CAPITAL GAINS Chargeability of Capital Gain - Section-45 by P.V.Harini harinip@sbsandco.com Date: 11-11-2017
Section 45 What Section 45 says? Profit or Gain arising Transfer of Capital Asset Chargeable to tax In the previous year in which SUCH Transfer took place 2
Definitions Transfer u/s 2(47) Sale,Exchange,Relinquishment of asset Extinguishment of right Compulsory Acquisition Conversion into Stock-in-Trade Retaining the possession of Immovable Property in part performance of Contract u/s 53A of TOPA,1882 Any transfer by way of becoming member or by acquiring shares in Cooperative society, Company, AOP Maturity or Redemption of Zero Coupon bond Capital Asset u/s2(14) Any Property held by the assesse Any Securities held by Foreign Institutional Investor, Investment made as per SEBI Movable Property such as Jewellery Archaeological Collections Work of Art(drawings, Sculptures, Paintings) 3
Exclusions for Capital Asset Stock in Trade. Movable Property held for Personal Use (Other than mentioned earlier). 6 1/2 per cent Gold Bonds,Special Bearer Bonds, Gold deposit bonds. Agricultural Land in India excluding agricultural land situated within Specified limits : Within and Population Municipality & Not less than 10,000 2Kms from municipality & >10,000 1,00,000 6Kms from municipality & >1,00,000 10,00,000 8Kms from municipality & >10,00,000 4
Exceptions to the above rule SECTION EVENT 45(1) In case of damage or destruction of capital asset 45(2) Conversion of capital asset into Stock in Trade 45(3) Transfer by a Individua(member) to a firm or AOP or BOI 45(4) Transfer by a firm or AOP or BOI to the Partner or Member 45(5) Transfer by way of Compulsory Acquisition Or where consideration for the transfer is determined by Central Govt or R.B.I 45(5A) Transfer under Specified Agreement 5 22/04/17
45(1) Event : In case of damage or destruction of capital asset by way of Flood, typhoon, earthquake, hurricane, cyclone or other convulsion of nature Riot or civil disturbance Accidental fire or explosion Action by or action taken in combating an enemy Year of Chargeability :Year of receipt of Compensation or the Other assets Consideration : Profits or gains arising from receipt of such money or FMV of other assets received. Indexation Facility : Up to year of destruction. 6
45(2) Event : Conversion of capital asset into Stock in Trade Year of Chargeability : In the year in which Stock in Trade is sold. Consideration : FMV as on date of conversion shall be considered as Consideration Business Income : The difference between Sale price and Fair market value on date of conversion is chargeable to tax under head Profits and Gains of Business and Profession. Disclosure is to be made in Tax Audit Report under Clause 15 Other Points : Indexation Facility : Up to year of Conversion. In the year of Sale of Stock in Trade both Capital Gains and Business Income arises. If the converted asset is sold in various years, the section will apply in each year in which it was sold. 7
45(3) Event Year of Chargeability Consideration Transfer by a Individua(member) to a firm or AOP or BOI In which such TRANSFER takes place Amount Recorded in the books of the firm or AOP or BOI Other Points : Transfer is made by way Capital Contribution (or otherwise). Transfer shall not be made to Company or a Co-operative Society. Chargeable in the hands of Individual (member). 8
45(4) Event Year of Chargeability Consideration Transfer by a firm or AOP or BOI to the Partner or Member In which such TRANSFER takes place Full Value of Consideration Received from such TRANSFER Other Points : Transfer is made by way distribution of capital assets on the Dissolution(or otherwise). Transfer shall not be made by Company or a Co-operative Society. Chargeable in the hands of Firm / AOP /BOI. 9
45(5) Event : Transfer by way of Compulsory Acquisition Or where consideration for the transfer is determined by Central Govt or R.B.I 1. Consideration / Compensation received for the first time Year of Chargeability : In the year in which such Consideration or Compensation is first received. 2. In case of Enhancement Year of Chargeability : In the year in which such enhanced Consideration or Compensation is received. Any payment made to resident on account of Compulsory Acquisition shall be subjected to T.D.S@ 10%.However no deduction shall be made where payment does not exceed Rs.2,50,000. 10
45(5) Other Points : Any amount of compensation received in pursuance of an interim order of a court, Tribunal or other authority such compensation shall be Chargeable in the previous year in which the final order from such authority is made; Where in the assessment for any year, the capital gain arising from the transfer of a capital asset is computed by taking the compensation / consideration OR enhanced compensation / consideration and Subsequently such compensation / consideration is reduced by any court, Tribunal or other authority, such assessed capital gain of that year shall be recomputed by taking the compensation or consideration as so reduced by such court, Tribunal or other authority to be the full value of the consideration. 11
45(5A) Event : Transfer of a capital asset, Under Specified Agreement being land or building or both, (assesse being Individual & HUF) Consideration : Stamp Duty Value of land or building or both as on the date of issue of the said certificate, as increased by the consideration received in Cash Year of Chargeability : Year of Receipt of Certificate of Completion for whole or part of the project issued by Competent Authority. Other Points: Where the assessee transfers his share in the project on or before the date of issue of Certificate of Completion,the above said provision shall not apply i.e. Capital Gains shall be chargeable in the year in which such transfer takes place 12
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