Sec 45 to 55 A
Comparison with other Heads of Income In the other heads of income if an assessee s income is not taxable under one head it will be taxable under other heads. Eg. Family pension paid to widow But under capital gains if an income is not taxable under the head capital gains it will not be taxable under any other head. So the Charging section assumes importance
Sec 45(1) Basis of Charge Capital asset -2(14)should be transferred There should be a transfer- Sec 2(47) Any profit or gain should arise If all the above conditions are satisfied that the capital gains will be chargeable to tax in the year of Transfer. Exception to the taxable year are: Sec 45(1A), Sec 45(2) & Sec 45(5)
No Cost Vs Nil No cost No capital gains ~ This is the basic concept underlying the chargeability of capital gains If COA is not ascertainable then no capital gains is chargeable to tax. If COA is Nil then it will be chargeable to capital gains tax. eg. Rights renounciation Sec 55(2)(aa) Bonus Shares
What is a capital Asset?? Any property held by an assessee whether connector or not connected to his business or profession but does not include Stock in trade, Consumables, Rawmaterials held for business. Personal effects excluding jewellery. Rural Agricultural land. Gold and special bearer bonds issued by Govt. Is motor car a Capital Asset? Is Business assets (e.g. Computers, machinery)a capital asset?
How does Capital Gain gets taxed? Capital Asset STCA LTCA STCG / STCL LTCG / LTCL Long term or short term depends upon the holding period Nature of CA Short Term Long Term Financial Asset(Except Unlisted Debentures) Any other capital asset 12 Months More then 12 Months 36 Months More than 36 Months
In computing 12 month or 36 month period Situation COA u/s 49(1) COA u/s 49(2) Bonus or rights shares Renounciation of rights Demerger Period to be taken Previous owner Period also Period held in amalgamating company Date of allotment Date of offer of such right Period of holding in demerged company
What is a Transfer? Sale, exchange or relinquishment Extinguishment of rights Compulsory acquisition Conversion of capital asset into Stock in trade
Transaction not regarded as Transfer Sec 47 Transfer under gift,will or under irrevocable trust(sec 47(iii) Transfer between holding and subsidiary company(transferee should be a Indian company) 100 % share holding Asset should not be transferred as stock in trade The above conditions should be withheld for 8 yrs. If not Sec 47 A is attracted. Conversion of bonds, debentures etc into shares or debentures of same company S.47(x) Transfer of capital asset in a transaction of reverse mortgage.
Computation of Capital Gains STCG LTCG FVC XXX FVC XXX Less Expenses Net consideration Less: COA, COI STCG Less Exemption U/s 54 B, D,G,GA STCG chargeable to Tax (xxx) XXX (XXX) XXX (xxx) XXX Less Expenses Net consideration Less: ICOA, ICOI LTCG Less Exemption U/s 54, 54 EC,54 F also LTCG chargeable to Tax (xxx) XXX (XXX) XXX (xxx) XXX
Sec 45(2) Conversion of Capital Asset into stock in trade Stock in trade is not a capital asset. But conversion of capital asset in to stock in trade is a transfer. Issues: What will be the FVC? Year of Taxability? How the income will be charged? Sec 54 EC from when? Holding period to be considered till what date?
Capital gains on Compulsory acquisition sec 45(5) Capital gains arising on a) compulsory acquisition of an asset under any law b) Consideration is determined or approved by RBI or Central govt. c) Enhanced compensation may be STCG or LTCG depends upon how initial compensation is charged to tax. Issues: What will be the FVC? When the CG will be chargeable to tax? Will enhanced compensation be chargeable to tax even if assessee is dead? When sec 54 EC exemption is eligible? Will COA be allowed on enhanced compensation also?
Sec 50C Capital gains in Real estate transaction Applicability: Capital asset transferred is land or building or both FVC Value adopted by Stamp valuation authority or AC w.e.h If an assessee objects then the AO can assess the value on its own. Then FVC shall be AO value or Stamp valuation w.e.l But in no cases the FVC can be less than Actual consideration.
Cost of Acquisition: Cost of Acquisition in case of Financial Asset Financial Asset Shares Bonus shares Nil ** Rights shares Rights renounciation Cost of Acquisition Original cost Amount actually paid for rights(in case of renouncee add the renouciation cost also) Nil ** If bonus shares are issued before 1/4/1981 the FMV as on 1.4.1981 can be taken as cost
COA in case of any Other Capital Assets and asset acquired in any of the modes specified u/s 49(1) <1981 >1981 Actual Cost or FMV on 1.4.1981 Actual cost / Cost to the previous owner(in case of sec 49(1)
Cost of acquisition u/s 49(1) Cost of acquisition will be taken as cost to previous owner if transfer is made on following lines: Last Under a gift or will Previous By succession, inheritance or devolution owner Cost of Acquisition In consideration of transfer u/s 47(x) Cost of acquisition of the asset will be the cost of asset given up. Cost of Improvement: COI before 1 st april 1981 will not be allowed under any circumstances That s why no break up before 1/4/1981 is given.
Indexed cost of Acquisition Indexed cost acquisition: = CII for the year of transfer CII for the first year held by assessee When indexation is not available: For a) STCG, b) For first proviso to Sec.48
Exemption from Capital Gains Nature Sec 54 Sec 54 B Sec 54 EC Sec 54 F Eligible assesses I & HUF I All I & HUF Asset trfd RH Urban Agri Land Any asset Re investment RH RAL or UAL NHAI, REC bonds Time limit( from the date of transfer) Amount exempted 1 yr before or 2 yrs after if purchase/ 3 yrs for construction CG or Amt invested w.el With in 2 yrs With in 6 months CG or Amt invested w.el CG or Amt invested w.el Any CA other than RH RH 1 yr before or 2 yrs after if purchase/ 3 yrs for construction In proportion of Amt invested to Net consideration
Exemption from Capital Gains Nature Sec 54 Sec 54 B Sec 54 EC Sec 54 F Other conditions Consequences of violation *** - UAG should be used for agricultural purposes by assessee or his parents for at least 2 yrs Exemption given is deducted from COA of new asset Exemption given is deducted from COA of new asset Investment in bonds should not exceed Rs. 50 Lakhs during A financial year. Should not Convert in the terms of money Considered as LTCG CGDS Yes Yes No Yes Own Only one RH on the date of transfer & should not purchase any RH in next 2 yrs or construct in next 3 yrs Exemption claimed is treated as LTCG.
Capital Gains deposit Scheme Sec 54,B,D,F,G,GA allows 2 yrs or 3 yrs time for investing in new assets for the purpose of claiming exemption under those section.to claim such the amount to be claimed should be deposited before due date of filing return. If amount deposited has remain unutilzed or not utilised for the purpose specified in those section then the exemption granted will be charged to tax in the year in which CGDS expires from the date of transfer. Key points: CGDS does not apply to sec 54 EC Unutilsed deposit will also be taxable on proportionate basis u/s 54 F Unutiled deposit will be taxable only in the hands of assessee.
Capital gains accounts scheme: Under Sec.54, 54B, 54D, 54F, 54G, 54GA (54 EC not covered) the capital gains is exempt if such gains or consideration, as the case may be, are invested in new assets within the time allowed in the respective sections. If such investment is not made before the date of furnishing the income tax return then the amount of capital gain or the net consideration, as the case may be is required to be deposited in an account under capital gains accounts scheme. The relevant points are: Date for deposit: The deposit shall be made on or before furnishing the return of income or within the due date for furnishing the return under Sec.139(1), whichever is earlier. The deposit can be made in any public sector bank or approved institution. Proof: The return of income shall be accompanied by proof
. Withdrawn: The amount deposited can be withdrawn for making the investments as specified in the relevant section s. Unutilised: If the amount deposited is not utilised for acquiring the new asset within the given period, the capital gain related to the unutilised amount shall be treated as the C.G. of the previous year in which the period specified in relevant sections expired. The unutilised deposit amount in the Capital Gains Accounts Scheme, in the case of an individual, who dies before the expiry of the two/three years stipulated period under section 54, 54B, 54D, 54F and 54G, cannot be taxed in the hands of the deceased (Circular No.743 dt.06.05.1996).
Sec. 54H: Extension of time for acquiring new asset or depositing amount: Where the transfer of the original asset is by way of compulsory acquisition and the amount of compensation is not received by the assessee on the date of such transfer, the period available for acquiring new asset or investment by the assessee as referred to in Sec. 54, 54 B, 54D, 54EC and 54F in relation to such compensation, shall be calculated from the date of receipt of such compensation and not from date of transfer of the original asset. The extension of time as per section 54H is not available for section 54G/GA. Exemption under more than one provision: It is possible to avail exemption under the more than one section in respect of capital gains arising on transfer of a capital asset. For e.g. an assessee may sell a residential house, jewellery, land, shares etc., and invest the capital gains or net consideration as the case may be in another residential house whereby exemption can be claimed both u/s. 54 and sec.54f.
Sec 10(38) Exemption for LTCG on transfer of Securities Equity shares in a company or unit of an equity oriented fund is eligible for exemption STT should be paid on those transaction
For the purpose of Sec.54 and 54F, cost of land acquired by the assessee will also be eligible for exemption along with the cost of construction or acquisition. (Circular No.667, dated October 18, 1993). For Sec.54/54F, the word house property means building or land appurtenant there to. Conversion of joint ownership into single ownership by payment being made to other joint owners amounts to purchase. House property does not mean an independent house property only, it includes flats in apartment & joint ownership as well. Purchase of the house property which is already in occupation of the assessee in the capacity of the tenant is taken as an eligible purchase. Sale of > 1 house property & purchase/construction of a single property is permissible. Sale of 1 house property & purchase/construction of > 1 property is permissible. Construction of 2 nd floor on existing property is valid. For the purpose Sec.54B & 54D usage as a tenant is also to be considered. In case of Sec.54D & 54G/GA, the assets to be sold are depreciable assets, the resulting C.G. can only be either STCG or STCL.
Expenses incurred for registration of property will be considered as investment. Expenditure incurred for construction before the date of transfer of the asset becomes eligible for exemption u/s.54 or 54F. The construction of the new house may start before the date of transfer, but it should be completed after the date of transfer of the original house. Construction need not be completed in full. Where a person who sold the house property has died, even if his legal representatives fulfils the condition as to purchase or construction of a new residential house within the stipulated period, the benefit of Sec.54 can be taken by such representatives. If the assessee complies with the conditions given in Sec.53A of the transfer of property act within given time, he is eligible for exemption even if the sale deed was not registered.
The words "assessee or a parent of his" occurring in Sec.54B of the Act, would clearly indicate that only an "individual assessee" is eligible. Expenses incurred for shifting will be considered as investment u/s 54G, 54GA. The cost of the bonds purchased under eligible issue of capital for which exemption under Sec.54EC is claimed, will not qualify for deduction under Sec.80C. Newly acquired or constructed property may be in India or outside India. For claiming exemption u/s 54(1), construction of house need not be made by the assesse himself, as it can be constructed by a third party for the assesse CIT Vs. Uma Budhia [2004]. There is nothing in provision of section 54 to warrant establishing a direct nexus or live-link between the amount of capital gain and the cost of new asset Ajit Vaswanit Vs. CIT. For purpose of claiming exemption u/s 54, investment in residential house would not only include cost of purchase of house but also cost incurred for making house habitable- Saleem Fazelbhoy Vs. CIT[2006].