Tax Implications

CAPITAL GAINS

By C.Venkata Krishna
For Community:
Graduates studying
Income Tax

Computation Of Total Income

Income from Salaries
Income from House Property
Profits & Gains of Business/Profess.
Capital Gains (Sec 45)
Income from Other Sources

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CHARGEABILITY
Any profits or Gains arising from the transfer of a Capital Asset during the
previous year is Chargeable to Tax under this head of income.
That is to Say:-

There Should be a Capital Asset

Capital Assets should be transferred during

the previous year.

Profit/Gains should have arisen.
Such Profit/Gains should be liable for tax.

What are Capital Assets

It includes all type of assets Whether movable/immovable, tangible/intangible etc.,
It excludes the following:-

Stock in trade, consumable stores/raw

materials held for business/profession.

Personal effects including wearing apparel
and furniture.
Agricultural Land (Conditions on Situation
applies)
Certain Specified Gold Bonds
Special Bearer Bonds
Gold Deposit Bonds

Judicial points on what is taxable and what is not taxable.

Personal effects should be movable property, it should be held for personal use
and it should not be Jewellary, archaeological collections, drawings, paintings,
sculptures, or any work of art.
Gold and Silver coins and bars used for pooja of deities as a matter of pride or
ornamentation are not personal effects. Therefore taxable.
Furniture's are of personal use. Therefore not taxable.
Foreign Stamp collections not a personal effect. Therefore taxable.
Car, Scooter etc., are under personal effects. Therefore exempted.
Securities, Loose diamonds, Goats are not personal effects. Therefore taxable.

TYPES OF CAPITAL ASSETS

SHORT TERM

If the asset is held for Less

than 36 Months then they are

Short Term capital assets.

In case of Equity/Preference
Shares in a Company,
Securities such as
Debentures/Government
Securities and Units of UTI and
Units of Mutual funds and Zero
Coupon bonds the term is 12
instead of 36 months.

LONG TERM

If the asset is held for

More than 36 Months
then they are Long Term
Capital Assets.

TAX LIABILITY

SHORT TERM CAPITAL GAINS

LONG TERM CAPITAL GAINS

To determine the Value of

Consideration
To deduct expenditure incurred for
the transfer
To deduct the cost of acquisition.
To deduct cost of improvement.
To avail exemption u/s 54 B, 54 D,
54 G, and 54 GA.
The balance amount is Short Term
Capital Gains.
Short Term Capital Gains are
chargeable to Tax based on SLAB
RATES.

To determine the Value of

Consideration
To deduct expenditure incurred for
the transfer.
To deduct indexed cost of
acquisition
To deduct indexed cost of
improvement.
To avail exemption u/s 54, 54 B,54
D, 54 EC, 54F, 54 G, 54 GA,
The balance amount is Long Term
Capital Gains.
Long Term Capital Gains are
chargeable to Tax on Flat Rate i.e
20%

INDEXATION BENEFIT

What is Indexation:-

Indexation is nothing but working out the value of

asset based on cost inflation index.
Cost inflation index for the year 1981-82 is 100 Cost
inflation index for the year 2007-08 is 551.
If an assessee had purchased an asset during the
year 81-82 for a sum of Rs.100.00. The same assets
value will be 551 if purchased during the year 200708 based on cost inflation index.
Therefore the assessee gets additional benefit by
deducting 551 instead of 100.

EXEMPTED CAPITAL GAINS

Section

54

Section

54 B
Section

54 D

Transfer of a Long Term Residential

House Property and

Purchasing/Constructing a New
Residential House Property.
Transfer of Agricultural Land and
acquires a new land for agricultural
purpose.
Compulsory acquisition of land and

buildings forming part of industrial

undertaking and again invested.

EXEMPTED CAPITAL GAINS

Section

54 EC
Section

54 F

Section

54 G

Transfer of Long Term Capital Asset and

investing in Long Term Bonds.

Transfer of a Long Term Capital Asset

other than a House Property and

investing in Long Term Residential
House Property.
Transfer of Assets in shifting of industrial

undertakings from urban area to rural

area.

EXEMPTED CAPITAL GAINS

Section

54 GA

Capital Gains from Transfer of assets

in cases of Shifting of industrial

undertaking from urban area to any
special economic zone

 Thanks