Capital gain Section 45(1)

If a capital asset is transferred by an assessee during a previous year, then any profit or gain
from such transfer is taxable as capital gain after the exemptions under Sections 54, 54B, 54D,
54EC, 54EE, 54F, 54G, 54GA and 54GB.

Meaning of a capital asset

Capital asset means any property whether moveable or not including any securities held by a
Foreign Institutional Investor (FII) which has invested in such securities in accordance with
SEBI guidelines. However, there are some exceptions i.e., the following properties are included
in the expression “capital asset”:
1. Any stock in trade, consumable stores, raw material kept for the purposes of business
or profession.
2. Personal effects including wearing apparel. Such personal effects can be used by the
assessee him or herself or any family member dependent on the assessee. However,
the following items are capital assets despite they are personal effects:
a. Jewellery
b. Archaeological collections, drawings, paintings, sculptures or any work of art.
3. Agricultural land situated outside specified area.
4. Gold bonds issued by Central Government including gold deposit bonds issued under
the gold deposit scheme notified by the Central Government.

Short term capital asset and long-term capital asset

In order to decide whether a capital asset is a short-term capital or long-term capital, then we
have to calculate the holding period of the asset. There are three categories in this regard. For
example: the assets falling under category 1 are called long term capital assets if the holding
period exceeds 12 months otherwise, they are short term capital assets. Similarly, category 2
assets are called long term capital assets if the holding period exceeds 24 months and category
3 assets are long term capital assets if the holding period exceeds 36 months.

Category 1 Category 2 Category 3

Criterion (12 months) Criterion (24 months) Criterion (36 months)
1. Equity or preference shares 1. Unlisted equity or
in a company (Listed) preference shares if Assets not covered in
2. Securities listed in a transfer date falls on or previous two categories.
recognized stock exchange after 1.04.2016
in India 2. Land or building or both if
3. Units of UTI (quoted or not) transfer date falls on or
4. A unit of an equity-oriented after 1.04.2017
fund (quoted or not)
5. Zero coupon bonds (quoted
or not)
Short term capital gain versus long term capital gain
The gain on transfer of a short-term capital assets is called short term capital gain while the
gain on transfer of a long-term capital is called long term capital gain.

Format to calculate short term capital gain

Full value of sale consideration ---

Less: Expenses incurred wholly and exclusive related to transfer ---
Net sale consideration ---
Less: Cost of acquisition ---
Less: Cost of improvement ---
Short term capital before exemption ---
Less: Exemption under Sections 54B, 54D, 54G, 54GA ---
Short term capital gain ---

Format to calculate long term capital gain

Full value of sale consideration ---

Less: Expenses incurred wholly and exclusive related to transfer ---
Net sale consideration ---
Less: Indexed Cost of acquisition ---
Less: Indexed Cost of improvement ---
Short term capital before exemption ---
Less: Exemption u/s 54, 54B, 54D, 54EC,54EE, 54F, 54G, 54G, 54GA, 54GB ---
Long term capital gain ---

Cases in which the benefit of Indexation is not available

1. Bonds or debentures (other than capital indexed bonds issued by Government or
Sovereign Gold Bond issued by RBI under SGB Scheme, 2015)
2. Shares in or debentures of an Indian company acquired by utilizing convertible foreign
exchange.
3. Depreciable asset (other than an asset used by a power generating unit eligible for
depreciation on straight line method).
4. Slump sale as covered by Section 50B.
5. Where the option of 10% tax rate is availed under Section 112. This option is available
in the case of listed securities and zero-coupon bonds only.
6. LTCG chargeable to tax u/s Section 112A.
7. Units, GDR, securities purchased in foreign currency by non-residents i.e., transactions
covered under sections 115AB, 115AC, 115ACA, 115AD.

Section 49(1)
If an asset is acquired by an assessee under any of the following modes, then the cost to the
previous owner is deemed to be the cost of acquisition to the assessee.
1. Acquisition of property on any distribution of assets on the total or partial partition of
HUF.
2. Acquisition of property under a gift or will.
3. Acquisition of property by succession, inheritance or devolution
4. Acquisition of property on any distribution of assets on the dissolution of a firm, Body
of Individuals or other association of persons.
5. Acquisition of property on any distribution of assets on the liquidation of a company.
6. Acquisition of property under a transfer to a revocable or an irrevocable trust.
7. Acquisition of property under a transfer by a wholly owned India subsidiary company
from its holding company.
8. Acquisition of property under a transfer by an Indian holding company from its wholly-
owned subsidiary company.
9. Acquisition of property on any transfer in a scheme of amalgamation, by the
amalgamated company from the amalgamating company.
10. Acquisition of property, by a HUF, where one of its members has converted his self-
acquired property into joint family property.

Formula to calculate Indexed Cost of Acquisition

Cost of acquistion X CII of transfer year
CII of 2001 − 02 or CII of the year of quisition of the asset (by previous owner or
or transferor) whichever is later

Formula to calculate Indexed Cost of Acquisition

Cost of Improvement (ignore improvement before 1.04.2001) X CII of transfer year
CII of the year in which improvement takes place

Cost of acquisition in case of self-generated assets (very important for theory)

1. Goodwill, right to manufacture/produce an article or right to carry on business
Cost of acquisition = Nil
Cost of improvement = Nil
Expenses on transfer are deductible.
2. Tenancy right, route permit, loom hours, trademarks, brand name
Cost of acquisition = Nil
Cost of improvement and expenses on transfer are deductible.
3. Any other self-generated asset, then capital gain is not taxable.

Capital gains exempt under

In the following cases, the capital gain is 100% exempt under various sections of the Income
Tax Act or otherwise specified.

1. Capital gain on transfer of US64 – Section 10(33)

 US 64 means Units Scheme of 1964 of UTI. Long term or short-term capital arising on
transfer of such units is exempt from tax provided the transfer takes on or after April 1,
2002.

2. Capital gain on compulsory acquisition of urban agriculture land – Section 10(37)

subject to the following conditions:
a. The assessee should be an Individual or HUF.
b. There should be transfer of the agriculture land by way of compulsory acquisition
or the consideration for transfer is approved or determined by the Central
Government or RBI.
c. The agricultural land was used by the assessee (and/or his parents if the land was
owned by an individual) for agricultural purposes during 2 years immediately just
before the date of transfer.
d. The asset may be long term capital asset or short-term capital asset.

3. Any long-term capital gain arising from transfer of a listed security being an equity
share in a company or a unit of an equity-oriented fund was exempt under Section
10(38) up to the assessment year 2018-19 provided such transaction was subject to STT
i.e., Securities Transaction Tax, however, from the assessment year 2019-20, the
exemption is not available.

4. Capital Gain on purchase of own shares is exempt– Section 10(34A)

5. Long term capital gain on conversion of a branch of foreign bank into Indian subsidiary
is exempt from tax provided the conversion is as per the scheme framed by RBI –
Section 115JG

6. Capital gain due to compensation under section 96 of RFCTLARR Act, 2013 is exempt
from tax.

7. Capital gain under Land Pooling scheme of Andhra Pradesh Government – Section
10(37A) subject to the following conditions:

a. The assessee is taxpayer/HUF

b. The assessee owns land or building or both on June 2, 2014
c. The above land or building is transferred under the Andhra Pradesh Capital City
Land Pooling Scheme, 2015.

Tax on short term capital gain – Section 111A

Any short-term capital gain arising from the transfer of an equity share in a company or a unit
of an equity-oriented fund shall be taxable to tax at 15% if the following conditions are
satisfied:
a. The transaction takes through a recognized stock exchange and
b. Such transaction is subject to STT i.e., Securities Transaction Tax.

1. If after deducting such short-term capital from the income of a resident individual or
HUF is less than the basic exemption limit, then the short-term capital gain should be
 reduced by the amount of basic exemption limit not exhausted by any other income and
only the balance short term capital gain is taxable at 15%. However, in case of non-
resident adjusting of basic exemption is not allowed.

Tax on long term capital gain –

Section 112
1. Long term capital gain is taxable at 20%.
2. If after deducting such long-term capital from the income of a resident individual or
HUF is less than the basic exemption limit, then the long-term capital gain should be
reduced by the amount of basic exemption limit not exhausted by any other income and
only the balance long term capital gain is taxable at 20 %. However, in case of non-
resident adjusting of basic exemption is not allowed.
3. Any long-term capital gain arising from transfer of a listed security being an equity
share in a company or a unit of an equity-oriented fund is not exempt under Section
10(38) for the assessment year 2019-20. It was exempt up to exempt the assessment
year 2018-19.
4. Where the transferred long term capital asset is listed securities or zero-coupon bonds,
then gain is taxable at 10% if the benefit of indexation is not availed, but if the benefit
of indexation is availed, then the tax rate is 20%.

Section 112A
In case long term capital asset is equity shares /unit of equity oriented mutual fund/unit of
business trust and if the security transaction tax (STT) has been paid on acquisition and
transfer of equity share or on transfer of unit of equity-oriented fund or unit of business trust,
then the long-term capital gain in excess of Rs. 1,00,000 is taxable at 10%.

Consumer Inflation Index (CII) Table

Financial year CII Financial year CII
2001-02 100 2010-11 167
2002-03 105 2011-12 184
2003-04 109 2012-13 200
2004-05 113 2013-14 220
2005-06 117 2014-15 240
2006-07 122 2015-16 254
2007-08 129 2016-17 264
2008-09 137 2017-18 272
2009-10 148 2018-19 280
2019-20 289 2020-21 301
2021-22 317 2022-23 331

Capital Gain exemption

Sections Eligible Conditions Amount of exemption
assessee
Section Individual, 1. There should be transfer of a Actual amount invested in the
54 HUF house property the income of house purchased / the
which is taxable under the head construction
income from house property. Or
2. The house should be a long- The amount of capital gain
term capital asset. whichever is lower
3. There should be purchase of
another residential house within
1 year before or 2 years after
from the date of transfer or there
should be construction of
another residential house and
the construction should be
completed within 3 years from
the date of transfer.

Section Individual, 1. There should be transfer of an Actual amount invested in the

54B HUF agricultural land. However, land purchased
the case of compulsory Or
acquisition is not covered here. The amount of capital gain
2. The land must be used in 2 years whichever is lower
just before the date of transfer
by the individual or his parents
or HUF.
3. There should be purchase of
another agricultural land within
2 years after the date of transfer.
Section Any 1. There should be land or Actual amount of investment
54D assessee building Or
2. There should be compulsory Capital gain whichever is
acquisition of land and building lower
3. There should be purchase or
construction of land or building
for industrial purpose within 3
years form the date of receipt of
compensation.
4. Amount of capital gain can be
deposited into Capital Gain
Deposit Scheme Account and
must be utilized within 3 years
else it will be treated as LTCG.
Section Any 1. There should be transfer of a Actual amount invested
54EC assessee long-term capital asset. From subject to maximum Rs. 50,
the AY 2019-20, this section is 00, 000 in total in the bonds
applicable when the asset is Or
land or building or both as per Capital gain whichever is
the amendment. lower.
2. There should be investment of
the capital gain in bonds
(redeemable after 3 years)
issued by NHAI (National
Highway Authority of India) or
REC (Rural Electrification
Corporation) or bonds notified
 by Central Government , within
6 months form the date of
transfer i.e. Power finance
corporation Ltd. and Indian
Railway Finance Corporation
Ltd.
3. The new asset should not be
transferred within 3 years.
However, if investment in
bonds is made or after
1.04.2018, then then 5 years.
Section Any 1. There should be transfer of Actual amount of investment
54EE assessee long-term capital asset. Or
2. There should be investment in Capital gain whichever is
long term specified assets lower
within 6 months from the date
of transfer.
3. The amount of investment
cannot exceed Rs. 50 lakhs in
total.
4. There should not be transfer of
new asset within 3 years from
the date of acquisition.
Section Individual, 1. There should be transfer of a Case I
54F HUF long-term capital asset except a When the cost of new house >
residential house. net consideration
2. There should be purchase of Exemption = Entire capital
another residential house within gain
1 year before or 2 years after
from the date of transfer or there Case II
should be construction of When the cost of new house <
another residential house and net consideration, then
the construction should be exemption
completed within 3 years from 𝐴𝑚𝑜𝑢𝑛𝑡 𝑖𝑛𝑣𝑒𝑠𝑡𝑒𝑑 𝑋 𝐿𝑇𝐶𝐺
=
the date of transfer. 𝑁𝑒𝑡 𝑠𝑎𝑙𝑒 𝑐𝑜𝑛𝑠𝑖𝑑𝑒𝑟𝑎𝑡𝑖𝑜𝑛
3. The assessee must not own
more than one residential house
on the date of transfer.
4. The assessee should not (within
2 years) purchase or should not
(within 3 years) construct any
residential house other than the
new house.
Questions 1
Ram purchased a property in the previous year 1982-83 for Rs. 5, 00,000 and paid Rs. 18000 as registration
charges. Ram died on 15th September 2009 and the property was transferred to his son Raghav through
inheritance. The market value of the property as on 15th September 2009 is Rs. 10, 00,000. Raghav sold this
property on 31st May 2018 for Rs. 52, 00,000. Compute the capital gain for the assessment year 2019-20.
Solution
Since, Raghav obtains the property inheritance which is covered by Section 49(1), therefore, the period of holding
will be counted from date when the previous owner Ram held the asset. Also, the cost of acquisition incurred by
Ram is deemed to be the cost of acquisition to Raghav.
Since, the period of holding (from 1982-83 to 31st May 2018) > 24 months, therefore, the property is a long-term
capital asset. Now, long term capital gain can be calculated as follows:
Particulars Amount
Full value of sales consideration 52,00,000
Less: Expenses on transfer (not given in the question, hence to be taken as nil) Nil
Net sales consideration 52,00,000
Less: Indexed cost of acquisition (Refer working note) 14,50,400
Less: Indexed cost of improvement Nil
Long term capital gain 37,49,600

Working note
Indexed cost acquisition
Cost of acquistion or FMV as on 1.04.2001 whichever is higher
= × CII of 2018 − 19
CII of 2001 − 02 or CII of 1982 − 83 whichever is later
(5,00,000 + 18,000)
= × 280 = 14,50,400
100
Note: The fair market value given in the question is irrelevant.

Question 2
X purchased a land in 1997-98 for Rs. 2,00,000 gifted it to his major son Y on 1.06.1980, when the market value
of the land was Rs. 2,50,000. The fair market value of that land as on 1.4.2001 was Rs. 3, 00,000. Y sold the land
on 15.9.2018 for Rs. 30, 00,000. Compute the capital gain for assessment year 2019-20, assuming that the
expenses on transfer were Rs. 1, 00,000.
Solution
Since, Y obtained the land in a gift which is covered under Section 49(1), then the period of holding will be counted
from the date when the previous owner X held the asset. Also, the cost of acquisition incurred by X is deemed to
be the cost of acquisition to Y.
Since, the period of holding (from 1997-98 to 15.9.2018) > 24 months, therefore, the land is a long-term capital
asset. The long-term capital gain is calculated as follows:
Particulars Amount
Full value of sales consideration 30,00,000
Less: Expenses on transfer 1,00,000
Net sales consideration 29,00,000
Less: Indexed cost of acquisition (Refer working note) 8,40,000
 Less: Indexed cost of improvement Nil
Long term capital gain 20,60,000

Working note
Indexed cost acquisition
Cost of acquistion or FMV as on 1.4.2001 whichever is higher
= × CII of 2018 − 19
CII of 2001 − 02
3,00,000
= × 280 = 8,40,000
100
Note: When an asset is acquired before 1.4.2001, then the assessee has an option either to use fair market value
as on 1.4.2001 or actual cost of acquisition. This is suggested to the assessee that adopt the higher of FMV and
cost of acquisition.

Question 3
X purchased a land in 1977-78 for Rs. 2,00,000 gifted it to his major son Y on 15.5.1995, when the market value
of the land was Rs. 2,50,000. The fair market value of that land as on 1.4.2001 was Rs. 3, 00,000. Y sold the land
on 15.2.2019 for Rs. 30, 00,000. Compute the capital gain for assessment year 2019-20, assuming that the
expenses on transfer were Rs. 1, 00,000.

Question 4
Y acquired a house on 28.06.1990 for Rs. 1, 10,000 and paid Rs. 10,000 for getting the property registered in his
name. On 15.6.1991, he spent Rs. 80,000 on improvement of the house. The house was sold on 21.10.2018 for
Rs. 1100000 and was paid on the sale of the house. Commission of Rs. 11000 was paid on the sale of transfer.
Compute the capital gain.
Solution
Since, the period of holding of the house (from 28.6.1990 to 21.10.2018) is >24 months, therefore, the house is a
long-term capital asset.
Particulars Amount
Full value of sales consideration 11,00,000
Less: Expenses on transfer (not given in the question, hence to be taken as nil) 11,000
Net sales consideration 10,89,000
Less: Indexed cost of acquisition (Refer working note 1) 3,36,000
Less: Indexed cost of improvement (Refer note 2) Nil
Long term capital gain 7,53,000

Working note
1. Indexed cost acquisition
Cost of acquistion
= × CII of 2018 − 19
CII of 1990 − 91 or CII of 2001 − 02 whichever is later
1,20,000
= × 280 = 561758.24
100
Notes
 1. Any improvement made before 1.04.2001 is ignored.
2. The market value given in the question is irrelevant.

Question 5
M purchased a residential house on 1.9.1998 for Rs. 1, 00,000. He spent Rs. 25,000 on 1.7.2000 for the
improvement of this property. A further amount of Rs. 50,000 was spent by him on 15.11.2005 on improvement of
the house. He gifted the said property to his son B on 12.1.2011. B also spent the following amounts on
improvement of the house:
Date of expenditure Amount
15.7.2014 Rs. 60,000
15.6.2016 Rs. 40,000
B sold the above house on 30.11.2018 for a sum of Rs. 45, 00,000. Expenses on transfer were 2% of the sale
consideration. Compute the capital gain for the assessment year 2019-20, assuming the fair market value of the
house as on 1.4.2001 to be Rs. 3, 00,000.
Solution
Since, B obtained the house under a gift which is covered under Section 49(1), therefore, the period of holding will
be counted from the date when the previous owner M acquired the asset. Also, the cost of acquisition incurred by
M is deemed to be the cost of acquisition to B.
Since, the period of holding from 1.9.1998 to 30.11.2018 is greater than 24 months, therefore, the house is a long-
term capital asset and therefore the long-term capital gain is calculated as follows:

Particulars Amount
Full value of sales consideration 45,00,000
Less: Expenses on transfer (2% of Rs. 4500000) 90,000
Net sales consideration 44,10,000
Less: Indexed cost of acquisition (Refer working note 1) 8,40,000
Less: Indexed cost of improvement (Refer working note 2) 2,32,082
Long term capital gain 33,37,918

Working notes
Note 1
Indexed cost acquisition
Cost of acquistion or FMV as on 1.4.2001 whichever is higher
= × CII of 2018 − 19
CII of 2001 − 02 or CII of 1998 − 99 whichever is later
3,00,000
= × 280 = 8,40,000
100

Note 2
Indexed cost of improvement
Improvement made on 15.11.2005
Cost of improvement
= × CII of 2018 − 19
CII of the year in which improvement takes place i. e. 2005 − 06
 50,000
= × 280 = 1,19,658
117

Improvement made on 15.07. 2014

Cost of improvement
= × CII of 2018 − 19
CII of the year in which improvement takes place i. e. 2014 − 15
60,000
= × 280 = 70,000
240

Improvement made on 15.06.2016

Cost of improvement
= × CII of 2018 − 19
CII of the year in which improvement takes place i. e. 2016 − 17
40,000
= × 280 = 42,424
264

Therefore, total indexed cost of improvement = 1,19,658+70,000+42,424 = 2,32,082

Note 3
Improvement made before 1.4.2001 is never considered in the calculation of capital gain. Therefore, the
improvement of Rs. 25000 is ignored here.

Question 6
Hari has acquired a residential house property in Delhi on 1st April, 2006 for Rs. 10,00,000 and decided to sell the
same on 3rd May, 2008 to Ms. Pari and an advance of Rs. 25,000 was taken from her. The balance money was
not pad by her and Hari has forfeited the entire advance sum. On 3rd June, 2018, he sold his house to Mr. Suri for
Rs. 35,00,000. In the meantime, on 4th April, 2018, he had purchased a residential house in Delhi for Rs. 8,00,000,
where he was staying with his family on rent for the last 5 years and paid the full amount as per the purchase
agreement. However, Hari does not possess any legal title till 31st March, 2019 as such transfer was not registered
with the registration authority. Hari has purchased another old house in Surat on 14th October, 2018 from Mr. X,
an Indian resident, by paying Rs. 5,00,0000 and the purchase was registered with the appropriate authority.
Determine the taxable capital gain arising from above transactions for the assessment year 2019-20.
Solution
Particulars Amount
Full value of sales consideration 35,00,000
Less: Expenses on transfer Nil
Net sales consideration 35,00,000
Less: Indexed cost of acquisition (Refer working note) 22,37,705
Less: Indexed cost of improvement Nil
Long term capital gain 12,62,295
Less: Exemption u/s 54 8,00,000
Taxable LTCG 4,62,295
Working note
Indexed cost of acquisition of the above bonus shares
Cost of acquistion − Amount forfeited before 1.4.2015
= × CII of 2018 − 19
CII of 2001 − 02 or CII of 2006 − 07 whichever is later
(10,00,000 − 25,000)
= × 280
122
9,75,000
= × 280 = 22,37,705
122

Question 7
The house property of Ashish is compulsorily acquired by the Government for Rs. 10,00,000. He had purchased
the house in 2002-03 for Rs. 3,00,000. The compensation is received on 15.04.2017. The compensation is further
enhanced by an order of the court on 15.05.2018. and a sum of Rs. 2,00,000 is received as enhanced
compensation on 21.10.2018. Calculate the amounts of capital gains during the assessment years concerned.
Answer: Rs. 6,51,429 for AY 2018-19 and Rs. 2,00,000 for AY 2019-20.

Question 8
Jeet purchased a residential house on 1.2.1997 for Rs. 2,50,000. He spent Rs. 42,000 on 1.6.2000 and Rs.
1,60,000 on 20.9.2003 on improvement of the house. Jeet gifted this house property to his son Bhargav on
22.8.2005. Bhargav spent Rs. 1,80,000 on 12.6.2009 and Rs. 52,000 on 9.6.2018 for the improvement of the
house. Bhargav sold the house on 30.9.2018 for Rs. 80,00,000 and expenses on such transfer were 2.5 % of the
sale consideration. Compute the capital gain for AY 2019-20 assuming that the FMV of the house on 1.4.2001 to
be Rs. 18,00,000.
Answer: 19,56,451

Particulars Amount
Full value of sales consideration = FMV on the date of conversion
Less: Expenses on transfer
Net sales consideration
Less: Indexed cost of acquisition (Refer working note 1)
Less: Indexed cost of improvement (Refer working note 2)
Long term capital gain

Question 9
Mr. X purchased 1000 shares during 1981-82 in WIFI Ltd, a listed company, at Rs. 10 per share, paid
registration charges of Rs. 600 and brokerage of Rs. 500. In 1983-84, he was issued on bonus share for
every 5 shares held. On 1st April, 2001, the FMV of these shares is Rs. 105 per share. During 2007-08,
he was again issued one bonus share for every four held in the company. On 10th August, 2018, he sold
all his shares at Rs. 250 per share and incurred 2% expenses in this connection. Determine the capital
gain for AY 2019-20. The shares are not transferred through stock exchange.
Solution
 Particulars Amount 200 Bonus 300 Bonus
Purchased shares shares issued in
shares issued in 2007-08
1983-84
Full value of sales consideration (refer working note 1) 2,50,000 50,000 75,000
Less: Expenses on transfer (2% of ₹ 3,75,000) 5,000 1,000 1,500
Net sales consideration 2,45,000 49,000 73,500
Less: Indexed cost of acquisition (Refer working note 2) 2,94,000 58,800 Nil
Less: Indexed cost of improvement Nil Nil Nil
Long term capital gain/loss (49,000) (9800) 73,500

Working notes:
Note 1:
Number of bonus shares issued in 1983-84 = 1000 x 1/5 = 200
Number of bonus shares issued in 2007-08 = 1200 x 1/4 = 300
Total number of shares held = 1000 + 200 + 300 = 1500
Note 2:
Cost of acquisition of the bonus shares issued in 1983-84 (issued before 1.4.2001)
= ₹ 105 x 200
= ₹ 21,000
Indexed cost of acquisition of the above bonus shares
Cost of acquistion
= × CII of 2018 − 19
CII of 2001 − 02
21,000
= × 280 = 58,800
100

Cost of acquisition of the bonus shares issued in 2007-08 (issued after 1.4.2001) = Nil

Indexed cost of acquisition of the shares purchased during 1981-82

Cost of acquistion or FMV, whichever is higher

= × CII of 2018 − 19
CII of 2001 − 02
1,05,000
= × 280 = 2,94,000
100

Question 10
Max purchased silver ornaments on 15th January, 2005 at Rs. 12,00,000 and held them as investments. On 25th
March, 2009, he commenced a business of dealing in Jewellery and converted his holdings into stock in trade of
the business. The fair market value of the silver ornaments as on the date of conversion was Rs. 26,00,000. He
sold the stock in trade on 15th July, 2018 for Rs. 35,00,000.
1 Compute capital/business profit for the AY 2019-20.
2 What would be your answer if the silver is held by the assessee till 31.03.2019.
Solution
Part (a)
AY 2019-20

Particulars Amount
 Full value of sales consideration = FMV on the date of conversion 26,00,000
Less: Expenses on transfer Nil
Net sales consideration 26,00,000
Less: Indexed cost of acquisition (Refer working note 1) 14,54,867
Less: Indexed cost of improvement (Refer working note 2) Nil
Long term capital gain 11,45,133

Indexed cost acquisition

Cost of acquistion
= × CII of 2008 − 09
CII of 2001 − 02 or CII of 2004 − 05 whichever is later
12,00,000
= × 137 = 14,54,867
113

Business profit taxable under the head PGBP = Sales – FMV on the date of conversion
= ₹ 35,00,000 - ₹ 26,00,000
= ₹ 9,00,000
Part (b)
If the sliver is held till 31.03.2009, then then LTCG is not taxable for the AY 2019-20. It will be
taxed when it will be sold.

Question 11
Amit becomes a partner in the firm M/S Amit. On 06.08.2018, he brings unlisted shares in the firm as his capital
contribution. The FMV of the unlisted shares as on this date is Rs. 40,00,000 whereas it was recorded in the books
of the firm at Rs. 25,00,000. The shares were acquired by him on 05.06.2008 for Rs. 12,00,000. Calculate the
long-term capital for AY 2019-20.
Solution
Answer: LTCG Rs. 15,47,445

Question 12
Mansur Ali Khan had taken a loan under registered mortgage deed on 16.7.2011 against the house, which was
purchased by him on 26.03.2002 for Rs. 15,76,000. The said property was inherited by his son Saif under will, who
for obtaining a clear title thereof, had paid the outstanding amount of loan on 12.02.2019 of Rs. 25,00,000. The
said house property was sold by Saif on 16.03.2019 for Rs. 72,00,000. Calculate the capital gains for AY 2019-20.
Solution

Particulars Amount
Full value of sales consideration 72,00,000
Less: Expenses on transfer Nil
Net sales consideration 72,00,000
Less: Indexed cost of acquisition (Refer working note 1) 48,98,261
Less: Indexed cost of improvement Nil
Long term capital loss (23,01,739)
Indexed cost acquisition of the purchase cost paid by the previous owner
Cost of acquistion
= × CII of 2018 − 19
CII of 2001 − 02 or CII of 2011 − 12 whichever is later
15,76,000
= × 280 = 23,98,261
184

Note: As per the Supreme court of India, the amount paid to discharge the mortgage to clear the title shall
be treated as cost of acquisition. Therefore,
Indexed cost acquisition of the loan paid to discharge the mortgage
Amount of loan
= × CII of 2018 − 19 = 25,00,000
CII of 2018 − 19
Total indexed cost of acquisition = 23,98,261 + 25,00,000 = ₹ 48,98,261