Meanings of Capital Gains
Profits or gains arising from transfer of a capital asset are called "Capital Gains" and are charged to tax under the head "Capital Gains".
Meaning of Capital Asset
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 assesse.
(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 following items are excluded from the definition of "capital asset":
- any stock-in-trade ,consumable stores or raw materials held for the purposes of his business or profession ;
- personal effects, that is, movable property (including wearing apparel and furniture) held for personal use by the taxpayer or any member of his family dependent on him, but excludes —
(a) jewellery;
(b) archaeological collections;
(c) drawings;
(d) paintings;
(e) sculptures; or
(f) any work of art.
- Agricultural land in rural India.
- 6 ½ % gold bonds (1977) or 7% gold bonds (1980) or national defence gold bonds (1980) issued by the central government.
- Special bearer bonds (1991).
- Gold deposit bond issued under the gold deposit scheme (1999).
Definition of rural area (from AY 2014-15) – Any area which is outside the jurisdiction of a municipality or cantonment board, having a population of 10,000 or more is considered rural area.
| 2 kms from local limit of municipality or cantonment board |
If the population of the municipality/cantonment board is more than 10,000 but less than 1 lakh |
6 kms from local limit of municipality or cantonment board |
If the population of the municipality/cantonment board is more than 1 lakh but less than 10 lakh |
| 8 kms from local limit of municipality or cantonment board |
If the population of the municipality/cantonment board is more than 10 lakh |
Long-Term Capital Asset
Any capital asset held by the taxpayer for a period of more than 36 months immediately preceding the date of its transfer will be treated as long-term capital asset. However, in respect of certain assets like shares which are listed in a recognised stock exchange in India, units of equity oriented mutual funds, listed securities like debentures and Government securities, Units of UTI and Zero Coupon Bonds, the period of holding to be considered is 12 months instead of 36 months
Note:
1) With effect from Assessment Year 2017- 18, period of holding to be considered as 24 months instead of 36 months in case of unlisted shares of a company,
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2) With effect from A.Y. 2018-19, period of holding to be considered as 24 months in instead of 36 months in case of immovable property being land or building or both.
Short-Term Capital Asset
Any capital asset held by the taxpayer for a period of not more than 36 months immediately preceding the date of its transfer will be treated as short term capital assets.
Transfer [section2(47)]
Computation of long-term capital gains (section 48)
Long-term capital gain arising on account of transfer of long-term capital asset will be computed as follows:
| Particulars |
RS |
| Full value of consideration (i.e., Sales consideration of asset) |
XXXX |
| Less: Expenditure incurred wholly and exclusively in connection with transfer of capital asset (E.g., brokerage, commission, advertisement expenses, etc. |
(XXXX) |
| Less: Indexed cost of acquisition (*) |
(XXXX) |
| Less: Indexed cost of improvement if any (*) |
(XXXX) |
| Less: Exemption under section 54/54B/54F/54EC/54EE/54F |
(XXXX) |
| Long-Term Capital Gains |
XXXX |
NOTE
Indexed cost of acquisition =
cost of acquisition X Cost inflation index of the year of transfer of capital asset/ Cost inflation index of the year of acquisition
Indexed cost of improvement =
Cost of improvement × Cost inflation index of the year of transfer / Cost inflation index of the year in which the improvement
Computation of short-term capital gain
| Particular |
Rs |
| Less: Expenditure incurred wholly and exclusively in connection with transfer of capital asset (E.g., brokerage, commission, advertisement expenses, etc.
| XXXX
|
| Gross sales consideration |
XXXX |
| Less: cost of acquisition |
XXXX |
| Less: Exemption under section 54B/54D |
XXXX |
| Short term capital gain |
XXXX |
Transactions not regarded as transfer (No capital gain) (section 47)
A gift or will or an irrevocable trustTransfer of capital assets by holding company to its subsidiary companyTransfer of capital assets by amalgamation company to amalgamated company in a scheme of amalgamationTransfer or issue of shares by a resulting company in a scheme of demerger Transfer of government security outside India by a Non resident to another non residentRedemption of sovereign gold bonds by an individualTransfer of specified capital assets to the government or university etc.Transfer on conversion of bonds or debentures etc. into shares or debentureTransfer under reverse mortgageDedication under section 10
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