Income From Capital Gain. By. CA. Rajesh Dalal (Limited to T.Y.B.Com Syllabus) J.M.PATEL COLLEGE OF COMMERCE

Transcription

1 Income From Capital Gain By. CA. Rajesh Dalal (Limited to T.Y.B.Com Syllabus) J.M.PATEL COLLEGE OF COMMERCE

2 Income From Capital Gain For Income to be Charge under this head, the following all the four factor has to be present, otherwise Income cannot be charge under this head of Income:- 1) There Should be Capital Asset 2) Capital Asset Should be Transfer during the year. 3) Consideration should be present. 4) Cost should be determine.

3 Capital Asset :- Capital Assets means property of any kind, connected with business or not, movable or immovable, tangible or intangible, but exclude the following:- 1) Agriculture Land-Condition applied. 2) Personal effects excluding Jewellery, Archaeological Collections, Drawings, Paintings, Sculptures, Any work of art. 3) 6 1/2 per cent Gold Bonds, 1977, 7 per cent Gold Bonds, 1980, National Defence Gold Bonds, 1980 and Special Bearer Bonds, 1991 issued by the Central Government. 4) Gold Deposit Bonds under Gold Deposit Scheme, 1999 notified by the Central Govt.

4 Types of Capital Assets:- Short-term Capital Assets-If asset is hold than less than 36 months then they are Short-term. However, in case Financial Assets*, the holding period is 12 months. Long-term Capital Assets-One which is not Shortterm. For both the mode of Computation is different. Financial Assets means Equity / Preference Shares Any listed Securities -- Units of UTI and Notified Mutual Fund --- Zero Coupon Bond

5 Transfer:- includes:- (i) the sale, exchange or relinquishment of the asset; or (ii) the extinguishment of any rights therein; or (iii) the compulsory acquisition thereof under any law; or (iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment; or (iva) the maturity or redemption of a zero coupon bond; or (v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract or (vi) any transaction which has the effect of transferring, or enabling the enjoyment of, any immovable property. Few transactions are not regard as Transfer

6 Consideration:- The amount agreed for Sale of the asset. Where the consideration is not ascertainable or cannot be determined, then, the fair market value of the said asset on the date of transfer shall be deemed to be the full value of the consideration. In case of money received from Insurance Company then it will be chargeable in the year of receipt. In case of Conversion of asset into Stock-in-trade it will be chargeable in year of sale and fair market value will be considered as consideration. If Capital asset is distributed to partner / member of AOP, then F.M.V will be considered as Consideration. If transfer from partner to firm or member to AOP, than value recorded in the books. In case of compulsory acquisition, the value or enhanced value received will be consideration.

7 In the above case the cost of the asset will be the cost in the hand of previous owner. If any improvement is done the cost will increase accordingly. In case of amalgamation / conversion then cost will be the cost of his original holding. In case of Sweat equity share the cost will be on which tax has been paid as perquisite. In case of Conversion of Stock-in-trade to Capital Asset, the market value on date of conversion will be cost, for subsequent gain. Otherwise the Cost of asset will the amount spend to acquire the assets/ Any advance money received will reduce the Cost. Cost- Sec 49

8 Certain Capital Gain Specifically exempted UTI 64 :where the transfer of such asset takes place on or after Capital Gains of a political party subject to provisions of Section 13A of the I.T Act, 1961 Agriculture Land : In the case of an individual or HUF. Such land should have been used for agricultural purposes during the period of two years immediately preceding the date of transfer. Transfer should be by way of compulsory acquisition. Long term capital gain of Equity Shares /Funds :Capital gains arising from the transfer of a long term capital asset, being an equity share in a company or unit in an equity oriented fund where such a transaction is chargeable to securities transaction tax and takes place on or after 1st October, 2004.

9 Mode of Computation:- Short-Term Capital Gain Determine Value of Consideration Deduct Transfer Expenditure Deduct Cost of Acquisition Deduct Improvement Cost. Exemption u/s 54B, 54D, 54G Balance Normal Slab rate. Long-Term Capital Gain Determine Value of Consideration Deduct Transfer Expenditure Deduct INDEX Cost of Acquisition. Deduct INDEX Improvement Cost. Exemption + 54, 54EC & 54F Balance 20 % rate.

10 Indexation Benefit Indexation is nothing but working out the value of asset based on Cost Inflation Index Cost Inflation Index for the year is 100. Cost Inflation Index for the year is 939 and for is 1024 Thus if asset is purchase for 1,00,000 and sold in the cost will be 9,39,000 and sold in will be 10,24,000.

11 Capital Gain Computation-Non-Resident Applicable if the following Condition are satisfied :- A) Person to be Non-resident. B) Asset to be shares / debentures of an Indian Company; C) Purchase in Foreign Currency. D) No indexation applicable, even if it s long term capital gains. Computation :- Sales Consideration- Convert into Foreign Currency initially utilized to purchase on sale date Less: Cost of Acquisition Foreign Currency utilized to purchase. Balance Reconverted into Indian Currency.

12 Transfer of Residential House Exemption u/s 54 Deductio n under Section / Applicabi lity Section 54(Indivi dual or HUF) Capital asset Transferre d (Holding Period) Residential House Property (Long term) Capital Asset to be Purchased (Holding Period) Residential House Property Quantu m of Deduct ion Capital Gains / Cost of New Asset whiche ver is less. Time limit for Purchase of the New Capital Asset Within 1 Year Before, or 2 Years After the Date of Transfer (If Purchased) or 3 Years after the Date of Transfer (If Constructed). Balance amount can be invested in capital gains amount scheme on or before due date of Furnishing Return of Income If new Asset is sold within 3 years from date of purchase/ construction, for computing Short term capital gains on new Asset, cost of new asset shall be reduced by the amount of

13 Transfer of Any Asset Exemption u/s 54EC Deductio n under Section / Applicabi lity Capital asset Transfe rred (Holdin g Period) Capital Asset to be Purchased (Holding Period) Quantum of Deduction Time limit for Purchase of the New Capital Asset Section 54EC (Any Assesse e) Any Long- Term Assets Bonds issued by NHAI & RECL on or after Capital gains or amount invested, whichever is less subject to a maximum of Rs. 50 lakhs during a financial Year Within 6 months from the date of Transfer. If Capital asset is sold within 3 years, exempted capital gains will be treated as LTCG of year of sale of New Asset.