6/16/2017 Capitalgains:HowtocalculatecapitalgainsTheEconomicTimes

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Howtocalculatecapitalgains
BYSURAJGOEL,ECONOMICTIMES.COM|JUN15,2017,12.10PMIST PostaComment

Computingcapitalgainscanbeacomplexandchallengingtaskdependingonthenature
andthenumberoftransactionsundertakenbytheassesseeinafinancialyear.Itis
alwaysadvisabletotakethehelpofanexpertlikeacharteredaccountantforthesame.
However,iftheassesseegoesbytheproperstepbystepmethodology,thenhecan
computehisowncapitalgains.Here'showtodoityourself.

Capitalgainsarisewheneveracapitalassetistransferred(bywayofsaleorotherwise)by
theassessee.Theyarefurtherclassifiedintotwo:shorttermcapitalgains(STCG)and
longtermcapitalgains(LTCG)onthebasisofasset'sholdingperiod

AstandardformathasbeenprovidedundertheIncometaxAct,1961forcalculatingLTCG Iftheassesseecanunderstandthemeaningof
andSTCG(seebelow): eachtermassociatedwithcalculationofcapital
gains,hecaneasilycomputeonhisown.

BigChange:
TheendofFiveYearPlans:Allyouneedtoknow

Iftheassesseecantryandunderstandthemeaningofeachtermintheaboveformat,hecaneasilycomputehisowncapitalgains.

UNDERSTANDINGEACHTERM
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Salevalue:Itisthevaluereceivedorreceivableonthecapitalassetsale.Inthecaseofaproperty,iftheactualsalepriceislessthan
thestampdutyvalue(SDV)oftheproperty,thentheSDVistakenasthesalevalue.Inthecaseofequitysharesormutualfund(MF)
units,thegrosssellingprice(excludingthebrokeragechargesandsecuritiestransactiontaxorSTTisconsideredasthesalevalue.

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6/16/2017 Capitalgains:HowtocalculatecapitalgainsTheEconomicTimes

Costofacquisition:Itisthepurchasepriceoftheassetwhichhasbeensold.Thebrokeragechargespaidtobuytheassethavetobe
includedinthepurchaseprice.

Incasethesoldassetwasacquiredasagift,thenthecostofacquisitionwillbethesameasthecostofacquisitioninthehandsofthe
personwhogiftedthesaidasset.Makesurethattheholdingperiodstartsfromthedatewhenthesaidassetwaspurchasedbythe
personwhogiftedit.

Costofimprovement:Itisthemoneyspentonmajorrepairsormodificationsoftheasset.Awhitewash,however,willnotbecounted
asacostofimprovement,whereasmoneyspentonmajormodifications,likeconstructingafloororanadditionalroom,willqualifyas
costofimprovement.

Also,themoneypaidbythelandlordtothetenanttogetthehousevacatedcanbetakenascostofimprovement.

Expenditureinconnectionwithtransfer/sale:Itincludesbrokeragecharges,registrychargesorotherexpensesmadeontheasset
sale.InequitysharesandunitsofequityorientedmutualfundswhereSTTischargedonsaletransaction,theSTTchargescan'tbe
deductedwhilecomputingcapitalgains.

Indexation:TheconceptofindexationisapplicableinthecaseofLTCGonly.Indexationisdonetoincorporatethetimevalueofmoney
(adjustingtheinflationfactor)whilecomputingthegainssoastomakethecomputationjustandfair.IndexationisdonebyusingCost
InflationIndex(CII).TherulesforapplyingindexationoncapitalgainscomputedinFY1718havechanged,however,whilecomputing
indexedcapitalgainsforFY1617,therulesprovidedinbelowmentionedlinkwouldcontinuetoapply.

ForFY1718,theindexationprocedureremainssame,however,theCostInflationindextablehaschangedbecausethebaseyearhas
beenshiftedfrom1.4.1981to1.4.2001.

ClickheretolearnhowtoapplyindexationincaseofLTCG

Holdingperiod:Itiscalculatedasthenumberofdaysormonthsforwhichtheassetis/washeldbytheassessee.Theperiodstarts
fromthedateonwhichtheassetwasacquiredbytheassesseeandendsonthedateimmediatelyprecedingthedateoftransferofthe
asset.

Inotherwords,thedateonwhichtheassetistransferredisnottobeincludedwhencomputingtheholdingperiod.Thistimeperiod
classifiesthenatureofgainsasshorttermorlongterm.

Thetablebelowshowstheminimumperiodofholdingwhichwouldclassifyacapitalassetaslongterm(applicableforFY1617).

However,theperiodofholdingforsomeassetclasseswouldchangeforwhencalculatingcapitalgainsforFY1718

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6/16/2017 Capitalgains:HowtocalculatecapitalgainsTheEconomicTimes

Otherpointstonote
Incasethetransferpriceofthecapitalassetislessthanthepriceatwhichitwasacquired,thentheresultantamountwouldbetermed
as"lossundertheheadcapitalgains",anddependingontheholdingperiod,itwouldbelongtermcapitalloss(LTCL)orshortterm
capitalloss(STCL).

Finally,addallLTCGarisingfromtransferofdifferentcapitalassetsanddothesameforallSTCG,LTCLandSTCLtoo.

Pleasenotethatthefollowingitemsarenotconsideredascapitalassetsandanyprofitorlossontheirsaleisnotsubjecttocapital
gains:

*Stockintradeorrawmaterialsheldforthepurposeofbusinessorprofession.

*Itemskeptforpersonaluseliketelevision,airconditioner,furniture,etc.

*Ruralagriculturalland.

*Golddepositbondsnotifiedbythegovernment.

*Silverutensils,onlyiftheyarekeptasapersonaluseitem,likethalis,katoris,etc.

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