transfer. However in the following cases the period of holding cases the period of holding should be 12 months or less to qualify as short term capital assets: -
a. Shares held in a company
b. Any security listed on a recognized stock exchange
c. Units of UTI/Mutual Fund.
2. Long Term capital Assets: - A capital assets which is not a short term capital assets.
Cost of Acquisition:- Means the amount which the assessee has paid or incurred
|Expenses which is taken as part of
cost of acquisition
|Expenses which are not taken as
part of cost of acquisition
|1. Interest on money borrowed to
|1. Ground rent incurred by
assessee for the acquisition of
|3. Expenses for suits for amending
articles of association
|2. Estate duty paid in respect of
|4. Litigation expenses incurred
for compelling the company to
register the share in the name
of the assessee.
|5. Where the mortgage was
created by the previous owner.
2. In relation to goodwill of a business, tenancy rights, route permits, loom hours, patents, copy right or trademark, it means: -
a. The amount of purchase Price: -
b. Any other case: - Nil
3. Where the capital asset became the property under a transaction referred in first 5 points of section 47 then cost of acquisition shall be deemed to be the cost for which the previous owner acquired the assets. (but in such case for computing period of holding, the period for which the assets was held by the previous owner shall also be consider.
HOW TO CALCULATE TAX ON LONG TERM CAPITAL GAIN (SECTION 112)
1. If Listed share/securities/ units are transferred and the benefit of indexation is not taken, then long term capital gain is taxable @ 10% plus Surcharge.
2. Exemption of Rs.50,000 is available for Long term capital Gain if taxable income below Rs.50,000.