Taxation Notes Merged

Introduction to Income Tax
Power to levy Tax:

Income-tax is the most significant direct tax. Entry 82 of the Union List i.e., List I in the seventh schedule
to Article 246 of the Constitution of India has given the power to the Parliament to make laws on income
other than agriculture income. Entry No.46 of state list gives power to State Govt. to levy tax on
Agriculture Income.
Source of Income Tax Law

1. Income Tax Act, 1961
IT Act is the main source of Income Tax Law. It’s provide determination of Total Income, Tax liability
& procedure of assessment etc.
2. Income Tax Rules, 1962

It Act empowered central Board of Direct Tax (CBDT) to make rules. All forms, procedure, principles
of Valuation of perquisites are provided in the Rules.
3. Finance Act
a) Presenting the Bill: Every year, the Finance Minister present a Finance Bill in the parliament,
which contents various amendment proposed to be made in the direct and indirect taxes, Finance Bill
2020 presented by Nirmala Sitharaman on 1st February 2020.
b) Approval & Assent of Bill: As soon as the bill passed by both the houses of the parliament and
thereafter receives the assent of president, in become the finance Act. Finance Bill 2020 become
Finance Act 2020 on 27th March 2020 after receive assent of president.
c) Amendments: The amendments proposed therein are then incorporated in the Income Tax Act. The
FA bring amendments to Direct tax law & it provides Tax rates also.
d) The first Schedule to the Finance Act contains four parts which specify the rates of tax-
Part I of the first Schedule to the Finance Act specifies the rates of tax applicable for the current
Assessment Year.
Part II specifies the rates at which tax is deductible at source for the current financial year.
Part III gives the rates for calculating income-tax for deducting tax from income chargeable under
the head “Salaries” and computation of advance tax.
Part IV gives the rules for computing net agricultural income.
4. Circulars/notification from CBDT

Circulars are issued by the CBDT to clarify the meaning & scope of certain provisions contained in
act. Notification are issued by central govt. /CBDT to give effect to the provision of the Act.
Circulars are binding to assessing officer but not on assessee and courts. However assessee can take
advantage of circulars which are beneficial to them.
5. Supreme Court & High Court Decisions

Various issue which are arise out of the provision of the act are decided by HC/SC.
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Income Tax
Section 4 – Charging Section of Income Tax
Every person [Sec 2(31)] whose Total Income [Sec 2(45)] during the previous year [Sec. 3] exceeds the
maximum amount not chargeable to tax is an Assessee [Sec. 2(7)] and he is liable to pay tax at the rate or
rates prescribed in the Finance Act / Income Tax Act for the relevant Assessment Year [ Sec. 2(9)].
Scope of Total Income [Section 5] shall depend upon Residential Status [Section 6]
Meaning of Total Income [as per Section 14]

Total Income here means aggregate of taxable income under all the five heads of income after adjusting
clubbing & Set Off of losses and after deducting deductions u/s 80.
S. No. Headings Sections ₹

1. Income from Salary (15 – 17) ×××××
2. Income from House Property (22 – 27) ×××××
3. Income from PGBP (Business or Profession) (28 – 44) ×××××
4. Income from Capital Gains (45 – 55) ×××××
(Including STCG 111A, LTCG 112 & 112A)
5. Income from Other Sources (56 – 59) ×××××
(Including casual income lottery, races card
games, etc.)
Total of heads income ×××××
Add: Income of other persons (clubbing) known as
Deemed Income [Sec. 60 – 69D]
Less: Set off and Carry forward of losses [Sec. 70 –
80]
Gross Total Income [GTI] ×××××
Less: Deductions [u/s 80C to 80U] ×××××
Total Income ×××××
[Rounded off to nearest ₹ 10]
Computation of Tax Liability ×××××
Tax on Total Income ×××××
Less: Rebate u/s 87A [if applicable] or ×××××
Add: Surcharge [if applicable] ×××××
Tax after Rebate or surcharge [as the case may ×××××
be]
Less: Marginal Relief [if applicable] ×××××
Tax before Cess ×××××
Add: Higher and Education Cess @ 4% ×××××
Tax Payable [rounded off to ₹10] ×××××
Less: Advance Tax paid ×××××
Less: Tax Deducted as Source [TDS] ×××××
Tax Payable / Refund due ×××××
Add: Interest u/s 234A, 234B & 234C ×××××
Final Tax Payable / Refund Due ×××××
Note: Total Income should be rounded off to nearest multiple of ₹10. For this purpose paise shall be
ignored and for 5 and above take next multiple of ₹10 otherwise previous multiple of ₹10. [Sec 288A]
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Income Tax is a progressive tax
Progressive tax is a tax system where tax rates increases with increase in the income means average tax
rate (tax paid ÷ Taxable Income) increases as taxable income increases.
Under this system high income earners pay more taxes than low income earners on % basis.
Rates of Income tax are prescribed at 2 places
Relevant Finance Act and Income Tax Act
Tax on Normal Income Tax on special Incomes
Basic exemption limit / Maximum Amount not chargeable to Tax

Finance Act, 2020 – Applicable to Previous Year 2020-21, or Assessment Year 2021-22.
Basic exemption limit is applicable to an Individual or HUF or AOP/BOI/AJP only.
Basic Exemption limit is ₹2,50,000 for above categories of persons except the following :
(i) Individual + Resident + Age ≥ 60 years at any time during the previous year ₹3,00,000, or
(ii) Individual + Resident + Age ≥ 80 years at any time during the previous year ₹5,00,000.
Person wise Basic Exemption Limit
Individual HUF / AOP/ BOI / AJP Firm / Company / Local
Authority
₹ 2,50,000 NIL
Resident Non-Resident
(depends upon age) Any age
Below 60 Yrs Age ≥ 60 Yrs Age ≥ 80 Yrs
₹2,50,000 ₹3,00,000 ₹5,00,000 ₹2,50,000
Note: 1. Exemption limit of Non Resident who is of age of 60 years or more or 80 years or more is
₹2,50,000 only.
2. Clarification regarding attaining prescribed age of 60 years / 80 years on 31st March of the Previous
Year: The CBDT has vide circular, clarified that a person born on 1st April would be considered to have
completed the year of age on the preceding 31st March.
Rates of Income Tax Assessment Year 2021-22 [Previous Year 2020-21]

[as per Finance Act, 2020, First Schedule Part III]
(1) Applicable to Individual / HUF / AOP / BOI / AJP
Resident Individuals age below Resident Individuals Age ≥ 60 Resident Individual Age ≥ 80
60 or Non Residents of any age but ≤ 80
+
HUF / AOP / BOI / AJP
Basic Exemption ₹2,50,000 Basic Exemption ₹3,00,000 Basic Exemption ₹5,00,000
Income Tax Rate Income Tax Rate Income Tax Rate
Upto ₹2,50,000 Nil Upto ₹3,00,000 Nil Upto ₹5,00,000 Nil
Above ₹2,50,000 to 5% Above ₹3,00,000 to 5%
₹5,00,000 ₹5,00,000
Above ₹5,00,000 to 20% Above ₹5,00,000 to 20% Above ₹5,00,000 to 20%
₹10,00,000 ₹10,00,000 ₹10,00,000
Above ₹10,00,000 30% Above ₹10,00,000 30% Above ₹10,00,000 30%
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Note: Surcharge is applicable if total income is more than ₹50,00,000 to be discussed later on.
Amount of Tax shall be rounded off to nearest multiple of ₹10. [Section 288B]
Health and Education Cess [HEC]

In case of every person amount of tax payable (including surcharge) shall be increased by 4% of the
amount of tax including surcharge.
(I) Rebate Max ₹12,500 for Residential Individual having income upto ₹5,00,000.
In case of resident individual whose total income (after deductions u/s 80) does not exceed ₹5,00,000 is
allowed a rebate of 100% of tax payable or ₹12,500 whichever is less.
However as per Sec. 112A this rebate shall not be allowed from long term capital gains taxable @ 10%.
(II) Surcharge [For Assessment Year 2021-22]
If Total Income increases ₹50 Lakhs or 1 / 2 / 5 Crores as the case maybe.
Amount of Income (after deduction u/s 80) Rate of Surcharge
(on income tax)
Where the total income (including dividend or 111A or 112A) 10% of tax
exceeds ₹50,00,000 but does not exceed ₹1 crore)
Where the total income (including dividend or 111A or 112A) 15% of tax
exceeds ₹1 crore but does not exceed ₹2 crore
Where the total income (excluding dividend or 111A or 112A) 25% of tax
exceeds ₹2 crore but does not exceed ₹5 crore, surcharge on
dividend income, 111A and 112A will be 15%.
Where the total income (excluding dividend or 111A or 112A) 37% of tax
exceeds ₹5 crore surcharge on dividend income, 111A and 112A
will be 15%.
Note: Provided that in case income by way of dividend or income chargeable u/s 111A or Sec
112A, the rate of surcharge shall not exceed 15%.
(III) Marginal Relief [allowed in case of surcharge to all assesses]:

Individuals: In case total income exceeds ₹50 lakh or ₹1 crore or ₹2 crore or ₹5 crore as the case
may be then additional amount of tax alongwith the surcharge on the excess of income of ₹50
lakh / ₹1 crore / ₹2 crore / ₹5 crore as the case may be should not be more than the amount of
income exceeding ₹50 lakh / ₹1 crore / ₹2 crore or ₹5 crore as the case may be.
Steps for calculation of Marginal Relief (in case of Individuals)

1. Compute tax payable including surcharge ×××××
2. Deduct: Tax payable on ₹50 lakh / ₹1 crore / ₹2 crore or 5 ×××××
crore (individuals) [Including surcharge if applicable]
3. Additional Amount of tax ×××××
4. Excess of income over surcharge slab 50L/1 cr/ 2 cr/ 5 cr ×××××
5. Marginal Relief (If +) ×××××
(2) Tax rates applicable to Partnership Firm / LLP / Local Authority

Tax Rate: Flat rate @ 30%; No Basic Exemption
Surcharge: @ 12% of Tax if Taxable income > ₹1 crore.
Marginal Relief:
Health and education Cess @ 4% of tax including surcharge.
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(3) Tax rates applicable to Company
Domestic Company
(i) Total Turnover or Gross Receipts of P.Y 2018-19 upto 400 crore 25%
(ii) Otherwise 30%
Foreign Company 40%
Surcharge
Total Income Domestic Co. Foreign Co.
 > ₹1 crore but upto ₹10 crore 7% 2%
 > ₹10 crore 12% 5%
Tax Rate given in Income Tax Act
Special Rates of Tax given in Income Tax Act

Section Nature of Income Tax Rate
111A Short term capital gains on transfer of shares or units of mutual funds on 15%
which securities transaction tax has been paid, chargeable to tax
112 Long term capital gains other than Section 112A 20%
112A Long term capital gains on transfer of shares or unit of mutual fund or 10%
business trust on which Securities transaction tax (STT) has been paid,
on the amount of LTCG in excess of ₹1,00,000.
Rebate u/s 87A is not available in respect of tax payable under sec 112A.
115BB Tax on winnings from lotteries, card game, horse race etc. (refer sec 30%
194B/BB)
115BBE Deemed Income u/s 68 to 69D 60%
Tax Rate @ 60% (surcharge @ 25% and HEC @ 4%) effective rate 78%.
Tax Rates under New Tax Regime

Sec 115BAC: Tax on income of Individual & HUF [w.e.f AY 2021-22]
w.e.f Assessment Year 2021-22, where the individual or HUF opts to be taxed under 115BAC, the rates
of income tax applicable are:
Total Income Rate of Tax
Upto ₹2,50,000 Nil
From ₹2,50,001 to ₹5,00,000 5%
From ₹5,00,001 to ₹7,50,000 10%
From ₹7,50,001 to ₹10,00,000 15%
From ₹10,00,001 to ₹12,50,000 20%
From ₹12,50,001 to ₹15,00,000 25%
Above ₹15,00,000 30%
Some Key Points in this section: –

The new tax regime is applicable/ available from A.Y. 2021-22 onwards.
The new income tax regime is applicable to every Individual irrespective of their age means the tax slab
is also applicable for Senior Citizen and super senior citizens.
The new tax regime is optional.
Rebate u/s 87 A is available for individual having Total Income less than Rs 5 lakh.
Deduction Not allowed while Opting for NEW TAX REGIME (Some points only): –
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Salary Income: Standard deduction to salaried taxpayers; Leave Travel Allowance (LTA); House Rent
Allowance (HRA); Children education allowance; Other special allowances [Section10(14)]; Deduction
from family pension income, exemption or deduction for any other perquisites or allowances; Standard
deduction;
House Property: Interest on housing loan on the self-occupied property or vacant property (Section 24);
Business Income: Without setting off any loss carried forward or unabsorbed depreciation of earlier year;
No Depreciation u/s 32 [except clause (iia) of sub-section (1)] allowed; Deductions u/s 32AD, 33AB,
33ABA, 35, 35AD, 35CCC;
Deductions: Chapter VI-A deductions; Exemption for SEZ unit u/s 10AA;
Deduction Allowed while Opting NEW TAX REGIME: –

Salary Income: Transport Allowance for Differently Abled Employees (Divyang); Conveyance
Allowance for performance of office duties; Any Allowance for the cost of Travel/ Tour/ Transfer; Daily
Allowance given to employees under certain conditions.
Deductions: Deduction u/s 80CCD (2) (employer’s contribution to your pension account); Deduction u/s
80JJAA (additional employee cost);
Optional to switch between Old & New Tax Slab:

Individual having Business Income: – Individual having business income have option to switch to new
regime once in a lifetime. That means once Individual choose new tax regime and then wants to switch to
old regime then such individual will not be able to opt for New Tax Slab Again except such person cease
to have any business income.
Individual having salaried and no business Income: – Individual having salary income with no business
income have option to choose between the old tax slab and new tax slab every year i.e., he/she can switch
regimes from year to year.
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Practical Questions:
Computation of Rebate
Q1) Total Income of Mrs. A age 28 years is ₹ 4,95,000. Compute Tax payable by her for the
Assessment year assuming that she does not opt to be taxed under Section 115BAC.
[Ans: Rebate ₹12,250; Tax payable Nil]
Q2) Gross Total Income of Mr. X who is a Resident of India, is ₹4,70,000 which includes LTCG u/s
112 ₹50,000; STCG u/s 111A ₹ 30,000. Deduction u/s 80 ₹1,25,000. Calculate Tax payable by Mr. X if
his age is 34 years.
[Ans: Rebate ₹12,500; Tax Payable ₹2,860]
Calculation of Tax Liability of Individual (Simple)

Q3) Compute Tax payable in the following cases
Assessee Particulars Total Income (₹)
Mr. A Non Resident Individual Age 65 years 4,25,000
Mr. B Resident Individual Age 34 Years 5,50,000
Mrs. C Resident Individual Age 27 Years 10,20,000
Mr. D Resident Individual Age 38 years 15,10,000
Mrs. E Resident Individual Age 60 years 12,00,000
Mrs. F Resident Individual Age 80 Years 18,00,000
Mr. G Resident Individual Age 40 Years 50,00,000
Solution for reference:

Assessee Total Income Tax Rebate / Tax after HEC @ 4% Total Tax
Income Surcharge rebate or (Rounded
surcharge Off)
Mr. A (NR) 4,25,000 8,750 –––– 8,750 350 9,100
Mr. B 5,50,000 22,500 –––– 22,500 900 23,400
Mrs. C 10,20,000 1,18,500 –––– 1,18,500 4,740 1,23,240
Mr. D 15,10,000 2,65,500 –––– 2,65,500 10,620 2,76,120
Mrs. E 12,00,000 1,70,000 –––– 1,70,000 6,800 1,76,800
Mrs. F 18,00,000 3,40,000 –––– 3,40,000 13,600 3,53,600
Mr. G 50,00,000 13,12,500 –––– 13,12,500 52,500 13,65,000
Applicability of Surcharge
Q4) Mr. X resident age 45 years has total Income of ₹54,00,000. Compute his tax payable for the
assessment year 2021-22.
Ans: Total Tax 16,38,780
Assessee Total Income Tax Surcharge Tax after HEC @ 4% Total Tax
Income @ 10% surcharge (Rounded
Off)
Mr. X 54,00,000 14,32,500 1,43,250 15,75,750 63,030 16,38,780
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Marginal Relief:
Q1) Calculation of Tax Liability of Individual with Marginal Relief (Simple)
Assessee Particulars Total Income (₹)
Mr. R Non Resident Individual Age 48 51,00,000
Mrs. S Resident Individual Age 51 Years 1,01,00,000
Mr. X Resident Individual Age 34 Years 2,00,50,000
Mr. Z Resident Individual Age 54 Years 5,00,50,000
Solution [Hint]
Assessee Total Income Surcharge Marginal Tax after HEC @ Total Tax
Income Tax Relief Surcharge 4% (R. Off)
Mr. R 51,00,000 13,42,500 1,34,250 64,250 14,12,500 56,500 14,69,000
Mrs. S 1,01,00,000 28,42,500 4,26,375 75,125 31,93,750 1,27,750 33,21,500
Mr. X 2,00,50,000 58,27,500 14,56,875 5,50,000 67,34,375 2,69,375 70,03,750
Mr. Z 5,00,50,000 1,48,27,500 54,86,175 17,48,050 1,85,65,625 7,42,625 1,93,08,250
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Q1). Define ‘Previous year’. Under what circumstances the income of a previous year is taxable in the
previous year itself? (BCH Delhi, 2012, 2018)
Q2). Who is an assessee under the provision of Income Tax Act, 1961? Explain?
(BCH Delhi, 2012, 2016)
Q3). Who is senior citizen under Income Tax Act, 1961? What are the rates of tax applicable to his/her
income for the financial year 2016-17? (BCP Delhi, 2013)
Q4). A person may not have assessable income but may still be an assessee. Is this statement correct?
(BCP Delhi, 2014)
Q5). Income of the previous year is chargeable to tax in the immediately following assessment year. Is
there any exception to this rule? Discuss (BCH Delhi, 2015, 2019)
Q6). State three instance where the income of the previous year is assessable in the previous year instead
of the assessment year. (BCH Delhi, 2016)
Q7). What is Permanent Account Number (PAN)? Is it mandatory for every person to obtain PAN?
(BCH Delhi, 2017)
Q8). Is previous year always a 12 month period? State any two instances where income of a previous year
is assessed in the previous year itself. (BCH Delhi, 2017)
Q9). Differentiate between assessee and person. (BCH Delhi, 2018)
Q10).Who is regarded as an “Assessee” under Income Tax Act, 1961? (BCP Delhi, 2018)
Q11).What is the relationship between “Previous Year and Assessment Year”? What will be the PY
relevant to AY 2018-19 when the business is newly set up on: (BCP Delhi,2018)
i. 27.2.2017
ii. 31.3.2018
9
Chapter 2 – Scope of Total Income and Residential Status [Section 5 to 9]
Section Particulars
Section – 5 Scope of Total Income
ection – 6 Residential Status
ection – 7 Income deemed to be received
Section – 8 Dividend Income
Section – 9 Income deemed to accrue or arise in India
Scope of Total Income [Section 5] shall depend upon Residential Status [Section 6]
Which kind of income is taxable in India, if a person is
Resident in India Non-Resident in India
Indian Income Indian Income only
Foreign Income
In other words: Incidence or liability to pay income tax depends upon scope of income and Residential
Status of a Person.
Indian Income Foreign Income
Always taxable in India whether a person is Resident in India or Non It is taxable only if a Person is
Resident in India. Resident in India.
Meaning of Indian Income Meaning of Foreign Income
Accrues or arise in India or Received in India or deemed to Income Accrues or arise outside
deemed to accrue or arise in be received in India. [Section 7] India and received outside India.
India. [Section 9]
Residential Status [Section 6]

(Calculated for each person and for every previous Year)
Individual H.U.F Firm / AOP / BOI Company Others [Local
Authority & AJP]
Sec. 6(1), 1A and Sec. 6(2) and Sec. Sec. 6(2) Sec. 6(3) Sec. 6(4)
Sec. 6(6) 6(6)
Kinds of Residential Status

Individual and HUF All others
Resident (or Individual can be (a) Resident [R] (b) Non Resident
deemed to be resident in India) [NR]
(a) Resident and (b) Resident but (c) Non Resident
Ordinary Resident not Ordinary [NR]
[ROR] Resident [NOR]
Residential Status of an Individual [Sec 6(1) + Sec 6(6)]

An Individual can either be
(i) Resident in India which is further divided into
(a) Ordinary Resident [ROR], or
(b) Not Ordinary Resident [NOR] , or
(ii) Deemed to be Resident in India [Which is always Resident but not Ordinary Resident], or
(iii) Non Resident in India [NR].
1
[Sec 6(1)]: When an Individual is said to be Resident in India [also known as Basic Conditions]
An Individual is said to be resident in India, if he satisfies anyone of the following 2 conditions:
(a) He is in India for 182 days or more during relevant previous years [RPY],
Or
(b) He is in India for 60 days or more during the relevant previous year,
and
365 days or more during 4 previous years immediately preceding the relevant previous year.
Exceptions: Explanation to Section 6(1) states that in the following case, the period of 60 days [as
mentioned in condition (b) above] shall be substituted by 182 days (means condition (b) above does not
apply)
(i) An individual being citizen of India, leaves India during the previous year for employment outside
India, or
(ii) An individual being citizen of India, leaves India during the previous year as a member of the
crew of an Indian Ship, or
(iii) An individual being a citizen of India or person of Indian origin, who being outside India, comes
on visit to India,
and
in case of the citizen of India or person of Indian origin having total income, other than the income
from foreign sources, exceeding ₹ 15 lakhs during the previous year, for the “60 days”, “120 days”
shall be substituted. [Amendment by Finance Act, 2020 w.e.f 1-4-20]
However, Section 6(6) says that in case of citizen of India or person of Indian origin, having total
income, other than the income from foreign sources, exceeding ₹15 lakhs during the previous year, who
has been in India for a period of 120 days or more but less than 182 days, he shall be deemed to be “not
ordinary resident” in India. [Added by Finance Act 2020 w.e.f. 01-04-20 i.e., for A.Y 21-22]
Meaning of
Person of Indian Origin: A person is deemed to be of Indian Origin, if he or any of his parents or
grandparents was born in undivided India. Grandparents includes both maternal and paternal
grandparents.
"Income from foreign sources" means income which accrues or arises outside India (except income
derived from a business controlled in or a profession set up in India) and which is not deemed to accrue
or arise in India.
Notes: In computing the period of stay, if hours are not given then the day the individual enters India and
the day he leaves India both shall be treated as stay in India.
Deemed to be Resident in India [Sec 6(1A)]: Notwithstanding anything contained in clause (1), an
individual, being a citizen of India, having total income, other than the income from foreign sources,
exceeding ₹ 15 lakh during the previous year shall be deemed to be resident in India in that previous
year, if he is not liable to tax in any other country or territory by reason of his domicile or residence or
any other criteria of similar nature. As per [Sec 6(6)(d)] he is deemed to be “not ordinary resident” in
India.
Explanation. – For the removal of doubts, it is hereby declared that this clause shall not apply in case of
an individual who is said to be resident in India in the previous year under Sec 6(1).
2
When a person is said to be Non-resident in India?
When an individual does not satisfy any of the basic conditions mentioned in Section 6(1), then he
becomes non-resident in India [Sec 2(30)].
Ordinary Resident or Not Ordinary Resident in India.

[Sec. 6(6)]: If an individual is Resident in India, then we need to further check whether he is ordinary
resident. [Additional Conditions]
An individual who is resident in India is said to be an ordinary resident in India, if he satisfies, both the
following conditions:
(i) He has been resident in India in 2 out of 10 previous years immediately preceding the relevant
previous year [RPY],
and
(ii) He has been in India for 730 days or more during 7 previous years immediately preceding relevant
previous year.
Residential Status of HUF [Sec 6(2) & 6(6)]

Hindu Undivided Family (HUF) is said to be
If “control and management” of its affairs is situated Wholly or If “control and management” of
partly in India its affairs is situated Wholly
outside India
When HUF is said to resident
And Ordinary Resident [ROR] But Not-ordinary Resident
[NOR]
If karta / manager satisfies both If karta / manager does not
the following conditions: satisfy either one or both of the
following conditions:
(a) Karta (or manager) must be resident in India in at least 2 out
of 10 Previous Years immediately preceding the relevant
previous year,
and
(b) Karta (or manager) must be in India for at least 730 days or
more during 7 previous years immediately preceding the
relevant previous Year.
Residential status of Firm or Association of Persons [Sec 6(2)]

Partnership Firm or Association of Persons is said be
If “control and management” of its affairs is situated Wholly or If “control and management” of
partly in India its affairs is situated Wholly
outside India
Meaning of the term “Control and Management”
Control and Management is said to be situated at a place where the head and brain of the business is
situated. It implies the functioning of the controlling and directing with some degree of permanence. It
may be different from registered office or usual place of running of the business.
Residential Stats of a Company [Sec. 6(3)]
A company is said to be Resident in India in any previous year, if
(a) it is an Indian company; or
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(b) its place of effective management, in that year, is in India.
“Place of effective management” means a place where key management and commercial decisions that
are necessary for the conduct of the business of an entity as a whole, are in substance made.
Residential Status of any other person [Sec. 6(4)]

Every other person is said to be resident in India in any previous year in every case, except where during
that year the control and management of his affairs is situated wholly outside India.
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4.01 Income from Salaries (Sec. 15 -17)
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4.02 Sec 15 and 16 and 4.03 Allowances
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4.04 House Rent Allowance
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4.05 Perquisites
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4.06 House Accommodation
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4.07 Motor Car Facility
Friday, June 7, 2019 2:56 PM
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4.08 Educational Facility
Saturday, June 8, 2019 4:51 PM

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4.09 Fringe Benefits
Tuesday, June 11, 2019 3:11 PM

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4.10 Provident Fund
Thursday, June 13, 2019 1:36 PM

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4.11 Practice Class
Friday, June 21, 2019 3:59 PM

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4.12 Retirement Benefits
Monday, June 24, 2019 1:59 PM

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Income from House Property
Section Particulars
22 Charging Section
23 Annual Value
24 Deductions from income from house property
25 Interest not allowed as deduction
25A Special provision for arrears / unrealised rent received
26 Property owned by co-owners
27 Deemed ownership
Section 22: Chargeability of Income from House Property Best online classes learning portal
The annual value [Section 23] www.gagankapoorclasses.com
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of property consisting of any buildings or lands appurtenant thereto
of which the assessee is the owner,
other than
such portions of such property as he may occupy for the purposes of any business or profession carried
on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the
head "Income from house property".
Important points:
(1) Annual value – Annual value mentioned is the rental value of the property which can be earned
if given on rent.
Income from sale/transfer of house property is not covered in this head (IHP), it is covered under
the head Income from Capital Gains.
(2) Property must consist of building or land appurtenant thereto – It should be noted that we tax
rental value of building. Building can be residential, commercial, factory, office, shop etc. all kinds
of buildings are covered here.
Rent from vacant land is not taxed here rather that will be taxed under the head income from other
sources.
(3) Assessee must be the owner – To tax income under this head Assessee must be the owner of the
building. Ownership covers freehold or leasehold as well as deemed ownership (u/s 27).
Subletting of building – subletting of building is not taxable this head as the person letting is not
the owner of the building. Subletting will be taxed under the head income from other sources.
(4) Property can be used for any purpose other except for the purpose of business or profession
of the assessee.
(a) Property can be used by the assessee for any purpose, however it should not be used by him
for the business or profession, whose profits are chargeable to tax.
If the property is used by an assessee in his own business then neither notional rent is allowed
as business expense while calculating business income nor notional rent is taxable under the
head house property.
1
The income earned by an assessee engaged in the business of letting out of properties on rent
would be taxable as business income. [SC ruling in Rayala Corporation (P) Ltd vs. ACIT
2016]
If letting out is incidental to main business or letting out is done with the object of carrying on
the business in an efficient manner, then also income is taxable as business income.
(b) If the property is used by assessee in carrying on business as partnership firm. If property is
owned by an assessee and the same is given to the partnership firm, in which he is a partner
then it will be treated as if property is used by the assessee for his own business and therefore
income from this property shall not be taxed under house property.
(c) Property held as Stock in Trade. Annual value of house property will be charged to tax under
the head Income from House property from the end of 2 years after the financial year in which
certificate of completion is obtained [Section 23(5)]
(d) Principle of Mutuality. Taxed levied under section 22 is tax on income from house property
and not tax on house property. When the assessee is governed by the principle of mutuality
then income from house property will also governed by the same principle and not taxable
under the head house property.
Q1) Give five examples of income which are Income from house property even though not taxable
under the head Income from House Property. [B. Com (H) 2016]
Ans: Following incomes are exempt from tax under the head Income from House Property:
(i) Income from Farm house forming part of agricultural income/activity.
(ii) Annual value of one place of ex-ruler [section 10(19A)]
(iii) Property income of Local Authority [Section 10(20)]
(iv) Property income of an approved scientific research association [Section 10(21)]
(v) Property income of educational institutions, hospitals, Universities etc., [Sec 10(23C)]
(vi) Property Income of registered trade union. [Section 10(24)] Gagan Kapoor Classes
(vii) Property held for charitable purposes [Section 11] Best online classes learning portal
(viii) Property income of a political party [Section 13A] www.gagankapoorclasses.com
(ix) Property used for own business or profession [Section 22] +91-9811595823
(x) Annual value of 2 self-occupied houses are nil but not exempt [Section 23(2)]
(xi) Annual value of property being stock in trade is also nil for 2 years the end of the financial year in
which certificate of completion is obtained. [Section 23(5)].
Composite Rent
Composite rent means combined rent for use of house property as well as for other assets like furniture,
plant and machinery or for incidental services like lift gas connection etc.,
(a) Where composite rent is for letting out of property alongwith the services like electricity, gas lift
etc., in this case composite rent is to be split up between letting out of property and use of services.
Rent for property shall be assessed as Income from House Property, and sum received for other
services shall be assessed as Business Income or Income from other Sources.
(b) Where composite rent is for letting out of building as well as other assets like plant,
machinery and furniture then –
2
(i) If letting of property is inseparable from letting of other assets: entire then such income
is taxable either as business income or income from other sources. It is not relevant that
whether sum for two services are fixed separately or not. Criteria is whether tenant would
accept the building without other assets or not. Means letting of one is not accepted without
letting of other.
(ii) If letting of property is separable from letting of other assets: then rent of the house is
taxable as Income from House Property and rent for other assets is taxable as either
Business Income or Income from Other Sources.
Note: Criteria is not whether rent for letting out of building and other services are fixed separately
or not but the criteria is whether letting of building is acceptable to tenant without letting of other
assets.
Section 27 – Deemed Ownership

Q) Explain the provisions of deemed ownership under the head Income from house Property?
[B. Com (Hons.)]
Ans: For the purposes of section 22 to 26, the following persons shall be deemed to be the owner of
house property:
(i) Transfer to spouse or minor child (except minor married daughter) otherwise than for adequate
consideration: an individual who transfers otherwise than for adequate consideration any house
property to
his or her spouse, not being a transfer in connection with an agreement to live apart, or
to a minor child not being a married daughter,
shall be deemed to be the owner of the house property so transferred;
(ii) Holder of impartible Estate: the holder of an impartible estate shall be deemed to be the individual
owner of all the properties comprised in the estate;
(iii) Member of Co-operative society: a member of a co-operative society, company or other
association of persons to whom a building or part thereof is allotted or leased under a house
building scheme of the society, company or association, as the case may be, shall be deemed to be
the owner of that building or part thereof;
(iv) Possession in part performance under Transfer of property Act: a person who is allowed to take
or retain possession of any building or part thereof in part performance of a contract of the nature
referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882), shall be deemed to be
the owner of that building or part thereof;
(v) Person having lease right in a property not less than 12 years: a person who acquires any rights
(excluding any rights by way of a lease from month to month or for a period not exceeding one
year) in or with respect to any building or part thereof, by virtue of any such transaction as is
referred to in clause (f) of section 269UA, shall be deemed to be the owner of that building or part
thereof;
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Income from House Property = Annual Value – Deductions
[Sec. 22] [Sec. 23] [Sec. 24]
Computation of Annual Value [Section 23]

(1) For the purposes of section 22, the annual value of any property shall be deemed to be—
(a) (expected Rent) the sum for which the property might reasonably be expected to let from year
to year; or
Municipal Value or Fair Rent whichever is Higher but
If standard rent is given then higher of above or standard rent whichever is lower [as per
SC in shiela Kaushish vs. CIT and Amolak Ram Khosla Vs. CIT]
(b) (Actual rent received or receivable if more than expected rent) where the property or any part
of the property is let and the actual rent received or receivable by the owner in respect thereof
is in excess of the sum referred to in clause (a), the amount so received or receivable; or
(c) (ARRR is less than expected rent due to vacancy) where the property or any part of the
property is let and was vacant during the whole or any part of the previous year and owing to
such vacancy the actual rent received or receivable by the owner in respect thereof is less than
the sum referred to in clause (a), the amount so received or receivable (ARRR):
Provided that the Municipal taxes including service charge in respect of the property shall be
deducted (irrespective of the previous year in which the liability to pay such taxes was incurred)
in determining the annual value of the property of that previous year in which such taxes are
actually paid by him. In short municipal taxes actually paid by the owner is allowed as
deduction.
Explanation.—(treatment of unrealised rent) For the purposes of clause (b) or clause (c) of this
sub-section, the amount of actual rent received or receivable by the owner shall not include, subject
to such rules as may be made in this behalf, the amount of rent which the owner cannot realize
(unrealised rent).
However the conditions prescribed in Rule 4 should be satisfied. They are –
(a) The tenancy is bona fide;
(b) The defaulting tenant has vacated, or steps have been taken to compel him to vacate the property;
(c) The defaulting tenant is not in occupation of any other property of the assessee;
(d) The assessee has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid
rent or satisfies the Assessing Officer that legal proceedings would be useless.
(Computation of Gross Annual Value & Net Annual Value)
Expected Rent 23(1)(a) Actual Rent – UR 23(1)(b) Vacancy 23(1)(c)
Municipal Value ×××× Actual Rent (ARRR) ×××× Actual Rent (ARRR) – UR ××××
Fair Rent ×××× Less: Unrealised Rent ×××× Annual Rent – UR ××××
Whichever is higher ×××× Explanation to Sec 23(1) says If Annual rent – UR is more
Standard Rent ×××× that Unrealised Rent (UR) shall than Expected Rent then
whichever is lower is the be deducted from Actual Rent. GAV is (Actual Rent – UR)
Expected Rent ×××× ARRR – UR ×××× otherwise it is Expected Rent.
Gross Annual Value (expected rent 23(1)(a) or ARRR-UR GAV is (ARRR-UR) or Expected
23(1)(b) whichever is higher) Rent as the case may be
Less: Municipal Taxes if actually borne and paid by owner ×××× Less: Municipal Taxes ××××
Net Annual Value (NAV) ×××× Net Annual Value (NAV) ××××
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(2) (Self Occupied property) Where the property consists of a house or part of a house which—
(a) is in the occupation of the owner for the purposes of his own residence; or
(b) cannot actually be occupied by the owner by reason of the fact that owing to his employment,
business or profession carried on at any other place, he has to reside at that other place in a
building not belonging to him,
the annual value of such house or part of the house shall be taken to be nil.
(3) (Partly let out partly self occupied) The provisions of sub-section (2) shall not apply if—
(a) the house or part of the house is actually let during the whole or any part of the previous year;
or
(b) any other benefit therefrom is derived by the owner.
(4) (More than two houses self occupied) Where the property referred to in sub-section (2) consists
of more than two houses—
(a) the provisions of that sub-section shall apply only in respect of two of such houses, which the
assessee may, at his option, specify in this behalf;
(b) the annual value of the house or houses, [other than the house or houses] in respect of which
the assessee has exercised an option under clause (a), shall be determined under sub-section
(1) as if such house or houses had been let.
(5) (house property held as stock in trade) Where the property consisting of any building or land
appurtenant thereto is held as stock-in-trade and the property or any part of the property is not let
during the whole or any part of the previous year, the annual value of such property or part of the
property, for the period up to two years from the end of the financial year in which the certificate
of completion of construction of the property is obtained from the competent authority, shall be
taken to be nil.
Calculation of Annual Value
Ex1) Jayashree owns five houses in Chennai, all of which are let-out. Compute gross annual value of
each house from the information given below:
Particulars House I House II House III House IV House V
Municipal Value 80,000 55,000 65,000 24,000 80,000
Fair Rent 90,000 60,000 65,000 25,000 75,000
Standard Rent N.A 75,000 58,000 N.A. 78,000
Actual rent received or receivable 72,000 72,000 60,000 30,000 72,000
[Ans: GAV I- 90,000; II-72,000; III-60,000; IV-30,000; V-78,000]
Ex2) Mr. Vaibhav owns five houses at Delhi, all of which are let-out. Compute gross annual value of
each house from the information given below:
Municipal Value 1,20,000 2,40,000 1,10,000 90,000 75,000
Fair Rent 1,50,000 2,40,000 1,14,000 84,000 80,000
Standard Rent 1,08,000 N.A. 1,44,000 N.A. 78,000
Actual rent received or receivable 1,80,000 2,10,000 1,20,000 1,08,000 72,000
[Ans: GAV I- 1,80,000; II-2,40,000; III-1,20,000; IV-1,08,000; V-78,000]

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Computation of Gross Annual Value with unrealised rent
Ex3) find out gross annual value from the following information
Municipal Value 60,000 60,000 60,000 1,12,000 1,12,000
Fair Rent 68,000 68,000 68,000 1,17,000 1,17,000
Standard Rent 62,000 62,000 70,000 1,15,000 1,15,000
Annual Rent 66,000 66,000 72,000 1,20,000 1,20,000

Unrealised Rent 2,000 6,000 5,000 50,000 40,000
[Ans: GAV I- 64,000; II-62,000; III-68,000; IV-1,15,000; V-1,15,000]
Computation of Gross Annual Value with Vacancy

Ex 4) from the following particulars calculate Gross Annual Value
Particulars H–I H – II H – III H – IV H–V H – VI
Municipal Value (p.a.) 60,000 60,000 60,000 1,40,000 1,40,000 80,000
Fair Rent (p.a.) 65,000 66,000 65,000 1,50,000 1,50,000 78,000
Standard Rent (p.a.) 59,000 59,000 63,000 1,20,000 1,20,000 76,000
Annual Rent 72,000 60,000 72,000 96,000 1,44,000 N.A.

Vacancy in number of months 1 2 5 10 10 12
Loss due to vacancy 6,000 10,000 30,000 80,000 1,20,000
[Ans: GAV H-1; H-II; H-III; H-IV; H-V; H-VI]
Ex4) Vinod is the owner of the three houses, which are all let out and covered by the Rent Control Act.
From the following particulars, find out the gross annual value in each case:
Particulars House I House II House III
Municipal Value 30,000 26,000 35,000
Annual rent 42,000 36,000 30,000
Fair Rent 36,000 28,000 30,000
Standard Rent 30,000 35,000 36,000
Unrealised Rent 7,000 9,000 2,500
Period of Vacancy 1 month 2 months 3 months
[Ans: GAV I- 31,500; II-28,000; III-35,000]
Ex5)
Computation of Net Annual Value [NAV]
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Deductions from income from house property [Section 24]
Income chargeable under the head "Income from house property" shall be computed after making
the following deductions, namely:—
(a) Statutory deduction : A sum equal to 30 % of the annual value (NAV) ;
(b) Interest on borrowed Capital : where the property has been acquired, constructed, repaired,
renewed or reconstructed with borrowed capital, the amount of any interest payable on such
capital:
Explanation.—[Pre-acquisition or preconstruction period interest] Where the property has
been acquired or constructed with borrowed capital, the interest, if any, payable on such capital
borrowed for the period prior to the previous year in which the property has been acquired
or constructed (i.e., pre-acquisition or Pre-construction period), as reduced by any part
thereof allowed as deduction under any other provision of this Act, shall be deducted under
this clause in equal instalments for the said previous year and for each of the four immediately
succeeding previous years:
Prior period shall start from the date of borrowing, and
Ends on
(i) 31st March preceding the date of acquisition or construction, or
(ii) Date of Repayment of loan
Whichever is earlier.
Note: There is no limit on the amount of deduction on account of Interest on borrowed
capital for let out property.
Provided that in respect of property self occupied or deemed to be self occupied u/s 23(2),
the amount of deduction in aggregate shall not exceed ₹ 30,000:
Provided further that where the S.O / D. S.O property is acquired or constructed with capital
borrowed on or after the 1st day of April, 1999 and such acquisition or construction is
completed within five years from the end of the financial year in which capital was borrowed,
the amount of aggregate deduction under this clause shall not exceed ₹ 2,00,000.
Provided also that no deduction shall be made under the second proviso unless the assessee
furnishes a certificate, from the person to whom any interest is payable on the capital borrowed,
specifying the amount of interest payable by the assessee for the purpose of such acquisition
or construction of the property, or, conversion of the whole or any part of the capital borrowed
which remains to be repaid as a new loan.
Explanation.—For the purposes of this proviso, the expression "new loan" means the whole or
any part of a loan taken by the assessee subsequent to the capital borrowed, for the purpose of
repayment of such capital:
[Provided also that the aggregate of the amounts of deduction under the first and second provisos shall
not ₹ 2,00,000.]
Note: Maximum deduction is either 30,000 or 2,00,000 as the case may be.
Loan can be taken from any source and interest is deductible even if it is outstanding.
7
Question on Calculation of Interest on borrowed capital
Ex 6) The construction of a house property was completed on 28.2.2020. The assessee had taken a loan
of ₹ 10,00,000 @ 12 % p.a. Compute deduction on account of interest on borrowed capital under Section
24(b), if the loan was taken on:
(a) 1.4.2017
(b) 1.6.2018
(c) 1.5.2019
Ans: (a) ₹ 1,68,000; (b) ₹ 1,40,000; (c) 1,10,000.
Ex7) R took a loan of ₹ 6,00,000 @ 12% p.a. on 1.12.2016. He took additional loan of ₹ 6,00,000 @
10% p.a. on 1.5.2017. The construction of the house is completed on 15.9.2018. Compute the deduction
allowable on account of interest for the previous year 2019-20 assuming loan is not yet repaid.
(Ans:)
Ex8) A took a loan of Rs. 12,00,000 @ 12% on 1.9.2015 for construction of a house. He repaid the loan
on 31.12.2018. The house property was completed on 05.10.2018. Compute deduction on account of
interest for the previous Year 2019-20.
(Ans:)
Income from House Property calculation of annual value
Property let out Property self occupied Part of the Other cases
For full year Part of the Actually Self Deemed to year let out Part of the
(No vacancy) year (i.e. occupied/unoccupied be let out part of the house let out
vacancy) due to employment year self & another
occupied part is self
occupied
23(1)(a) 23(1)(a) Sec. 23(2) 23(1)(a) Sec. 23(3) 23(1) & 23(2)
23(1)(b) 23(1)(b) 23(1)(a)
23(1)(c) 23(1)(b)
Computation of Income from House Property
Let Out / Deemed to be let out Self Occupied / Deemed to be self occupied
[Sec. 23(1)(a)/(b)/(c)] [Sec. 23(2)]
Format Income from house property various cases

Let-out no vacancy Let-out with vacancy Self-Occupied / D.S.O
Expected Rent [23(1)(a)] ×××× Expected Rent [23(1)(a)] ××××
ARRR – UR [23(1)(b)] ×××× ARRR – UR [23(1)(b)] ××××
Whichever is higher Annual Rent – UR ××××
GAV 23(1) (a)/(b) ×××× GAV 23(1)(a)/b/(c) ××××
Less: Municipal Taxes ×××× Less: Municipal Taxes ××××
Net Annual Value ×××× Net Annual Value ×××× Net Annual Value 23(2) Nil
Less: Deduction u/s 24 Less: Deduction u/s 24 Less: Deduction u/s 24
(a) Std. deduction@ 30% ×××× (a) Std. deduction@ 30% ×××× (a) Std. deduction@ 30% Nil
(b) Interest on loan (b) Interest on loan (b) Interest on loan
Pre-construction (1/5th ) ×××× Pre-construction (1/5th ) ×××× Pre-construction (1/5th ) ××××
Current period interest ×××× Current period interest ×××× Current period interest ××××
Income from HP +/- Income from HP +/- Income from HP +/-
8
Various Situations of Income from House Property
Calculation of Income from House Property [Section 23 – Section 24]

(i) Property let out for full year (No Vacancy and No unrealised rent)
Simple case. Annual value is calculated with reference to Sec. 23(1)(a) or (b)
Income Statement
Particulars ₹
Municipal Value or Fair Rent whichever is higher ××××
Standard Rent (if applicable or given) ××××
Expected Rent 23(1)(a) [lower of above two] ××××
Actual rent received or receivable 23(1)(b) ××××
Gross Annual Value [Higher of Expected rent or ARRR] ××××
Less: Municipal taxes actually paid and borne by the owner ××××
Net Annual value ××××
Less : Deductions under section 24
(a) Standard Deduction @ 30% ××××
(b) Interest on borrowed capital (loan for property)
(i) Pre-construction (1/5th part) ××××
(ii) current year interest ××××
(ii) Property Let out for full year (but Unrealised rent)
As per Explanation to Sec. 23(1) Unrealised rent shall be deducted from ARRR.
Income Statement
Particulars ₹
Actual rent received or receivable – unrealised rent (if any) 23(1)(b) ××××
Gross Annual Value [Higher of Expected rent or ARRR-UR] ××××
(ii) Current year interest ××××
Note: ARRR shall not include unrealised rent [Explanation Sec. 23(1)(a)]
(iii) Property Let out but there is vacancy:

ARRR > Exp. Rent ARRR < Expected Rent
Then If [Annual Rent – UR] > Exp. rent Or [Annual rent –UR] < Exp. Rent
GAV = ARRR as per Sec. Then, it is said that ARRR < Exp. Then GAV = Expected Rent [Sec.
23(1)(b Rent due to vacancy & 23(1)(c) will 23(1)(a) will apply
apply
GAV = ARRR despite less than
expected rent
Note: ARRR is after deducting unrealised rent explanation Sec 23(1)]
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Income Statement
Particulars ₹
Actual rent received or receivable – unrealised rent (if any) 23(1)(b) ××××
Gross Annual Value [If ARRR is less than expected rent due to ××××
vacancy then ARRR is GAV otherwise Expected Rent]
For this we compare Annual Rent – UR with expected Rent
Pre-construction (1/5th part) ××××
current year interest ××××
(iv) Property part of the year let out and part of the year Self-Occupied
Its income will be calculated as per let out property due to Sec 23(3). Expected Rent will be taken
for full 12 months and only ARRR will be taken for let out period. No other item will be calculated
proportionately. All deductions are fully allowed.
(v) Property Self Occupied [23(2), (3) & (4)]

As per Sec. 23(2) the annual value of one house which is actually self occupied or deemed to be
self occupied is taken as nil
As per Sec 23(3) nil value is not allowed if assessee has given his house on rent or any other
benefit is obtained by him.
Sec. 23(4) says that if assess has more than one house and if they are self occupied then he can
take nil value of two houses as per his choice all other houses are deemed to be let out.
Particulars House I House II

Net Annual value NIL NIL
(a) Standard Deduction @ 30% ×××× ××××
Pre-construction (1/5th part) ×××× ××××
Current year interest ×××× ××××
(Maximum Interest allowed is 30,000 or 2,00,000)
[Amendment by Finance Act, 2019] If Assessee has more than two houses which are self-
occupied by him then he can choose any two houses for nil value as self-occupied and all other
houses are deemed to be let out. For this we need to compute income of each house treating as
deemed to be letout as well self occupied then we take the decision.
Annual value of deemed to be let-out properties are calculated similar to let out properties
except no ARRR is there and in that case there is no limit on interest on borrowed capital.
10
Deduction u/s 24(b) Interest on borrowed capital for Self Occupied House or Houses
Where the self-occupied house property is acquired, constructed, repaired, renewed or reconstructed with
borrowed capital, assessee can claim this deduction including pre construction period interest (1/5th part)
but subject to maximum limit of ₹ 30,000 or ₹ 2,00,000 as explained below:
Loan is taken Loan is taken on or after 1.4.1999
before 1.4.1999
For acquisition or construction For repair,
renewal or
reconstruction etc.
+
And such But such
Acquisition or Acquisition or
construction is construction is not
completed within completed within
5 years from the 5 years from the
end of the financial end of the financial
year in which year in which
capital was capital was
borrowed borrowed
and or
Certificate from the Certificate from the
lender specifying lender specifying
the interest payable the interest payable
by the assessee is by the assessee is
obtained and not obtained or
furnished not furnished
Deduction: Deduction: Deduction: Deduction:
Actual Interest Actual Interest Actual Interest Actual Interest
Or Or Or Or
₹ 30,000 ₹ 2,00,000 ₹ 30,000 ₹ 30,000
Whichever is less Whichever is less Whichever is less Whichever is less
(vi) Property deemed to be let out [23(1)(a)]

If any property is deemed to be let out then its Gross annual value shall be computed as per Sec.
23(1)(a) and all the deductions are allowed as if it is let out property. There will be no limit on
interest on borrowed capital deduction.
Particulars ₹
Expected Rent 23(1)(a) [lower of above two] is Gross Annual Value ××××
(c) Standard Deduction @ 30% ××××
(d) Interest on borrowed capital (loan for property)
(ii) Current year interest ××××
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(More than 2 houses for self-occupied purpose)
Ex ) X owns 5 houses. These houses are used by him for his residential purposes. He has derived no
other benefit from these houses nor has he given any of these properties on rent.
Municipal Value (p.a.) 12,50,000 12,70,000 24,00,000 6,00,000 15,00,000
Fair Rent (p.a.) 13,20,000 12,00,000 27,60,000 5,40,000 16,00,000
Standard Rent (p.a.) 12,00,000 13,40,000 30,00,000 4,90,000 ----------
Municipal Taxes paid by X 40,000 1,20,000 1,90,000 30,000 1,20,000
Interest on borrowed Capital for N.A. 11,000 1,70,000 2,00,000 2,30,000
purchase of properties
Date of purchase of above houses 25/4/2001 12/8/2004 18/1/2005 1/4/2009
Interest on borrowed capital on 2,10,000 7,89,000 14,00,000 N.A. N.A.
loan for repair / renewals.
Compute his income from house property.
Ans: Since self occupied houses are more than two therefore in this case we need to select any two houses
as self occupied for this we need to calculate income of each house separately assuming self occupied
once and deemed to be let out again.
In this case we need to find out Income of each house assuming all of them as self occupied:
Annual Value [23(2)] Nil Nil Nil Nil Nil
Less: Standard Deduction u/s 24
Interest on borrowed Capital
for purchase 11,000 1,70,000 2,00,000 2,30,000
For repairs and renewals 30,000 30,000 30,000
Maximum allowed [30,000 or 30,000 41,000 2,00,000 2,00,000 2,00,000
2,00,000]
Income From House Property (30,000) (41,000) (2,00,000) (2,00,000) (2,00,000)
Assume all the properties deemed to be let out
Municipal Value (p.a.) 12,50,000 12,70,000 24,00,000 6,00,000 15,00,000
Fair Rent (p.a.) 13,20,000 12,00,000 27,60,000 5,40,000 16,00,000
Higher
Standard Rent (p.a.) 12,00,000 13,40,000 30,00,000 4,90,000 ----------
Gross Annual Value
Municipal Taxes paid by X 40,000 1,20,000 1,90,000 30,000 1,20,000
Net Annual Value (NAV)
Less: Deductions u/s 24
(a) Statutory Deduction @ 30%
(b) Interest on borrowed Capital 2,10,000 8,00,000 15,70,000 2,00,000 2,30,000
Income from House Property
Best Combination is treat House I & V as self-occupied and treat H (II, III & IV) as Deemed to be let out.
Particulars Self Deemed to be let out Total
occupied
H-I & H-V H-II H-III H-IV
12
Annual Value nil but Total Interest (2,00,000) 5,000 2,29,000 1,22,000 1,56,000
deduction is restricted to ₹ 2,00,000
for Self Occupied houses.
(vii) Part of the property let out and part of the property self-occupied
If any property has various units then any of the unit is full year let out and other part is full year
self-occupied then we do proportionate computation of every item. Here income shall be computed
as per Sec 23(1) for let out part and 23(2) for self-occupied part.
Particulars Let out Self Occ.
Actual rent received or receivable 23(1)(b) ××××
Gross Annual Value [Higher of Expected rent or ARRR] ××××
Net Annual value [NAV] ×××× Nil
(a) Standard Deduction @ 30% ×××× Nil
(i) Pre-construction (1/5th part) ×××× ××××
(ii) Current year interest ×××× ××××
(viii) House property held as stock in trade: Where the property consisting of any building or land
appurtenant thereto is held as
stock-in-trade and
the property or any part of the property is not let during the whole or any part of the previous year,
the annual value of such property or part of the property, for the period up to two years
[amendment by Finance Act 2019] from the end of the financial year in which the certificate of
completion of construction of the property is obtained from the competent authority, shall be
taken to be nil.
After that its income shall be computed as per deemed to be let out property.
(ix)
13
Amounts not deductible from income from house property [Section 25]
Notwithstanding anything contained in section 24, any interest chargeable under this Act which is payable
outside India, on which tax has not been paid or deducted and in respect of which there is no person in
India who may be treated as an agent of the recipient under section 163 shall not be deducted in
computing the income chargeable under the head "Income from house property".
Special provision for arrears of rent and unrealised rent received subsequently [Section 25A]
(1) The amount of arrears of rent received from a tenant or the unrealised rent realised subsequently
from a tenant, as the case may be, by an assessee shall be deemed to be the income from house
property in respect of the financial year in which such rent is received or realised, and
shall be included in the total income of the assessee under the head "Income from house property",
whether the assessee is the owner of the property or not in that financial year.
(2) Standard deduction 30% is allowed: A sum equal to 30% of the arrears of rent or the unrealised
rent referred to in sub-section (1) shall be allowed as deduction.
Property owned by co-owners (i.e., building owned by two or more persons) [Section 26]
Where property consisting of buildings or buildings and lands appurtenant thereto is owned by two or
more persons and their respective shares are definite and ascertainable, such persons shall not in respect
of such property be assessed as an association of persons, but the share of each such person in the income
from the property as computed in accordance with section 22 to 25 shall be included in his total income.
For this purpose income from such property shall be computed as if the property is owned by one owner
and thereafter the income so computed shall be apportioned among the co-owners as per their respective
shares.
But if there shares are not definite and ascertainable then the income from house property shall be taxed
as Association of person (AOP).
Explanation. [Co-owned property if self-occupied] — For the purposes of this section, In case of self-
occupied property, the annual value shall be taken as NIL and for computing the share of each such person
as is referred to in this section, such share shall be computed, as if each such person is individually entitled
to the relief provided in that sub-section.
Means each co-owner can claim deduction on account of interest on borrowed capital i.e., 30,000/2,00,000
as the case may be on account of interest on borrowed capital under section 24(b).
Q) Mr. Raman is a co-owner of a house property alongwith his brother:

Municipal Value of the property ₹ 1,60,000
Fair Rent ₹ 1,50,000
Standard Rent under the Rent Control Act ₹ 1,70,000
Rent received ₹ 15,000 p.m.
The loan for the construction of this property is jointly taken and the interest charged by the bank is ₹
25,000 out of which ₹ 21,000 have been paid. Interest on the unpaid interest is ₹ 450. To repay this loan,
Raman and his brother have taken a fresh loan and interest charged on this loan in ₹ 5,000.
The Municipal taxes of ₹ 5,100 have been paid by the tenant.
Compute the income from this property chargeable in the hands of Mr. Raman for the A.Y.
[CA IPCC Nov. 2009]
Solution: Income Statement

14
Particulars ₹
Municipal Value ₹ 1,60,000 or Fair Rent ₹ 1,50,000 whichever is higher 1,60,000
Standard Rent (if applicable or given) 1,70,000
Expected Rent 23(1)(a) [lower of above two] 1,60,000
Actual rent received or receivable 23(1)(b) [15,000×12] 1,80,000
Gross Annual Value [Higher of Expected rent or ARRR] 1,80,000
Less: Municipal taxes actually paid and borne by the owner Nil
Net Annual value 1,80,000
(a) Standard Deduction @ 30% of 1,80,000 54,000
(i) Pre-construction (1/5th part) nil
(ii) Current year interest (allowed on payable basis) 25,000
(iii) Interest on fresh loan to repay original loan 5,000
Income from House Property (IHP) 96,000
In the question their shares are not defined. So if we assume that both have 50% share then income of
Raman will be 48,000 i.e., 50% of 96,000. Otherwise it will be taxed as AOP/BOI.
Note: Interest on interest is not allowed as deduction.
Q2) Two brothers Arun and Bimal are co-owners of a house property with equal share. The property
was constructed during the financial year 1998-99. The property consists of 8 identical units and is situated
at Cochin.
During the previous year each co-owner occupied one unit each for residence and the balance 6 units were
let out at a rent of 12,000 p.m. per unit. The municipal value of the house property is ₹ 9,00,000 and Fair
rent is 10,00,000 the municipal taxes are 20% of municipal value, which were paid during the year. The
other expenses were:
Repairs 40,000
Insurance premium (paid) 15,000
Interest payable on loan taken for construction of house 3,00,000
One of the let out units remained vacant for four months during the year. Arun could not occupy his unit
for six months as he was transferred to Chennai. He does not own any other house. The other income of
Mr. Arun and Mr. Bimal are ₹ 2,90,000 and ₹ 1,80,000 respectively for the current previous year.
Compute the income under the head ‘Income from house Property’ and the total income of two brothers.
[CA PCC Nov. 2010 Modified]
Solution: In this case we need to compute income of self-occupied property & let out properties
separately. Since property has 8 identical units therefore proportion of self-occupied part is 1/8th each and
let out part is 6/8th. So municipal taxes and Interest all are to be divided in this ratio when required.
Income of self occupied house. Section 26 says the each brother will get separate deduction for interest
on capital subject to maximum of ₹ 30,000 / ₹ 2,00,000 as the case may be
Particulars Arun Bimal
Net Annual value or Annual Value NIL NIL
Less : Deductions under section 24 (b)
Interest on borrowed capital (loan for property)
3,00,000 × 1/8 = 37,500 but maximum allowable is 30,000 30,000
₹ 30,000 Since, house was constructed before 1/4/99,
Income from House Property (IHP) (30,000) (30,000)
15
Particulars ₹
Municipal Value [9,00,000 × 6/8] 6,75,000
Fair Rent [10,00,000 × 6/8] 7,50,000
Expected Rent 23(1)(a) [Higher of above two] 7,50,000
Actual rent received or receivable [12,000 ×12] × 6 units – [12,000×4×1] 8,16,000
Gross Annual Value [Higher of Expected rent or ARRR-UR] 8,16,000
(Since ARRR is more than expected rent despite vacancy)
Less: Municipal taxes [6/8 × 20% × 9,00,000] 1,35,000
Net Annual value 6,81,000
(a) Standard Deduction @ 30% of ₹ 6,81,000 2,04,300
(b) Interest on borrowed capital [3,00,000 × 6/8] 2,25,000
Income from House Property 2,51,700
Share of Arun and Bimal each in the income from let out property is [2,51,700 × 50%] = 1,25,850.
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Income under the head Capital Gains [Sec. 45 to 55A]
Capital gains.
Revenue Receipts are always taxable unless specifically exempt similarly Capital Receipts are not taxable
unless they are specifically made taxable. Under this head law provides capital receipts which are
specifically taxable.
Capital Gain = Capital Asset + Transfer
[Sec 45(1)] Sec. 2(14) Sec 2(47)
Computation of capital gain Exemption Tax computation of CG

Short Term [Sec 48] 54, 54B, 54D, 54EC, 54EE, 111A
Long term [2nd proviso sec. 48] 54F, 54G Sec. 112 & 112A
Depreciable Assets [Sec. 50] Gagan Kapoor Classes (Online)
Note: Sec. 47 certain activities are not treated as transfer. +91-9811595823
Computation of Capital Gain [Sec 48] [non-depreciable]
Short term capital Gain Long Term Capital Gain [2nd Proviso]
Full value of consideration ×××× Full value of consideration ××××
Less: Expenses incurred wholly and ×××× Less: Expenses incurred wholly and ××××
exclusively in connection with such exclusively in connection with such
transfer transfer
Net Consideration ×××× Net Consideration ××××
Less: Cost of Acquisition (COA) ×××× Less: Indexed Cost of Acquisition ××××
Less: Cost of Improvement (COI) ×××× Less: Indexed Cost of Improvement ××××
Short Term Capital Gain ×××× Long term Capital Gain ××××
Less: Exemption [54B & 54D] ×××× Less: Exemption 54 [B,D,EC,EE, F etc.] ××××
Taxable Short Term Capital Gain ×××× Taxable Long Term Capital Gain ××××
Gagan Kapoor Classes (Online)

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1
Charging Sections or Basis of charge of Capital Gains
45(1) 45(1A) 45(2) 45(3) 45(4) 45(5) 45(5A) 46 46(1) 46(A)
General Charging [Section 45(1)]

Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save
as otherwise provided in sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G and 54H, be chargeable to
income-tax under the head "Capital gains", and shall be deemed to be the income of the previous year in
which the transfer took place.
In short capital gain arises on transfer of capital asset. So
Capital Gain = Capital Asset + Transfer
[Sec 45(1)] Sec. 2(14) Sec 2(47)
Note: [Exceptions] Cases where capital gains are not chargeable to tax in the year of transfer
(i) Capital gains on insurance claim received on damage or destruction to capital asset. [Sec. 45(1A)]
(ii) Capital gains on conversion of capital asset into stock in trade. [Sec. 45(2)]
(iii) Capital gain on compulsory acquisition of capital asset. [Sec. 45(5)]
(iv) Capital gain in case of Joint development Agreement (JDA). [Sec. 45(5A)]
Capital Asset
What is Capital Asset?
Q) Define Capital Assets?
Capital Asset is defined by under section 2(14) as follows:
"capital asset" means—
(a) property of any kind held by an assessee, whether or not connected with his business or profession;
(b) any securities held by a Foreign Institutional Investor (FII) which has invested in such securities
in accordance with the regulations made under the Securities and Exchange Board of India Act,
1992,
but does not include—
(i) any stock-in-trade [other than the securities referred to in sub-clause (b)], consumable stores
or raw materials held for the purposes of his business or profession ;
(ii) personal effects, that is to say, movable property (including wearing apparel and furniture) held
for personal use by the assessee or any member of his family dependent on him, but excludes—
(a) jewellery; (b) archaeological collections; (c) drawings;
(d) paintings; (e) sculptures; or (f) any work of art.
Explanation [Jewellery defined] — for the purposes of this sub-clause, "jewellery" includes—
(a) ornaments made of gold, silver, platinum or any other precious metal or any alloy
containing one or more of such precious metals, whether or not containing any precious or
semi-precious stone, and whether or not worked or sewn into any wearing apparel;
2
(b) precious or semi-precious stones, whether or not set in any furniture, utensil or other article
or worked or sewn into any wearing apparel.
(iii) Rural agricultural land in India,
(iv) 6% Gold Bonds, 1977, or 7% Gold Bonds, 1980, or National Defence Gold Bonds, 1980,
issued by the Central Government;
(v) Special Bearer Bonds, 1991, issued by the Central Government ;
(vi) Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 or deposit certificates issued
under the Gold Monetisation Scheme, 2015 notified by the Central Government.
Meaning of Rural agricultural land in India, not being land situate—

(a) in any area which is comprised within the jurisdiction of a municipality (whether known as a
municipality, municipal corporation, notified area committee, town area committee, town
committee, or by any other name) or a cantonment board and which has a population of not less
than ten thousand; or
(b) in any area within the distance, measured aerially,—
(I) not being more than 2 kms, from the local limits of any municipality or cantonment board
referred to in item (a) and which has a population > 10,000 ≤ 1,00,000; or
(II) not being more than 6 kms, from the local limits of any municipality or cantonment board
referred to in item (a) and which has a population > 1,00,000 ≤ 10,00,000; or
(III) not being more than 8 kms, from the local limits of any municipality or cantonment board
referred to in item (a) and which has a population > 10,00,000.
Explanation.—For the purposes of this sub-clause, "population" means the population according
to the last preceding census of which the relevant figures have been published before the first day
of the previous year;
Explanation [Right in relation to an Indian company is property]—For the removal of doubts, it
is hereby clarified that "property" includes and shall be deemed to have always included any rights
in or in relation to an Indian company, including rights of management or control or any other
rights whatsoever;
Some important decisions on Capital Assets: Silver Utensils belonging to assessee, which are used in the
Kitchen or dining room, are for personal use hence treated as personal effects and capital assets.
However, Silver Bars, sovereigns, gold/silver coins used for puja and festivals etc are capital assets.
Gold articles are always capital assets.
Kinds of Capital Assets

Capital Assets for the purpose of capital gain are of two types:
Long Term Capital Asset [Sec. 2(29A)] Short Term Capital Asset [Sec. 2(42A)]
(a) "long-term capital asset [Sec. 2(29A)]" means a capital asset which is not a short-term capital asset;
(b) "short-term capital asset[Sec. 2(42A)]" means a capital asset held by an assessee for not more than
36 months immediately preceding the date of its transfer :
However in the following cases instead of 36 months we substitute 12 or 24 months
3
POH ≤ 12 Months POH ≤ 24 months
⁕ Listed Securities (RSE in India) (other ⁕ Unlisted Shares
than unit) ⁕ An Immovable Property i.e., Land or
⁕ Unit of UTI or Equity Oriented Mutual Building or Both
Fund (EOMF)
⁕ Zero Coupon Bond (ZCB)
Note: An asset held exactly for 12 months/ 24months/ 36 months as the case may be will be
considered as Short term capital asset.
Explanation [POH shall include or exclude the following] — discussed at appropriate places
later on.
Some important terms explained
Equity Oriented Mutual Fund [Explanation to Sec. 112A] – "equity oriented fund" means a fund
set up under a scheme of a mutual fund specified under clause (23D) of section and,—
(i) in a case where the fund invests in the units of another fund which is traded on a recognised
stock exchange,—
(A) a minimum of 90% of the total proceeds of such fund is invested in the units of such
other fund; and
(B) such other fund also invests a minimum of 90% of its total proceeds in the equity shares
of domestic companies listed on a recognised stock exchange; and
(ii) in any other case, a minimum of 65% of the total proceeds of such fund is invested in the
equity shares of domestic companies listed on a recognised stock exchange:
Provided that the percentage of equity shareholding or unit held in respect of the fund, as the case
may be, shall be computed with reference to the annual average of the monthly averages of the
opening and closing figures;
Zero Coupon Bond [Sec. 2(48)] – "zero coupon bond" means a bond—
(a) issued by any infrastructure capital company or infrastructure capital fund or public sector
company or scheduled bank on or after the 1st day of June, 2005;
(b) in respect of which no payment and benefit is received or receivable before maturity or
redemption from infrastructure capital company or infrastructure capital fund or public
sector company or scheduled bank; and
(c) which the Central Government may, by notification in the Official Gazette, specify in this
behalf.
Kinds of Capital Gains
Capital Gains are of two types:
Long Term Capital Gain [Sec. 2(29B)] Short Term Capital Gain [Sec. 2(42B)]
arises on transfer of long term capital asset arises on transfer of short term capital asset
4
Transfer [Section 2(47)]
What is meant by Transfer?
Transfer is defined under Section 2(47) as follows:
"transfer", in relation to a capital asset, 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 of the nature referred to in section 53A of the
Transfer of Property Act, 1882 (4 of 1882) ; or
(vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative
society, company or other association of persons or by way of any agreement or any arrangement
or in any other manner whatsoever) which has the effect of transferring, or enabling the
enjoyment of, any immovable property.
Certain transfers are not regarded as transfer hence do not attract capital gain are given in Sec. 47.
Computation of Capital Gain [Section 48 & 50]

Computation of Capital gain depends upon the fact that whether capital asset which is subject to capital
gain is non-depreciable or depreciable.
Non Depreciable [Sec. 48] Depreciable [Sec. 50]
Short term capital gain Long Term Capital Gain Always short term capital
[2nd proviso] gain
No indexation Indexation with few exceptions No indexation
Sales Consideration Cost of Acquisition and
Cost of Acquisition Improvement are all defined in
Sec 50 itself
Cost of Improvement
Short term capital Gain Long Term Capital Gain [2nd Proviso]
Full value of consideration ×××× Full value of consideration ××××
Less: Expenses incurred wholly and ×××× Less: Expenses incurred wholly and ××××
exclusively in connection with such exclusively in connection with such
transfer transfer
Net Consideration ×××× Net Consideration ××××
Less: Cost of Acquisition (COA) ×××× Less: Indexed Cost of Acquisition ××××
Less: Cost of Improvement (COI) ×××× Less: Indexed Cost of Improvement ××××
5
Short Term Capital Gain ×××× Long term Capital Gain ××××
Less: Exemption (if applicable) ×××× Less: Exemption (if applicable) ××××
Taxable Short Term Capital Gain ×××× Taxable Long Term Capital Gain ××××
Provided also (7th proviso) that no deduction shall be allowed in computing the income chargeable under
the head "Capital gains" in respect of any sum paid on account of securities transaction tax (STT) under
Chapter VII of the Finance (No. 2) Act, 2004.
Provided also (3rd Proviso) that nothing contained in the first proviso (foreign currency fluctuation) and
second provisos (indexation) shall apply to the capital gains arising from the transfer of a long-term capital
asset being an equity share in a company or a unit of an equity oriented fund or a unit of a business
trust referred to in section 112A.
Provided also (4th proviso) that nothing contained in the second proviso (Indexation) shall apply to the
long-term capital gain arising from the transfer of a long-term capital asset, being a bond or debenture
other than—
(a) Capital indexed bonds issued by the Government; or
(b) Sovereign Gold Bond issued by the Reserve Bank of India:
"indexed cost of acquisition" means an amount which bears to the cost of acquisition the same proportion
as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for
the first year in which the asset was held by the assessee or for the year beginning on the 1st day of April,
2001, whichever is later;
Cost of acquisition ×
;
,𝒘𝒉𝒊𝒄𝒉 𝒆𝒗𝒆𝒓 𝒊𝒔 𝒍𝒂𝒕𝒆𝒓
"indexed cost of any improvement" means an amount which bears to the cost of improvement the same
proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation
Index for the year in which the improvement to the asset took place;
Cost of improvement ×
"Cost Inflation Index", in relation to a previous year, means such Index as the Central Government may,
having regard to 75% of average rise in the Consumer Price Index (urban) for the immediately preceding
previous year to such previous year, by notification in the Official Gazette, specify, in this behalf.
Financial CII Financial CII Financial CII Financial CII
Year Year Year Year
2001-02 100 2002-03 105 2003-04 109 2004-05 113
2005-06 117 2006-07 122 2007-08 129 2008-09 137
2009-10 148 2010-11 167 2011-12 184 2012-13 200
2013-14 220 2014-15 240 2015-16 254 2016-17 264
2017-18 272 2018-19 280 2019-20 289 2020-21
6
Special Procedure for computation of capital gain on transfer of shares or debentures of an Indian
company by non-resident acquired in foreign currency. [1st Proviso to Sec. 48]
In the case of an assessee, who is a non-resident, capital gains arising from the transfer of a capital asset
being shares in, or debentures of, an Indian company shall be computed
by converting the cost of acquisition, expenditure incurred wholly and exclusively in connection with
such transfer and the full value of the consideration received or accruing as a result of the transfer of the
capital asset into the same foreign currency as was initially utilised in the purchase of the shares or
debentures, and
the capital gains so computed in such foreign currency shall be reconverted into Indian currency,
so, however, that the aforesaid manner of computation of capital gains shall be applicable in respect of
capital gains accruing or arising from every reinvestment thereafter in, and sale of, shares in, or debentures
of, an Indian company:
Particulars Amount (₹)
Convert Full value of consideration in foreign currency by applying average
exchange rate as on the date of transfer
Less: Expenses on transfer converted in foreign currency by applying average
exchange rate as on the date of transfer
Less: Cost of Acquisition (without indexation) converted in foreign currency by
applying average exchange rate as on the date of acquisition
Capital Gain in foreign currency to be reconverted into Indian ₹ by applying
telegraphic transfer buying rate on the date of transfer.
Note: Average exchange rate = [T.T buying rate (SBI) + T.T. selling rate (SBI)] ÷ 2.
Provided also (5th proviso) that in case of an assessee being a non-resident, any gains arising on account
of appreciation of rupee against a foreign currency at the time of redemption of rupee denominated bond
of an Indian company held by him, shall be ignored for the purposes of computation of full value of
consideration under this section:
Provided also (6th proviso) that where shares, debentures or warrants referred to in the proviso to clause
(iii) of section 47 are transferred under a gift or an irrevocable trust, the market value on the date of such
transfer shall be deemed to be the full value of consideration received or accruing as a result of transfer
for the purposes of this section:
Simple Questions for Practice
Q1) A owns a house property which was purchased by him on 15-10-2018 for Rs. 40,00,000. The said
property was sold for 42,00,000 on 30-01-2020. Expenses on transfer amounted to Rs. 21,000. Compute
Capital Gain.Period of Holding : 15-10-2018 to 29-01-2020 i.e., short term
Particulars ₹
Sales Consideration 42,00,000
Less: Expenses on Transfer 21,000
Net Consideration 41,79,000
Less: Cost of Acquisition 40,00,000
Short Term Capital Gain [STCG] 1,79,000
7
[Ans: Short term capital gain ₹ 1,79,000 as house is sold within 24 months period.]
Q2) Mrs. Priya sells her gold bracelet on 1-5-2019 for ₹ 5,00,000. Expenses on transfer are 1%. She
acquired it for ₹ 40,000 on 1-3-2005. Later on she got a diamond fitted into it for Rs. 30,000 on 1-7-2007.
Compute Capital gain for the assessment year 2020-21.
Solution:
Particulars ₹
Less: Indexed Cost of Acquisition [40,000 × ] 1,02,301
Less: Indexed Cost of Improvement [30,000 × ] 67,209

Long Term Capital Gain 3,25,490
Q3) Ram purchases a house property for ₹ 21,00,000 on 30th June 2001. The following expenses were
incurred by him for making additions / alterations to the house property:
Cost of construction of first floor in 2002-03 7,50,000
Cost of construction of second floor in 2006-07 6,25,000
th
The house property is sold by him on 15 June, 2019 for ₹ 1,00,00,000. Expenses on transfer are 0.5%.
Compute the amount of capital gains chargeable to tax for the assessment year 2020-21.
Solution: Period of Holding 30-06-2001 to 14-06-2019
Particulars ₹
Less: Indexed Cost of Acquisition [21,00,000 × ] 60,69,000
Less: Indexed Cost of Improvement [7,50,000 × ] 20,64,286

Cost of Acquisition and Cost of Improvement if asset is acquired by the Assessee himself
Before 1/4/2001 On or after 1/4/2001
Cost of Acquisition Cost of improvement Cost of Acquisition Cost of improvement
Actual Cost or Fair Any amount incurred Take actual cost Actual amount of
Market Value (FMV) before 1/4/01 is to be improvement incurred.
on 1-4-2001 ignored. Consider
8
whichever is higher amount incurred on or
after 1/4/01 only.
Q2) Mr. Arora provides the following information for his residential house. Compute Capital Gain the
assessment year 2020-21;
(i) House was purchased on 30.06.1990 for 86,000
(ii) Cost of construction of first floor in 1995-96 1,10,000
(iii) Fair market value as on 01.04.2001 16,50,000
(iv) Cost of construction of second floor in 2004-05 9,00,000
(v) Cost of construction of third year in 2010-11 12,25,000
(vi) Sold the house on 30.06.2019 for 98,00,000
(vii) Expenses incurred on transfer 10,000
Cost inflation index for the relevant financial years are as follows; [B. Com (prog.) 2006]
2001-02 – 100; 2003-04 – 109; 2009-10 – 148; 2011-12 – 184;2016-17 – 264;2018-19 – 280.
Sol:
Particulars ₹
Less: Indexed Cost of Acquisition
Less: Indexed Cost of Improvement
Capital Gain
Assets Acquired from previous owner under modes 49(1) i.e., gift, will etc
What are modes of acquisition under 49(1):

Where the capital asset became the property of the assessee—
(i) on any distribution of assets on the total or partial partition of a Hindu undivided family;
(ii) under a gift or will;
(iii) (a) by succession, inheritance or devolution, or
(b) on any distribution of assets on the liquidation of a company, or
(c) under a transfer to a revocable or an irrevocable trust, or
(d) under any such transfer as is referred to in clause (iv) or clause (v) or clause (vi) or clause
(via) or clause (viaa) or clause (viab) or clause (vib) or clause (vic) or clause (vica) or clause
(vicb) or clause (vicc) or clause (xiii) or clause (xiiib) or clause (xiv) of section 47;
(iv) such assessee being a Hindu undivided family, conversion of member individual property into
HUF property under section 64(2),
the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the
property acquired it, as increased by the cost of any improvement of the assets incurred or borne by the
previous owner or the assessee, as the case may be.
9
Explanation.—In this sub-section the expression "previous owner of the property" in relation to any
capital asset owned by an assessee means the last previous owner of the capital asset who acquired it by a
mode of acquisition other than that referred to in 49(1) clause (i) or clause (ii) or clause (iii) or clause (iv).
There is technical issue in indexation of Cost of Acquisition in case of assets acquired under 49(1):
The formula given for indexation says indexation should start from the year when the asset was first held
by the assessee (see denominator of the indexation equation)
Indexed Cost of Acquisition = COA (P.O) ×
𝒇𝒊𝒓𝒔𝒕 𝒉𝒆𝒍𝒅 𝒃𝒚 𝒕𝒉𝒆 𝒂𝒔𝒔𝒆𝒔𝒔𝒆𝒆
But Bombay High Court in CIT vs. Manjula J Shah said that in case of assets acquired by previous
owner “held by the assessee” means held by the previous owner. So indexation should start from the year
it was held by the previous owner. Similar Judgement has been given by Delhi High Court too. So we will
do the indexation from the year of acquisition by previous owner.
Deemed Cost of Acquisition: Cost of Acquisition and Cost of Improvement if asset is acquired by
Assessee under modes given in 49(1):
Cost of acquisition shall be deemed to be the cost of previous owner, and
Period of holding shall include the period for which the asset was held by the previous owner. [Sec.
2(42A)]
Previous owner acquired it before 1/4/2001 Previous owner acquired it on or after 1/4/2001
Cost of Acquisition Cost of improvement Cost of Acquisition Cost of improvement
Actual Cost to previous Any amount incurred Take actual cost Actual amount of
owner or Fair Market before 1/4/01 is to be improvement incurred.
Value (FMV) on 1-4- ignored. Consider
2001 amount incurred on or
whichever is higher after 1/4/01 only.
Cost of Acquisition and Improvement (summary of above provisions)

If capital asset is acquired by assessee himself Capital Asset is received from previous owner,
Previous owner acquired it
Before 1-4-2001 On or after 1-4-2001 Before 1-4-2001 On or after 1-4-2001
Cost or FMV on 1-4- Actual Cost Cost to P.O or FMV Actual Cost
2001 whichever is on 1-4-2001 whichever
higher is higher
Cost of improvement incurred by the assessee Cost of improvement incurred either by the
Previous owner or by the assessee himself
Before 1-4-2001 On or after 1-4-2001 Before 1-4-2001 On or after 1-4-2001
Is to be ignored Take actual cost Is to be ignored Take actual cost
incurred whether by
P.O or assessee
10
Q1) Mr. Anand transfers the following capital assets:
Particulars House Silver Diamond Debentures
Property
Date of Acquisition 20.05.1989 25.03.1999 1.6.2002 1.3.2006
Date of Transfer 29.04.2019 12.8.2019 10.6.2019 15.6.2019
Sale Consideration 46,00,000 8,50,000 9,10,000 21,00,000
Stamp Duty Value 46,50,000 ---- ---- ----
Cost of Acquisition 6,00,000 50,000 74,000 6,50,000
Fair Market Value on 1.4.2001 5,90,000 60,000 86,000 ----
Cost of construction of 1st Floor 56,000 ---- ---- ----
(1999-2000)
Cost of construction of 2nd Floor 1,40,000 ---- ---- ----
(2015-2016)
Expenses on Transfer 15,000 1,000 1,500 1,000
Determine the amount of capital gains chargeable to tax for the assessment year 2020 – 21. [B.
Com (prog.) 2017 Modified.]
Solution:
Special provision for full value of consideration in certain cases [Sec. 50C].
[Section 50C:] Where land or building or both are transferred by assessee for a consideration below
Stamp Duty Value (SDV):
[50C (1)] Consideration (received or receivable) is less than Stamp Duty Value (SDV), but if
105% of consideration is not less than SDV 105% of consideration is also less than SDV
Then, consideration will be accepted as full value Then, SDV shall be deemed to be full value of
of consideration for computation of capital gain. consideration.
[3rd Proviso]
If SDV at the date of agreement and the date of registration are not same, then SDV at the date of
agreement may be accepted as full value of consideration [1st proviso]
If (following condition is satisfied) Otherwise
Consideration or part thereof has been received by Stamp Duty Value (SDV) at the date of
any banking mode or electronic clearance system registration shall be deemed to be full value of
or any other electronic mode as prescribed, consideration.
nd
On or before the date of agreement [2 Proviso]
(2) Without prejudice to the provisions of sub-section (1), where—

(a) the assessee claims before any Assessing Officer that Stamp Duty Value (SDV) exceeds the fair
market value of the property as on the date of transfer; and
(b) such stamp duty value has not been disputed in any appeal or revision or no reference has been made
before any other authority, court or the High Court,
the Assessing Officer may refer the valuation of the capital asset to a Valuation Officer and where any
such reference is made.
11
(3) Where the value ascertained by valuation officer exceeds the stamp duty value, then stamp duty value
shall be taken as the full value of the consideration received or accruing as a result of the transfer. Means
value determined by valuation officer (though more than SDV) will be ignored.
Summary
Value ascertained by Valuation Value by V.O is less than SDV Value by V.O is less than SDV
Officer is more than SDV but more than Declared Value & also below the Declared Value
Sales Consideration will be Sales Consideration will be Sales Consideration will be
Stamp Duty Value of the Value so ascertained by Actual sales consideration
municipal authority Valuation Officer (V.O.) declared by the Assessee.
[50C will not be applicable]
Q) Mr. T inherited a house in Jaipur under will of his father in May 2002.The house was purchased
by his father in January, 1980 for ₹ 2,50,000. He invested an amount of ₹ 7,00,000 in connection of one
more floor in this hose in June, 2006. The house was sold by him in November 2019 for ₹ 37,50,000. The
valuation adopted by registration authorities for charge of stamp duty was ₹ 47,25,000. Which was not
contested by the buyer, but as per assessee request, the Assessing officer made a reference to valuation
officer. The value determined by Valuation officer was ₹ 47,50,000. Brokerage @ 1% of sale
consideration was paid by Mr. T to Mr. S. The market value of the house as on 1-4-2001 was ₹ 2,70,000.
Compute capital gain chargeable to tax. [ CA Nov. 2007]
Solution: Computation of capital gain chargeable to tax to Mr. T
Particulars ₹
Sales Consideration [due to application of 50C] 47,25,000
Less: Expenses on Transfer [ 1% of ₹ 37,50,000] 37,500

Advance money received [Section 51].

Where any capital asset was on any previous occasion the subject for negotiations for its transfer, any
advance or other money (like deposit) received,
Upto 31-3-2014 On or after 1-4-2014
If returned If retained If such advance is retained then it will be taxed as
income from other sources in the year of receipt.
Ignore, no treatment is Shall be deducted from Since it has been already taxed, therefore such
required. Cost or FMV or WDV advance shall not be deducted from the cost or
as the case may be FMV or WDV as the case may be.
Note: Advance money forfeited by previous owner shall not be deducted from the cost.
12
Q) Mr. E purchased a house on 1-7-1996 for ₹90,000. He had to pay ₹ 2,000 as brokerage to real
estate agent and ₹ 8,000 as registration charges. Later on he gifted this house to his son F on 15-9-2005.
The following expenses were incurred by E and F for the renewal of house:
Addition of two rooms by E during 1999-00 50,000
Addition of first floor by E during 2004-05 1,00,000
Addition of second floor by F during 2010-11 1,50,000
Fair market value of house on 1-4-2001 was ₹ 1,25,000
F enterd into an agreement to sell the house for ₹9,00,000 to Y on 10-5-2019 after receiving an advance
of ₹60,000. Y could not pay the balance within the stipulated time of two months and F forfeited the
advance of ₹60,000. F ultimately found a buyer Mr. Z. to whom property was transferred for ₹9,00,000
on 15-12-2019. F had to pay brokerage @ 1% for arranging this deal.
Compute the capital gain chargeable to tax in the hands of Mr. F for the assessment year 2019-20.
Also compute his gross total income. [B. Com (Hons.) 2010]
[Ans:
Q) Mr. Rakesh purchased a house property on 14th April, 1999 for ₹ 9,05,000. He entered into an
agreement with Mr. B for the sale of house on 15th September, 2002 and received an advance of ₹ 25,000.
However, since Mr. B did not remit the balance amount, Mr. Rakesh forfeited the advance. Later on, he
gifted the house property to his brother Mr. A on 15th June, 2006.
Following renovations were carried out by Mr. Rakesh and Mr. A to the house property:
Particulars Amounts ₹
By Mr. Rakesh during FY 1999-2000 10,000
By Mr. Rakesh during FY 2003-04 50,000
By Mr. A during FY 2007-08 1,90,000
The fair market value of the property as on 01-04-2001 is ₹ 11,00,000
Mr. A entered into an agreement with Mr. C for sale of the house on 1st June, 2012 and received an advance
of ₹ 80,000. The said amount was forfeited by Mr. A, since Mr. C could not fulfil the terms of the
agreement. Finally, the house was sold by Mr. A to Mr. Sanjay on 2nd January, 2020 for a consideration
of ₹ 42,00,000.
Compute the capital gains chargeable to tax in the hands of Mr. A for the assessment year 2020-21.
[May 2011 IPCC]
Particulars ₹
Less: Expenses on Transfer ------
Less: Indexed Cost of Acquisition [(11,00,000 - 80,000) × ] 29,47,800
Less: Indexed Cost of Improvement [50,000 × ] 4,25,659

13
Meaning of "adjusted", "cost of improvement" and "cost of acquisition"[Sec. 55].
55(1)(b) Cost of Improvement 55(2) Cost of Acquisition 55(3) cost of previous owner
cannot be ascertained
Cost of Improvement [Sec. 55(1)]

55. (1)(b)] For the purposes of sections 48 and 49, — "cost of any improvement", in relation to
(1) Intangible assets (specified below) (2) Any other capital asset (including other
intangible assets which are note specified)
being Where the capital asset became the property of the
goodwill of a business or previous owner or assessee
a right to manufacture, produce or process any (i) Before 1-4-2001: always to be ignore,
article or thing or or
right to carry on any business or profession (i) On or After 1/4/2001: All capital expenditure
shall be taken to be nil incurred by Assessee or previous owner
Notes:
(1) Cost of improvement does not include any expenditure which is deductible in computing income
chargeable under any other head of income.
(2) For other intangible assets which are not specified above like trademark or brand name, tenancy
rights, route permits, loom hours, assessee can claim actual capital expenditure incurred on
improvement of capital asset by him or previous owner on or after 1-4-2001.
(3) In case of financial assets shares or debentures or units etc., cost of improvement is not
applicable and hence to be ignored.
Cost of Acquisition [Sec. 55(2)]

(2) For the purposes of sections 48 and 49, "cost of acquisition",
(a) in relation to capital asset, being
[55(2)(a)] goodwill of a business or a trade mark or brand name associated with a business or a right to
manufacture, produce or process any article or thing or right to carry on any business or profession,
tenancy rights, stage carriage permits or loom hours,—
(i) If purchased by assessee then amount of (ii) In any other case [self-generated], then
purchase price, and shall be taken as NIL except assets
acquired under sec. 49(1).
Note: in case of other self-generated assets which are not mentioned above, like goodwill of a profession
or spontaneous grown trees, there will be no capital gain on transfer as cost of acquisition of self-
generated assets are indeterminate. [B. C. Srinivasa Setty (SC)].
[55(2)(aa)] Cost of Acquisition of financial assets (shares etc.)-

(aa) in a case where, by virtue of holding a capital asset, being a share or any other security, the assessee—
(A) becomes entitled to subscribe to any additional financial asset ; or
14
(B) is allotted any additional financial asset without any payment,
then, subject to the provisions of sub-clauses (i) and (ii) of clause (b),—
Original shares financial asset Right Shares – Financial asset Bonus Shares – Financial asset
subscribed on the basis of allotted without any payment.
entitlement
amount actually paid shall be taken to be nil
If subscribed by the assessee If renounced by the assessee in If purchased by the person in

favour of another person whose favour the right is
renounced
amount actually paid by him for shall be taken to be nil the aggregate of the amount paid
acquiring such asset for purchasing the right of
entitlement and the amount paid
to the company for acquiring
such financial asset
Cost of Acquisition of shares if taxable as per Sec 112A [Sec. 55(ac)]

(applicable if shares were acquired before 1/2/2018)
(ac) subject to the provisions of sub-clauses (i) and (ii) of clause (b), in relation to a long-term capital
asset, being
an equity share in a company or
a unit of an equity oriented fund or of a business trust
referred to in section 112A, acquired before the 1st day of February, 2018,
shall be higher of—
(i) the cost of acquisition of such asset; and
(ii) lower of—
(A) the fair market value of such asset on 31st January 2018; and
(B) the full value of consideration received or accruing due to the transfer of the capital asset.
Explanation.—For the purposes of this clause,—
(a) "fair market value" means,—
If such shares or units are
listed on 31st January 2018 not listed on 31st January 2018
If traded on 31/1/2018 If not traded on 31/1/18 Units not listed But shares got listed on
the date of transfer
Highest traded price on Highest traded price on Net Asset Value (NAV) Indexed cost of
31st January 2018 a date immediately on 31st January, 2018 acquisition till financial
preceding 31/1/2018 year 2017-18 (use CII
when they were traded i.e. 272 for indexation)
Computation of Cost of shares acquired on or before 31st January, 2018 [as per CBDT clarification to
112A]:
Particulars Case 1 Case 2 Case 3 Case 4
15
Cost (per share) date of acquisition 1/1/2017 100 100 100 100
Fair Market Value (FMV) on 31/1/2018 200 200 50 200
Sale Price after 1/4/2018 250 150 150 50
Solution:
Particulars Case 1 Case 2 Case 3 Case 4
(a) Cost (per share) date of acquisition 1/1/2017 100 100 100 100
(b) Fair Market Value (FMV) on 31/1/2018 200 200 50 200
(c) Sale Price on or after 1/4/2018 250 150 150 50
(d) Lower of FMV and Sale Price [b or c] 200 150 50 50
(e) Cost = Higher of [a or d] 200 150 100 100
(f) Capital Gain / Loss [ c – e] 50 0 50 (50)
(b) in relation to any other capital asset,—

Where capital assets became the property of the assessee
before 1-4-2001 by any mode under 49(1) and Previous
Owner acquired it before 1-4-2001
Cost of Acquisition, or Cost of Acquisition, or
Fair Market Value on 1-4-2001 Fair Market Value on 1-4-2001
At the option of the assessee (means higher) At the option of the assessee (means higher)
Following proviso and the Explanation thereto shall be inserted after sub-clause (ii) of clause
(b) of sub-section (2) of section 55 by the Finance Act, 2020, w.e.f. 1-4-2021:
Provided that in case of a capital asset, being land or building or both, the fair market value of
such asset on the 1st day of April, 2001 for the purposes of the said sub-clauses shall not exceed
the stamp duty value, wherever available, of such asset as on the 1st day of April, 2001.
[55(3)] Cost to previous owner cannot be ascertained

(3) Where the cost for which the previous owner acquired the property cannot be ascertained, the cost of
acquisition to the previous owner means the fair market value on the date
Practice Questions
Q) Mr. B transfers the following assets in July, 2019:
Particulars Sale Proceeds Cost of Year of
(₹) Acquisition acquisition
(COA) (₹)
Jewellery 10,67,000 4,80,000 2004-05
Goodwill of a business (Self-generated) 2,50,000 ---- ----
Tenancy Right (Self –generated) 4,75,000 ---- ----
Compute Capital gain.
Does it make any difference if the goodwill is of a profession? [B. Com (Prog.) 2005 Modified]
Solution: computation of a capital gain

Particulars Jewellery Goodwill of Tenancy
a business Rights
Sales Consideration 10,67,000 2,50,000 4,75,000
16
Less: Indexed Cost of Acquisition of jewellery 12,27,611 ---- ----
4,80,000 × (in other cases COA is NIL)
Long term Capital Gain (LTCG) (1,60,611) 2,50,000 2,50,000
Note: If self-generated goodwill of a profession is transferred then it is not liable to Capital gain as its
Cost becomes indeterminate as per the case of B. C. Srinivasa Setty (SC).
Q) S a resident of India purchased 1000 listed equity shares @ ₹115 per share on 25-10-2001.
On 1-1-2002 he was allotted 500 bonus shares by the company on the basis of one share for every
2 shares held.
On 28-2-2019, he was given the right to acquire 1000 right shares @ ₹60 per share. He acquired
50% of the right shares offered and sold the balance of the right for a sum of ₹60,000 on 6-4-2019.
Right shares were allotted to him on 25-4-2019.
He sold all the shares held by him through recognised stock exchange by paying STT on 20-1-2020
@ ₹240 per share.
Market value of shares as on 31.1.2018 was ₹200 per share.
Compute capital gain and tax for the assessment year 2020-21 assuming his income from other
sources is ₹50,000. [B. Com (Hons.) 2009 Modified]
Sol: Computation of Capital Gain

Particulars Original Bonus Right Sale of
shares Shares Shares Right
Number of Shares 1000 500 500 ----
Nature of Asset Long Term Long Term Short term Short term
Sales Consideration 2,40,000 1,20,000 1,20,000 60,000
Less: Cost of Acquisition (WN) 2,00,000 1,00,000 30,000 ----
Capital Gain 40,000 20,000 90,000 60,000
Note: As per 3rd Proviso to Sec. 48, No Indexation is allowed if long term capital gain arises on transfer
of shares which is taxable under Sec 112A.
Working Note: Calculation of Cost of Acquisition of shares acquired before 1/2/2018

Particulars Original Bonus Right
shares Shares Shares
Date of Acquisition 25-10-2001 1-1-2002 25-4-2019
(a) Cost 115 Nil 60
(b) FMV on 31/1/2018 200 200 Sec 55 (ac)
(c) Sale Consideration 240 240 is not
(d) Lower of FMV and Sales Consideration 200 200 applicable.
Cost = Higher of (a) or (d) 200 200
Q). During the previous year 2019-20. Ruchi sell the following capital assets:
Sales Price (₹) Expenses on transfer
Land 50,00,000 1%
Gold 51,00,000 NIL
17
Listed Debentures 8,00,000 1%
Land was inherited by Ruchi from her father who died in 2004-05. Father acquired the land on 1-
1-1980 for ₹50,000 and its fair market value on 1-4-2001 was ₹8,50,000. Ruchi spent ₹1,00,000 on
the boundary wall of that land in the previous year 2007-08.
Gold was purchased on 22-3-2018 for ₹48,60,000 and listed debentures were purchased on 17-6-
2011 for ₹3,40,000.
Compute Capital Gain for Ruchi for the assessment year 2020-21.
Solution: Calculation of Capital Gain

Particulars Land Gold Listed
Debentures
Period of Holding 1/1/80 to 22/3/2018 to 17/6/2011 to
Nature of Capital Asset Long-term Short-term Long-term
Sales Consideration 50,00,000 51,00,000 8,00,000
Less: Expenses on transfer 50,000 Nil 8,000
Net Consideration 49,50,000 51,00,000 7,92,000
Less: Indexed Cost of Acquisition or Cost 24,56,500 48,60,000 3,40,000
of Acquisition 8,50,000 ×
Less: Indexed Cost of Improvement 2,24,031 ----- -----
1,00,000 ×
Capital Gain 22,69,469 2,40,000 4,52,000
th
Note: As per 4 proviso to Sec. 48, Indexation is not allowed on debentures and Bonds.
Special provision for computation of capital gains

in case of depreciable assets [ Sec. 50 & 50A].
Capital gain on transfer of depreciable capital asset shall be computed as per
Section 50 (1) & (2) Section 50A
For every assessee where depreciation is charged For electricity companies where depreciation is
as per Written Down Value (WDV) Method u/s charged as per Straight Line Method (SLM) u/s
Sec. 32(1)(ii) 32(1)(i)
50. Notwithstanding anything contained in clause (42A) of section 2 (period of holding), where the capital
asset is an asset forming part of a block of assets in respect of which depreciation has been allowed under
this Act, the provisions of sections 48 (computation of capital gain) and 49 shall be subject to the
following modifications :—
[Sec. 50(1)] when one or more of the capital assets [Sec. 50(2)] when all the assets belonging to the
belonging to the block are transferred block are transferred
Full Value of Consideration exceeds cost of Block ceases to exist as all the assets in the block
Transfer, Opening WDV and Actual cost of new are transferred
assets acquired in the Block
Block exists even though WDV becomes zero and And there is either Short Term Capital Gain or
always it will be Short-term capital gain. Short Term Capital Loss.
18
Full Value of Consideration Full Value of Consideration
Less: Expenses on transfer Less: Expenses on transfer
Less: Opening written down value Less: Opening written down value
Less: Actual cost of new assets purchased forming Less: Actual cost of new assets purchased forming
part of the same Block part of the same Block
Short Term Capital Gain Short Term Capital Gain / Loss
Q) The written down value of the block of assets of Rosy Ltd. as on 1st April, 2019 was ₹ 5 lakhs. An
asset of the same block was acquired on 11th May, 2019 for ₹ 3 lakhs. There was a fire on 18th September,
2019 and the assets were destroyed by fire and the assessee received a sum of ₹ 11 lakhs from the insurance
company. Compute the capital gain assuming –
(i) All the assets were destroyed by fire; and
(ii) Part of the block of assets was destroyed by fire.
What will be the answer if assessee received ₹ 6 lakhs from the insurance company instead of ₹ 11 lakhs?
Solution:
(i) If compensation received is ₹ 11 lakhs: both for case (i) or (ii) answer will be same:
Particulars ₹
Full value of consideration [FVC] 11,00,000
Less: Opening Written down value 5,00,000
Less: Cost of Assets acquired in the same block 3,00,000
Short Term Capital Gain 3,00,000
(ii) If compensation received is ₹ 6 lakhs:

(a) When all the assets were destroyed capital gain shall be calculated as per Sec. 50(2):
Particulars ₹
Full value of consideration [FVC] 6,00,000
Less: Opening Written down value 5,00,000
Less: Cost of Assets acquired in the same block 3,00,000
Short Term Capital Loss 2,00,000
(b) If part of the block is destroyed: then Capital gain shall not be computed as full value of
consideration is less than Opening WDV and Actual Cost, therefore on the balance WDV of ₹ 2 lakhs
depreciation will be charged [Sec 32 shall apply].
Special provision for cost of acquisition in case of depreciable asset.

50A. Where the capital asset is an asset in respect of which a deduction on account of depreciation under
clause (i) of sub-section (1) of section 32 has been obtained by the assessee in any previous year, the
provisions of sections 48 and 49 shall apply subject to the modification that the written down value, as
defined in clause (6) of section 43, of the asset, as adjusted, shall be taken as the cost of acquisition of the
asset. [for more details please refer to PGBP]
19
Tax on Capital Gain (summary)
Short-Term Capital Gain Long-Term Capital Gain
Normal Income plus 111A 112 112A
STCG both
Normal slab rate @ 15% @ 20% & @ 10% without
Proviso (10% without Indexation
indexation)
Tax Rebate u/s 87A Tax Rebate u/s 87A Tax Rebate u/s 87A No benefit of Tax
applicable applicable applicable Rebate u/s 87A.
Deductions are allowed No Benefit of Deductions under chapter VIA.
Basic Exemption limit If normal rate income falls short of Basic exemption limit then benefit of
allowed. basic exemption limit is allowed in all cases.
Tax on short-term capital gains in certain cases.

111A. (1) Income arising from the transfer of a short-term capital asset, being
an equity share in a company or a unit of an equity oriented fund or
a unit of a business trust and
such transaction is chargeable to securities transaction tax, the amount of income tax on
(i) such short-term capital gains shall be calculated @ 15% ; and
(ii) on the balance of short term capital gain as per normal rate prescribed in the relevant Finance Act:
Provided that in the case of an individual or a Hindu undivided family, being a resident, where the total
income excluding such short-term capital gains is below the basic exemption limit then, such short-term
capital gains shall be reduced by the [basis exemption limit – other income] and the tax on the balance of
such short-term capital gains shall be computed @ 15%;
(2) Deduction under Chapter VI-A shall not be allowed from income from such short term capital
gain as mention above [under 111A(1)].
Tax on long-term capital gains.

112. (1) (a) In the case of an individual or a Hindu undivided family, being a resident, tax on long term
capital gain shall be calculated @ 20%. On the other income tax shall be calculated at slab rates
as prescribed by the relevant Finance Act.
Provided that in the case of an individual or a Hindu undivided family, being a resident, where
the total income excluding such long-term capital gains is below the basic exemption limit then,
such long-term capital gains shall be reduced by [basic exemption limit – other income] and the tax
on the balance of such long-term capital gains shall be computed at the rate of 20%;
20
Provided that where the tax payable in respect of any income arising from the transfer of a long-term
capital asset, being listed securities (other than a unit) or zero coupon bond, exceeds 10% of the amount
of capital gains before giving effect to the provisions of the second proviso to section 48 (i.e., Indexation),
then, such excess shall be ignored for the purpose of computing the tax payable by the assessee :
(2) Deduction under Chapter VI-A shall not be allowed from long term capital gain.
Tax on long-term capital gains in certain cases.

112A. (1) Notwithstanding anything contained in section 112, the tax payable by an assessee on his total
income shall be determined in accordance with the provisions of sub-section (2), if—
(i) the total income includes any income chargeable under the head "Capital gains";
(ii) the capital gains arise from the transfer of a long-term capital asset being an equity share in a
company or a unit of an equity oriented fund or a unit of a business trust;
(iii) securities transaction tax has,—
(a) in a case where the long-term capital asset is in the nature of an equity share in a company,
been paid on acquisition and transfer of such capital asset; or
(b) in a case where the long-term capital asset is in the nature of a unit of an equity oriented fund
or a unit of a business trust, been paid on transfer of such capital asset.
(2) [Tax Computation] the tax payable by the assessee on the total income referred to in sub-section (1)
shall be the aggregate of—
(i) the amount of income-tax calculated on such long-term capital gains exceeding one lakh rupees at
the rate 10%; and
(ii) the amount of income-tax payable on the total income as reduced by the amount of long-term capital
gains referred to in sub-section (1) as if the total income so reduced were the total income of the
assessee:
Provided that in the case of an individual or a Hindu undivided family, being a resident, where the total
income as reduced by such long-term capital gains is below basic exemption limit, then, the long-term
capital gains, for the purposes of clause (i), shall be reduced by the amount by which the total income as
so reduced falls short of the basic exemption limit.
(3) The condition specified in clause (iii) of sub-section (1) shall not apply to a transfer undertaken on a
recognised stock exchange located in any International Financial Services Centre and where the
consideration for such transfer is received or receivable in foreign currency.
(4) The Central Government may, by notification in the Official Gazette, specify the nature of acquisition
in respect of which the provisions of sub-clause (a) of clause (iii) of sub-section (1) shall not apply.
(5) The deduction under Chapter VI-A shall not be allowed from such capital gains.
(6) Where the total income of an assessee includes any long-term capital gains referred to in sub-section
(1), the rebate under section 87A shall be allowed from the income-tax on the total income as reduced by
tax payable on such capital gains. In simple words tax rebate shall not be allowed from tax payable under
sec. 112A.
21
Exemptions under
Section 10 Section 54 etc.,
10(37), 10 (37A), 10(43) 54, 54B, 54D, 54EC, 54EE, 54F, 54H
54G, 54GA, 54GB
Capital gain on compulsory acquisition of urban agricultural land [10(37)]

In the case of an assessee, being an individual or a Hindu undivided family, any income chargeable under
the head "Capital gains" arising from the transfer of agricultural land, where—
(i) Such land is situate in any urban area (as referred to in Section 2(14) sub clause (iii) item (a) or
item (b);
(ii) Such land, during the period of 2 years immediately preceding the date of transfer, was being
used for agricultural purposes by such Hindu undivided family or individual or a parent of his;
(iii) Such transfer is by way of compulsory acquisition under any law, or a transfer the consideration
for which is determined or approved by the Central Government or the Reserve Bank of India;
(iv) Such income has arisen from the compensation or consideration for such transfer received by such
assessee on or after the 1st day of April, 2004.
Explanation.—For the purposes of this clause, the expression "compensation or consideration" includes
the compensation or consideration enhanced or further enhanced by any court, Tribunal or other authority;
Exemptions [Sec. 54, 54B, 54D, 54EC,54EE, 54F, 54H]

[Section 54]: Profit on sale of property used for residence. (Amendment by Finance Act 2019)
Exemption under Section 54 is divided into 2 subsections 54(1) and 54(2)
54(1) Exemption for actual utilization of capital 54(2) Exemption for unutilized capital gain if
gain before due date of filing Return of income. deposited in separate Capital Gain Bank Account,
known as Capital Gain Deposit Scheme, 1988
54(1) Exemption for actual utilization of capital gain amount:

Eligible Assessee Individual or Hindu Undivided Family (HUF)
Nature of Capital Gain Long term Capital Gain (LTCG)
If Asset transferred is Residential House Property (building or land appurtenant thereto) whose
income is chargeable to tax under the head “Income from house property”
From Assessment Year 2020-21 exemption depends upon the amount of capital gain
If LTCG ≤ 2 crore [does not exceed ₹ 2 crore] If LTCG > 2 crore [exceeds ₹ 2 crore]
Exemption is available if eligible assessee has within Exemption is available if eligible assessee has within
1 year before or 2 years 3 years after the date of 1 year before or 2 years 3 years after the date of
after the date of transfer transfer after the date of transfer transfer
Purchased Constructed Purchased Constructed
1 or 2 Residential houses in India 1 Residential house in India
22
The exemption / option for 2 Residential Houses The exemption of 1 Residential House can be
can be exercised only once in a life time. exercised again in the future.
Amount of Exemption
If LTCG > Cost of new house or houses as the case If LTCG ≤ Cost of new house or houses as the case
may be (i.e., only part of capital gain is invested) may be (i.e., full amount capital gain is invested)
Taxable Capital Gain = LTCG – Cost of House Entire capital gain is exempt
If Assessee transfer new house within 3 years of its purchase or construction, then for the purpose of
computation of capital gain on transfer of this new house, cost of the new house shall be reduced by
the amount of capital gain exempted.
54(2) Capital Gain Deposit Scheme, 1988:

Situation The amount of the capital gain which is not appropriated by the assessee towards
the purchase of the new asset within 1 year before the date on which the transfer
of the original asset took place, or
which is not utilised by him for the purchase or construction of the new asset
before the date of furnishing the return of income under section 139
Where to deposit shall be deposited by him in the capital gains deposit scheme account
Time limit before due date of furnishing return of income, and
Proof such return shall be accompanied by proof of such deposit
Exemption amount utilised by the assessee for the purchase or construction of the new asset
together with the amount so deposited shall be deemed to be the cost of the new
asset and will be allowed as exemption.
Amount of deposit amount not so utilised shall be charged as LTCG of the previous year in which
not so utilised. the period of three years from the date of the transfer of the original asset expires
and the assessee shall be allowed to withdraw such amount. [proviso to 54(2)]
Q) Gurusaran sold a residential house on 28-6-2019 for ₹ 30,00,000. The Stamp Duty Value of the
house is ₹ 34,00,000. He had purchased this house on 1-10-2005 for ₹ 5,20,000 and had spent ₹ 2,70,000
on improvement of the house during the year 2006-07. He purchased a new house on 31-10-2019 for ₹
8,50,000. This house was also sold by him on 16.7.2020 for ₹ 10,00,000. He purchased another house on
21-11-2020 for ₹ 8,00,000. Compute the capital gains for the assessment year 2020-21 and 2021-22.
[B. Com (Hons.) 2019 Dec.]
Sol: Computation of capital gain for Assessment Year 2020-21
Period of Holding [1-10-2005 to 27-6-2019] & Nature of Asset: Long Term
Particulars ₹
Sales Consideration (Sec. 50C SDV > 105% of consideration) 34,00,000
Less: Expenses on Transfer (not given) ------
23
Less: Exemption u/s 54 [new house purchased on 31-10-2019] 8,50,000
Taxable Long-Term Capital Gain 6,25,966
Computation of capital gain for Assessment Year 2021-22

Period of Holding [31-10-2019 to 15-7-2020] & Nature of Asset: Short Term
Particulars ₹
Less: Expenses on Transfer (not given) ------
Less: Cost of Acquisition [8,50,000 – 8,50,000] exemption withdrawn as new ------
house is sold within 3 years lock in period]
Short Term Capital Gain 10,00,000
Note: New house purchased is not eligible for exemption as capital gain is short term.
Capital gain on transfer of land used for agricultural purposes not to be charged in certain cases
[Sec 54B].
[Sec. 54B(1)] Exemption [Sec. 54B(2)] Capital Gain Deposit Scheme
Summary of 54B
Nature of Capital Gain Short term or Long term Capital Gain
If Asset transferred is Land which was used for agricultural purposes by individual or his parents
or by HUF in 2 years immediately preceding the date on which the transfer
took place
Condition purchased any other land for being used for agricultural purposes,
Period of investment within a period of two years after that the date of transfer
Amount of Exemption
If CG > Cost of new land (i.e., only part of capital If CG ≤ Cost of new land (i.e., full amount capital
gain is invested) gain is invested)
Taxable Capital Gain = CG – Cost of new land Entire capital gain is exempt
If Assessee transfer new land within 3 years of its purchase, then for the purpose of computation of
capital gain, cost of the new land shall be reduced by the amount of capital gain exempted.
Capital Gain Deposit Scheme as discussed under Sec. 54(2) : Same to Same
Capital gain on compulsory acquisition of lands and buildings not to be charged in certain cases
[Sec. 54D].
24
[Sec. 54D(1)] Exemption [Sec. 54D(2)] Capital Gain Deposit Scheme
Summary Section 54D
Eligible Assessee Any Assessee
Nature of Capital Gain Any Capital Gain i.e.,Short term or Long term Capital Gain
If Asset transferred is being land or building or any right in land or building, forming part of an
industrial undertaking which, in the 2 years immediately preceding the date
on which the transfer took place, was being used by the assessee for the
purposes of the business of the said undertaking
Condition the assessee has purchased any other land or building or any right in any
other land or building or constructed any other building for the purposes of
shifting or re-establishing the said undertaking or setting up another industrial
undertaking,
Period of investment within a period of 3 years after the date of transfer
Amount of Exemption
If CG > Cost of invstment (i.e., only part of capital If CG ≤ Cost of investment (i.e., full amount
gain is invested) capital gain is invested)
Taxable Capital Gain = CG – Cost of investment Entire capital gain is exempt
Lock-in-period 3 years of its purchase or construction
If new Assets is Then its cost of acquisition shall be reduced by the amount of capital gain
transferred within exempted earlier
lock-in-period
Capital Gain Deposit Scheme as discussed under Sec. 54(2) : Same to Same
Capital gain not to be charged on investment in certain bonds [Sec. 54EC].

Section 54EC
54 EC (1) 54 EC (2) 54 EC (3)
Exemption explained Exemption withdrawn If Exemption then no
Deduction.
Summary of Section 54 EC
Nature of Capital Gain Long term Capital Gain
If Asset transferred is being land or building or both
Condition invested the whole or any part of capital gains in the long-term specified asset
Period of investment within a period of 6 months after the date of transfer
Amount of Exemption
If CG > Cost of investment (i.e., only part of If CG ≤ Cost of investment (i.e., full amount
capital gain is invested) capital gain is invested)
Cost of such assets shall be exempt Entire capital gain is exempt
25
Provided that the investment made in the long-term specified asset by an assessee
during any financial year does not exceed 50 lakh rupees
Provided Further that the investment made by an assessee in the long-term specified asset, from
capital gains arising from transfer of one or more original assets, during the
financial year in which the original asset or assets are transferred and in
the subsequent financial year does not exceed 50 lakh rupees.
Long Term Specified means any bond, redeemable after 5 years (3 years for bonds issued prior to
Asset 01/4/2018), issued by
(i) National Highway Authority of India (NHAI); or
(ii) Rural Electrification Corporation Lim0ited (RECL); or
(iii) Notified by Central Government (which are issued by Power Finance
Corporation Limited or by Indian Railway Finance Corporation Limited)
Lock-in-period 5 years for bonds issued on or after 1/4/2018 (3 years issued prior to
01/04/018) from the date of purchase
If Long term specified The amount of capital gain exempt earlier shall be deemed to be the long
asset is transferred or term capital gain of the previous year in which the long-term specified asset
converted into money is transferred or converted (otherwise than by transfer) into money.
Taking Loan or Where an assessee takes any loan or advance on the security of long term
Advance against long specified asset (on which exemption was availed), he shall be deemed to
term specified assets have converted (otherwise than by transfer) such specified asset into money
[Explanation to 54EC(2)] on the date on which such loan or advance is taken.
No Deduction u/s 80C If Exemption is claimed under section 54 EC(1) then the deduction from the
[54(3)] income for such cost shall not be allowed under section 80C.
Note: No Capital Gain Deposit Scheme is allowed here.
Q) Rohit Gupta purchased a flat in Ghaziabad on 1.7.2004 for ₹12,00,000. During June 2012. He gifted
the property to his brother Chetan. However, Chetan passes away in August 2018 and the property
was transferred through his will in the name of his son Sumit. Sumit incurred ₹1,20,000 during
2018-19 and ₹80,000 during 2019-20 on the improvement of this property. He sell the property to
Abhay on 12.10.2019 for a consideration of ₹88,00,000. He paid commission @ 2% to the agent
for arranging this deal.
He utilized the net sale proceeds as follows:
(i) Purchased Rural Electrification Corporation bonds with ₹8,00,000 on 22.12.2019.
(ii) Purchased a residential house property in Noida for ₹ 35,00,000 on 5.1.2020.
(iii) Subscribed units of Notified Mutual fund (Equity Linked Saving Scheme) worth ₹1,95,000
on 11.2.2020.
Compute the taxable income of Sumit (age 47 year) for Assessment Year 2020-21
Sol: Computation of capital gain in the hands of Sumit for Assessment Year 2020-21
Particulars ₹
Less: Expenses on Transfer (@ 2%) 1,76,000
26

Less: Exemption u/s 54 [new house purchased on 5-1-2020] 35,00,000
Less: Exemption u/s 54EC [specified REC bonds purchased within 6 months] 8,00,000
Note: Notified mutual fund of ELSS is not eligible for Sec. 54EC.
Q) X purchased a house property on July 17, 1996 for ₹45,000. Fair market value of the property on
April 1, 2001 was ₹48,000. X incurred the following expenses:
(a) Construction of a room on the ground floor during 2000-01 ₹30,000
st
(b) Construction of 1 floor in 2014-15 ₹40,000
The property is transferred on 6.4.2019 for ₹95,00,000 (circle rate was ₹98,00,000, which is stamp
duty value, on which purchaser has paid stamp duty at the rate of 9%). X made the following
investments:
(i) On August 1, 2019 he purchased ₹10,00,000 NHAI Bonds.
(ii) On March 31, 2019, he purchased a residential house in Delhi for ₹13,00,000. In additional
he paid stamp duty at the rate of 6% on circle rate of ₹15,00,000.
(iii) On June 30, 2019, he constructed the first floor in Delhi house by spending ₹2,70,000.
(iv) On October 8, 2019, X purchased ₹8,00,000 REC bonds.
Find out the net income and tax liability for the assessment year 2020-21. [B.com (H) Delhi 2016]
Sol: Computation of capital gain in the hands of X for Assessment Year 2020-21
Particulars ₹
Sales Consideration (Sec. 50C not applicable as SDV<105% of consideration) 95,00,000
Less: Expenses on Transfer --------
Less: Indexed Cost of Acquisition [48,000 × ] 1,38,720

Less: Exemption u/s 54 [new house purchased on 1-8-2019][13,00,000 + 16,60,000
90,000 (6% on 15 lacs) + 2,70,000]
Less: Exemption u/s 54EC [NHAI bonds purchased within 6 months] 10,00,000
27
Note: REC bonds were purchased after 6 months so not eligible for exemption.
Capital gain not to be charged on investment in units of a specified fund [Sec. 54EE].
Section 54 EE
54 EE(1): Exemption allowed 54 EE(2): Exemption withdrawn
Summary of Section 54 EE
If Asset transferred is Any long term capital asset
Condition invested the whole or any part of capital gains in the long-term specified asset
Period of investment within a period of 6 months after the date of transfer
Amount of Exemption
If CG > Cost of investment (i.e., only part of If CG ≤ Cost of investment (i.e., full amount
capital gain is invested) capital gain is invested)
Cost of such assets shall be exempt Entire capital gain is exempt
Provided that the investment made in the long-term specified asset by an assessee
during any financial year does not exceed 50 lakh rupees
Provided Further that the investment made by an assessee in the long-term specified asset, from
capital gains arising from transfer of one or more original assets, during the
financial year in which the original asset or assets are transferred and in
the subsequent financial year does not exceed 50 lakh rupees.
Long Term Specified Means a unit or units, issued before the 1st day of April, 2019, of such fund
Asset as may be notified by the Central Government in this behalf.
Lock-in-period 3 years from the date of purchase of units
If Long term specified The amount of capital gain exempt earlier shall be deemed to be the long
asset is transferred or term capital gain of the previous year in which the long-term specified asset
converted into money is transferred or converted (otherwise than by transfer) into money.
Taking Loan or Where an assessee takes any loan or advance on the security of long term
Advance against long specified asset (on which exemption was availed), he shall be deemed to
term specified assets have converted (otherwise than by transfer) such specified asset into money
[Explanation to 54EE(2)] on the date on which such loan or advance is taken.
Note: No Capital Gain Deposit Scheme is allowed here.
Capital gain on transfer of certain capital assets not to be charged in case of investment in residential
house [Sec. 54F].
Summary of Section 54 F
If Asset transferred is Any long term capital asset (not being Residential House Property)
28
Condition for Exemption
Either Purchased Or Construct
within a period of one year before or two years has within a period of three years after the date of
after the date of transfer transfer
Amount of Exemption
If Cost of new house ≥ Net Consideration (i.e., If Cost of new house < Net Consideration (i.e.,
full net consideration is invested) only part of net consideration is invested)
Entire capital gain is exempt Exemption = Capital Gain ×
Net Consideration means Full Value of consideration – Expenses on transfer
Provided that nothing contained in this sub-section shall apply where—
(a) the assessee,—
(i) owns more than 1 residential house, other than the new asset, on the
date of transfer of the original asset; or
(ii) purchases any residential house, other than the new asset, within a
period of 1 year after the date of transfer of the original asset; or
(iii) constructs any residential house, other than the new asset, within a
period of 3 years after the date of transfer of the original asset; and
(b) the income from such residential house, other than the one residential
house owned on the date of transfer of the original asset, is chargeable
under the head "Income from house property".
Consequences if new Where the assessee purchases, within the period of 2 years, or constructs,
house is purchased or within the period of 3 years after the date of the transfer of the original asset,
constructed with in any residential house, the income from which is chargeable under the head
specified time. "Income from house property", other than the new asset, the amount of capital
gain arising from the transfer of the original asset not charged earlier, shall
be deemed to be long term capital gain chargeable under the head "Capital
gains" of the previous year in which such residential house is purchased or
constructed.
Lock-in-period 3 years from the date of purchase or construction
If new asset is within a period of 3 years from the date of purchase or construction the
transferred amount of capital gain arising from the transfer of the original asset not
charged earlier , shall be deemed to be long term capital gain chargeable
under the head "Capital gains" of the previous year in which new asset is
transferred.
54F (4) Capital Gain Deposit Scheme, 1988:
29
Situation The amount of the net consideration which is not appropriated by the assessee
towards
the purchase of the new asset made within 1 year before the date on which the
transfer of the original asset took place, or
which is not utilised by him for the purchase or construction of the new asset
before the date of furnishing the return of income under section 139
Where to deposit shall be deposited by him in the capital gains deposit scheme account
Time limit before due date of furnishing return of income, and
Proof such return shall be accompanied by proof of such deposit
Exemption amount utilised by the assessee for the purchase or construction of the new asset
together with the amount so deposited shall be deemed to be the cost of the new
asset.
Amount of deposit capital gain related to amount not so utilised
not so utilised.
Amount not so utilised ×
shall be charged as LTCG of the previous year in which the period of three years
from the date of the transfer of the original asset expires and the assessee shall
be allowed to withdraw such amount. [proviso to 54(2)]
Q) Manish Sold gold ornaments on 7.6.2019 for a sum of ₹20,00,000. These were gifted to him by
his father who purchased them in 1998 for ₹ 3,00,000. The fair market value of the said gold as on 1.4.2001
was ₹5,00,000. His father gifted the gold ornaments to Manish on 24.4.2019. he spent ₹10,00,000 till
31.7.2020 (due date of filling the return) on construction of house property and deposited ₹7,00,000 on
31.7.2020 under capital gain scheme and a further sum of ₹2,50,000 on 31.8.2020. He does not own any
other house. Compute the capital gain chargeable to tax for the assessment year 2020-21.
[B. Com (Hons.) 2019 Dec.]
Computation of Capital Gain in the hands of Manish for the Assessment Year 2020-21
Period of Holding 1998 to 6-6-2019] Long Term Capital Asset
Particulars ₹
Sales Consideration or Full Value of Consideration 20,00,000
[Cost or FMV whichever is higher]
, , , , , , 4,71,750
Less: Exemption u/s 54F [5,55,000 ×
, ,
Taxable Long-Term Capital Gain 83,250
Q) Dinesh purchased jewellery worth ₹3,00,000 during the year 2004-05. During the year 2010-11,
he further purchased jewellery worth ₹3,50,000. All the jewellery was sold by him on 15.5.2019. The
jewellery purchased in 2004-05 was sold for ₹8,00,000 and that purchased in 2010-11 was sold for
30
₹7,90,000. He purchased a plot of land for ₹3,55,000 on 4-1-2020 for construction of residential house.
On 15.6.2020 he deposited ₹5,00,000 in the Capital Gains Account Scheme and further sum of ₹2,00,000
as on 15.11.2020. he owns only one residential house as on 15.5.2019.
Compute Capital gains for the assessment year 2020-21. [B. Com (Hons). 2012]
Solution: Capital Gain in the hands of Dinesh for the Assessment Year 2020-21
Jewellery acquired in 2004-05 : Long Term Capital Asset.
Particulars ₹
Long Term Capital Gain 32,743
Jewellery acquired in 2010-11: Long Term Capital Asset.

Particulars ₹
Statement showing the amount of Taxable Capital Gain and exemption

LTCG on jewellery acquired in 2004-05 32,743
LTCG on jewellery acquired in 2010-11 1,84,311
Total Long-Term Capital gain 2,17,054
Less: Exemption u/s 54F
Amount invested from the sale proceeds of Jewellery (2010-11) [Rank 1] 1,84,311
,
1,84,311 ×
, ,
Balance amount from sale of Jewellery (2004-05) [Rank -2] 2,660
, , , , ,
32,743 ×
, ,
Taxable Long-Term Capital Gain 30,083
Working Notes: Computation of Ranks
Where 2 or more capital assets are transferred as LTCA and total amount invested in acquisition or
construction of house property under section 54F (i.e., 8,55,000) is less than total net sales consideration
(i.e., 15,90,000) then exemption shall be computed as under to get maximum exemption benefit:
31
Capital Asset Net Sales LTCG % LTCG to net sales Ranking
Consideration consideration
Jewellery 8,00,000 32,743 , 2
100 = 4.09%
, ,
(2004-05)
Jewellery 7,90,000 1,84,311 , , 1
100 = 23.33%
, ,
(2010-11)
32
8.1 Income from Other Sources
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Agricultural Income
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Introduction to Income Tax

Power to levy Tax:

Source of Income Tax Law

2. Income Tax Rules, 1962

4. Circulars/notification from CBDT

5. Supreme Court & High Court Decisions

Meaning of Total Income [as per Section 14]

S. No. Headings Sections ₹

Relevant Finance Act and Income Tax Act

Tax on Normal Income Tax on special Incomes

Basic exemption limit / Maximum Amount not chargeable to Tax

Rates of Income Tax Assessment Year 2021-22 [Previous Year 2020-21]

Health and Education Cess [HEC]

(III) Marginal Relief [allowed in case of surcharge to all assesses]:

Steps for calculation of Marginal Relief (in case of Individuals)

(2) Tax rates applicable to Partnership Firm / LLP / Local Authority

Special Rates of Tax given in Income Tax Act

Tax Rates under New Tax Regime

Some Key Points in this section: –

Deduction Allowed while Opting NEW TAX REGIME: –

Optional to switch between Old & New Tax Slab:

Calculation of Tax Liability of Individual (Simple)

Solution for reference:

Residential Status [Section 6]

Kinds of Residential Status

Residential Status of an Individual [Sec 6(1) + Sec 6(6)]

Ordinary Resident or Not Ordinary Resident in India.

Residential Status of HUF [Sec 6(2) & 6(6)]

Residential status of Firm or Association of Persons [Sec 6(2)]

Residential Status of any other person [Sec. 6(4)]

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