SKY HIGH-SYMPOSIUM-56

A Virtual Program on

Amendments in Capital Gain applicable

for AY 2023-24

- By CA Zalak Parikh
FCA, DISA, CISA, FAFD
Different Income Tax rates in force under the head Capital Gain

S.N. Particulars Tax Rate

1 LTCG on securities, units or ZCB on which STT Up to 1 Lacs – Exempt
paid Above 1 Lac - 10%
2 LTCG on securities, units or ZCB on which STT at 10% (w/o indexation) or
is not paid at 20% (with indexation)
3 LTCG to non resident or foreign company 10% (w/o indexation)
unlisted securities, shares, debentures
4 Other LTCG 20 %
5 STCG on securities, units or ZCB on which STT 15%
paid
6 Other STCG At Slab rate
Note : All tax rates are exclusive of Surcharge and Health & Education cess
•
 Amendments in Capital Gain applicable for AY 2023-24

S.N. Particular
I Cap on Surcharge on LTCG
II Taxation of Virtual Digital Asset (VDA)
III 50C and 194-IA parity
IV IFSC related exemptions
V Capital gain on Goodwill (being part of Block of asset)
VI Amendments relating to Bonus stripping & Dividend stripping
 Cap on Surcharge on LTCG
Before A.Y. 2023-24 :

Range on Net Income Rate of Surcharge

> 50 Lac and < 1 Crore 10%
> 1 Crore and <2 Crore 15%
> 2 Crore and <5 Crore 25%
> 5 Crore 37%

From A.Y. 2023-24 : Surcharge on long term capital gains arising from transfer of any
type of assets has been capped at 15%.

Range on Net Income Rate of Surcharge on LTCG

> 50 Lac and < 1 Crore 10%
> 1 Crore 15% (Subject to Marginal Relief)
 Taxation of Virtual Digital Asset (VDA)

• As per the new clause 47A, a Virtual Digital Asset means

– any information or code or number or token (not being Indian currency or any foreign
currency), generated through cryptographic means or otherwise, by whatever name
called,
– providing a digital representation of value which is exchanged with or without
consideration, with the promise or representation of having inherent value, or
– functions as a store of value or a unit of account and includes its use in any financial
transaction or investment, but not limited to, investment schemes and
– can be transferred, stored or traded electronically. Non fungible token and; any other
token of similar nature as the Central Govt. may notify are included in the definition.

• Income on transfer of Virtual Digital Asset is taxable under Section 115BBH @ flat rate of
30%.
(…..Cont…)
 Taxation of Virtual Digital Asset (VDA)
(….Cont…)
• Sale of VDA may be treated as Income from Business and profession, if Tax payer is
treating VDA as Stock in trade in his books of accounts
• Similarly, is VDA is shown as an investment by tax payer, Income from transfer of the
same will be taxed under the head ‘ Capital Gain’. However, in such a case, if VDA is held
for more than 36 months, it shall be treated as Long term capital gain and if held for less
than 36 months, then as Short term capital gain.
• In both the above heads of Income, method of computation of Income from transfer of
VDA and Flat tax rate of 30% will remain same, however surcharge may differ as per
particular case.
• Important points to note here are
– Set off of loss incurred under any other head of income shall not be allowed from
Income from transfer of VDA
– Any expenditure other than Cost of Acquisition shall not be allowed as deduction
while computing Income from transfer of VDA
– Loss arising from trading in VDA shall not be allowed to carry forward for set off in
next year
 Taxation of Virtual Digital Asset (VDA)
Controversies surrounding Taxability Provisions of VDA :-
• Definition of Term VDA is wide enough to cover E-way bills, credit card points etc.
• Valuation of transactions, when it has already been settled
• Legality of crypto transactions is still questioned. Though it is taxable @ 30% under
Section 115BBH
• Controversy surrounding this provision is that, motive behind introducing this section
was to get Bitcoin and similar crypto currency transaction under tax radar. But,
definition of Virtual Digital asset specifically excludes foreign currency from its ambit.
Where as in Last September, 21, El Salvador, country of Central America adopted Bitcoin
as Legal Tender in their Country. Moreover, recently CAR (Central African Republic) also
by amended law in March 23 allowed Bitcoin as legal tender. Thus making bitcoin a
Foreign currency and making it out of definition of Sec. 2(47A).
 50C and 194-IA parity

Before amendment of this section by Finance Bill, 2022, TDS was required to be deducted on
Sales consideration value of immovable property where Total Sales Consideration exceeds
Rs.50 Lakhs.
Whereas U/s 43CA and 50CA, Income is Chargeable to tax as Higher of
• Actual Sales consideration or
• Fair Market Value/Stamp Duty Value

In order to remove inconsistency, Section 194-IA has been amended to provide that “In case
of transfer of an Immovable property other than agriculture land, TDS is to be deducted at
the rate of one percent of such sum paid or credited to the resident or the stamp duty value,
whichever is higher.”
So, from A.Y. 2023-24 onwards, TDS on Purchase of Immovable property U/s 194-IA will be
deducted at 1% of higher of
• Actual Sales consideration or
• Fair Market Value/Stamp Duty Value
 International Financial Services Centre (IFSC) related
exemptions

From A.Y. 2023-24 onwards, following exemptions related to GIFT IFSC are applicable :
– No capital gain tax on Income from transfer of offshore derivative instruments or over-
the-counter derivatives entered into with Offshore Banking Unit(OBU) set up in an IFSC
– In addition to Income arising from transfer of an aircraft, from A.Y.2023-24 Income
arising from transfer of a ship, which was leased by a unit of the IFSC to any person shall
be eligible for deduction Us 80LA while computing income of OBU in an IFSC unit,
subject to certain conditions, provided unit must commence its operations on or before
31 March 2024.
• Relocation of funds from overseas jurisdictions into GIFT IFSC till 31st March, 2023 is
exempted from Capital Gain. Now, The Budget 2023 extend sunset provisions for another
two years. Thus, effectively, time limit for tax exempt relocation of funds from overseas
jurisdictions into GIFT IFSC will be extended till 31 March 2025. This will provide
additional time to asset managers who have just been licensed to operate in GIFT IFSC or
are in the process, to not only look at greenfield funds but also migrating existing
offshore funds into GIFT IFSC.
 Capital gain on Goodwill (being part of Block of asset)

• Finance Act, 2021 carried out amendment in relation to Depreciation on Goodwill in

Section 50 by inserting proviso to clause(2). Thereby removing Goodwill from block of
intangible asset
• Consequential amendment with regard to taxability of the same goodwill is introduced
by Finance Bill 2022. Thereby amending Section 50 of the Income-tax Act relating to
special provision for computation of capital gains in case of depreciable assets.
• Accordingly, any reduction of goodwill of a business or profession from the block of
intangible assets shall be deemed to be a transfer and will be taxed at Short Term Capital
gain.
• This amendment was applicable retrospectively from 1st April, 2020 and accordingly,
apply in relation to the assessment year 2021-2022 and subsequent assessment years.

(….Cont…)
 Capital gain on Goodwill (being part of Block of asset)

(….Cont…)

• For Example :-
1. WDV of Block of Intangible assets as on 01.04.2020 is Rs.80,000/-
2. Addition during the year is Rs.25,000/-
3. Deduction with regards to sale during the year is Rs.75,000/-
4. Actual Cost of Goodwill after deducting depreciation till 31.03.2020 is Rs.50,000/-
Short Term Capital gain will be Rs. 50,000 – (Rs.80000 + Rs.25000 – Rs.75000) =
Rs.20,000/-
• But in cases where goodwill was the only asset in the block, there will be no impact as
per Section 55(2(a)) of the Income Tax Act.
Amendments relating to Bonus stripping & Dividend Stripping

• The existing 94(7) of the Income Tax Act kept a check on the Dividend Stripping
transactions in the case of mutual fund units. Under Budget 2022, Section 94(7) was
amended with effect from 1st April 2023. As per the amendment, this provisions are now
applicable to units of business trusts such as Infrastructure, Investment Trust (InvIT),
Real Estate Investment Trust (REIT), and Alternate Investment Fund (AIF) too.

• The existing 94(8) of the Income Tax Act kept a check on the Bonus Stripping
transactions in the case of mutual fund units. Under Budget 2022, Section 94(8) was
amended with effect from 1st April 2023. As per the amendment, the word ‘units’ shall
be substituted by the word ‘securities and units’. Thus, this section now applies to both
units of mutual funds and equity shares too. Also with amendment in definition of Units,
this provisions are now applicable to units of business trusts such as Infrastructure,
Investment Trust (InvIT), Real Estate Investment Trust (REIT), and Alternate Investment
Fund (AIF) too.