Income from Capital Gain

Meaning: Any profit or gain arising from transfer/sale of a capital asset is a capital gain. This
gain or profit is shall be charged to tax in the year in which transfer of capital assets takes place.

Conditions:

There must be a capital asset

The transfer must be of capital asset
The transfer must have been taken place during the previous year.
The transfer of such capital asset must give rise to profit or gain.

Transfer Sec. 2 (47): It includes a sale, exchange or relinquishment of the asset or

extinguishment if any right or the compulsory acquisition under the law or conversion of the
asset in to stock in trade.

The following are not consider as transfer (Sec 49(1))

• Transfer of asset in a scheme of amalgamation

• Transfer of agricultural land before 1/4/1970
• Transfer of debenture or bonds into shares
• Transfer of assets in kind at the time of liquidation
• Transfer of asset by a parent company to the own subsidiary company
• Transfer of asset under the gift or will
• Transfer of capital asset at the time of partition of HUF

The following are not considered capital assets:

• Stock in trade: Any stocks or consumables or raw material held for the purpose of
Business or Profession
• Personal effect: Personal goods such as wearing apparel, car, scooter, TV, refrigerator,
musical instruments, generator, furniture etc held for personal use.
• 6½% Gold Bonds, 1977 or 7% Gold Bonds, 1980 or National Defence Gold Bonds,
1980 issued by the Central Government
• Special Bearer Bonds 1991

1
• Gold Deposit Bond issued under the Gold Deposit Scheme, 1999
• Agricultural land in a rural in India area: definition of rural area (from
AY14-)

1. Financial Asset: It is held for less

than 12 months or 1 year like
securities, bonds, shares mutual
1.5 Types of Capital Asset Short Term: funds
For determining the nature of 2. Other Asset: It is held for less
capital assets, the period of holding than 36 months or 3 year like
shall be counted from the date of Jewellery etc. & Less than 24
purchase to the date of sale of months for immovable
capital asset by the assessee. properties like land ,building,
house property
1. Financial Asset: It is held for
Long Term: more than 12 months or 1 year
2. Other Asset: It is held for more
than 36 months or 3 year &
more than 24 months for
immovable properties like land
,building, house property
1.6 Type of capital Gain:
a) Short term Capital Gain: Any gain arising from transfer of short term
capital asset is known as short-term capital gain eg. Equity funds are
considered short-term when held for 12 months or less.
• Tax on short-term capital gain when securities transaction
tax is not applicable: short-term capital gain is added to your
income tax return and the taxpayer is taxed according to his
income tax slab
• Tax on short-term capital gain if securities transaction tax is
applicable:
short-term capital gain is taxable at the rate of 15% +surcharge and cess

b) Long-term capital Gain: Any gain arising from transfer of long term
capital asset is known as long-term capital gain eg. House property held
for more than 3 years is termed as a long-term capital asset,
• Sale of equity share -10% tax of the gain amount exceeds Rs 1(one)
lakhs
• Except for sale of equity – 20% tax rate
• Financial year -2001-2002 taken as base =100

2
Section Asset sold Applicability

54 Profit on sale of Assessee Individual / HUF

property used
for residence Type of asset Residential House Property
transferred

Type of LTCG
transfer

New asset One Residential House

purchased

Time Limit Purchase – Within 1 year before or 2 years after transfer

for Construction – Within 3 years from transfer
investment
in new asset

Exemption Long-Term Capital Gain OR Cost of new asset whichever lesser

Amount

CGAS* Yes – deposit by return filing due date

available

54B Capital gain on Assessee Individual / HUF

transfer of land
used for Type of asset Land used for agricultural purposes by the individual / his parent /
agricultural transferred HUF as the case may be for 2 years prior to transfer
purposes
Type of LTCG
transfer

New asset Agricultural land

purchased

Time Limit Within 2 years from the date of transfer

for
investment
in new asset

Exemption Long-Term Capital Gain OR Cost of new asset (land)

Amount whicheverlesser

CGAS* Yes – deposit by return filing due date

available

54D Compulsory Assessee Any assessee

acquisition of
land and Type of asset Land or building forming part of an industrial undertaking used for
building used in transferred the same in the past 2 years prior to transfer
an industrial
undertaking Type of LTCG
transfer

New asset Land or building for shifting or re-establishing the industrial

purchased undertaking
 Time Limit Within 3 years from the date of transfer
for
investment
in new asset

Exemption Long Term Capital GainORCost of new asset

Amount (land/building)whichever lesser

CGAS* Yes – deposit by return filing due date

available

54EC Investment in Assessee Any assessee

certain bonds
Type of asset Land or building or both
transferred

Type of LTCG
transfer

New asset NHAI bonds or REC bonds, redeemable after 3 years

purchased

Time Limit Within 6 months from the date of transfer

for
investment
in new asset

Exemption Cost of new asset x Capital Gain / Net consideration (maximum up

Amount to capital gain)

CGAS* No
available

54F Investment in Assessee Individual / HUF

residential
house Type of asset Any long-term capital asset other than residential house
transferred

Type of LTCG
transfer

New asset Residential house property

purchased

Time Limit Purchase – Within 1 year before or 2 years after

for transfer Construction – Within 3 years from
investment transfer
in new asset

Exemption Cost of new asset x Capital Gain / Net consideration (maximum up

Amount to capital gain)

CGAS* Yes – deposit by return filing due date

available
Assessee: Mr. X 2011, 14 marks Problem Previous Year:2018-19
Status: Resident Assessment Year:2019-20
Assets Shares Jewellery Debentur Motor Car
es
Nature of capital assets LTCA LTCA (1976 STCA Not A
(1.4.2011 to to (Sep. 2018 Capital
15.12.2018) 15.07.2018) to Asset
31.12.2018
)
Gross Sale Consideration 3,95,000 33,10,000 65,000
Less: Selling Expenses ------------ 20,000 ------------
Net Sale Consideration 3,95,000 32,90,000 65,000
Less: Cost of acquisition/ Indexed cost of acquisition 1,51,200 7,00,000 50,000

Less: Cost of Improvement / indexed cost of Improvement ------------- ------------ -----------

Gross Capital Gain / Loss 2,43,800 25,90,000 15,000
Less: Exemptions U/S 54 ------------- ------------ ------------
Net Capital Gain 2,43,800 25,90,000 15,000
Calculation of indexed cost of acquisition (ICOA):

=Cost of acquisition X CII for the year in which the asset is transferred/ CII of year of acquisition

1. Shares : 54,000 X 280/100 = 5,60,000

2. Jewellery: Rs.1,50,000 or 2,70,000 Which ever is high = 2,70,000- 20,000( Advance money forfeited )=2,50,000

2,50,000 X 280/100 = 7,00,000

Note No 1: Personal Motor Car is not a capital asset hence it is fully exempted from tax

Note No 2: Any movable asset (excluding jewellery made out of gold, silver, precious stones and paintings, sculpture,
archaeological collections etc.) used for personal use by the assessee are excluded from the definition of capital assets.
Jewellery is treated as capital asset.

Note No 3: for determine the nature of capital assets, the period of holding shall be counted from the date of purchase
and to the date of sale.

Note No 4: if the assessee acquires the asset before 1.4.2001, actual cost of the asset or FMV as on 1.4.2001, which
ever is high is cost of acquisition.

Note No 5: Advance received and forfeited during the P Y 13-14 or earlier P Y such amount should be deducted from
the cost of acquisition. If the forfeited of advance money is received on or after 1.4.2014 shall not be deducted from
cost of acquisition.
Assessee: Dr. Kambar 2012, 14 marks Problem Previous Year:2018-19
Status: Resident Assessment Year:2019-20
Assets Gold Shares ( Non Debenture (
Listed ) Non Listed )
Nature of capital assets LTCA (3.6.1998 to LTCA (1.4.2011 LTCA (1.4.92
10.4.2018) to 17.5.2018) to 5.3.2019)
Gross Sale Consideration 8,15,000 2,50,000 7,00,000
Less: Selling Expenses ------------ ------------ ------------
Net Sale Consideration 8,15,000 2,50,000 7,00,000
Less: Cost of acquisition/ Indexed cost of acquisition 7,00,000 2,66,304 4,00,000

Less: Cost of improvement / indexed cost of improvement ------------- ------------ -----------

Gross Capital Gain / Loss 1,15,000 -16,304 3,00,000
Less: Exemptions U/S 54 ------------- ------------ ------------
Net Capital Gain 1,15,000 -16,304 3,00,000
Total Taxable LTCG =( 1,15,000+3,00,000-16,304)= 3,98,696

Calculation of indexed cost of acquisition (ICOA):

=Cost of acquisition X CII for the year in which the asset is transferred/ CII of year of acquisition

1. Gold : 2,50,000 X 280/100 = 7,00,000

2. Shares ( non Listed ): 1,75,000 X 280/ 184= 2,66,304

Note No 1: for determine the nature of capital assets, the period of holding shall be counted from the date of purchase
and to the date of sale.

Note No 2: if the assessee acquires the asset before 1.4.2001, actual cost of the asset or FMV as on 1.4.2001, which
ever is high is cost of acquisition.

Note No 3: Indexation benefit is not available for debenture.

Note No 4: In case of LTCG from sale of equity shares ( Listed )security transaction tax @ 0.125% is charged not
capital gain however LTCG from the sale of equity shares ( Unlisted) & STCG of listed and unlisted shares will be
taxed in capital gain
Assessee: Mrs. U.R Rao 2013, 14 marks Problem Previous Year:2018-19
Status: Resident Assessment Year:2019-20
Assets Residential
House
Nature of capital assets LTCA
(17.10.1990 to
13.3.2019)
Gross Sale Consideration 75,00,000
Less: Selling Expenses (1% on 75,00,000) 75,000
Net Sale Consideration 74,25,000
Less: Cost of acquisition/ Indexed cost of acquisition 50,40,000

Less: Cost of Improvement / indexed cost of improvement 3,92,000

11,70,909
Gross Capital Gain / Loss 8,22,019
Less: Exemptions U/S 54 (32,00,000 OR 8,22,019) WHICH EVER IS LESS 8,22,019
Net Capital Gain ------------
Calculation of indexed cost of acquisition (ICOA):
=Cost of acquisition X CII for the year in which the asset is transferred/ CII of year of acquisition
1. Residential House: 18,00,000 X 280/100 = 7,00,000
Calculation of indexed cost of improvement (ICOI):
=Cost of improvement X CII for the year in which the asset is transferred/ CII of year of improvement
1. 1,40,000X 280/100 = 3,92,000
2. 9,20,000X280/220 = 11,70,909

Note No 1: for determine the nature of capital assets, the period of holding shall be counted from the date of purchase
and to the date of sale.
Note No 2: if the assessee acquires the asset before 1.4.2001, actual cost of the asset or FMV as on 1.4.2001, which
ever is high is cost of acquisition.

Section Asset sold Applicability

54 Profit on sale of Assessee Individual / HUF

property used for
residence Type of asset transferred Residential House Property

*CGAS stands for Type of transfer LTCG

Capital Gains
Accounts Scheme i.e., New asset purchased One Residential House
a type of account
opened with a bank
Time Limit for investment in Purchase – Within 1 year before or 2 years after transfer
or specified
new asset Construction – Within 3 years from transfer
institution that
essentially acts as a
means to park the Exemption Amount Long-Term Capital Gain OR Cost of new asset whichever lesser
capital gains until it
can be used for its CGAS* available Yes – deposit by return filing due date
prescribed purpose.
Shri Athmananda submitted the following particulars of assets sold during the year 2019-20:

Particulars Gold Securities Plot

Sales proceeds 4,00,000 1,50,000 20,00,000
Brokerage paid on sales -- -- 2%
Cost of acquisition 60,000 40,000 1,40,000
Year of acquisition 2008-09 2013-14 2004-05
Cost Inflation Index 137 220 113
Date of sale 1.6.2019 1.1.2020 30.8.2019

He has purchased a residential house for Rs 9,00,000 on 25.3.2020 on which date he did not own any other
residential house. Whether Shri Antmananda is eligible to claim exemption U/S 54F? Calculate his taxable capital
gain for theA Y 2020-21. CII for the financial year 2019-20 was 289.

Computation of Income from Capital gain (2018 QP for 14 marks)

Assets Gold Securities Plot
Nature of capital assets LTCA (2008-09 to LTCA (2013-14 LTCA (2004-05
01.6.2019) to 1.1.2020) to 30.08.2019)
Gross Sale Consideration 4,00,000 1,50,000 20,00,000
Less: Selling Expenses (2% on 20,00,000) ------------ ----------- 40,000
Net Sale Consideration 4,00,000 1,50,000 19,60,000
Less: Cost of acquisition/ Indexed cost of acquisition 1,26,569 52,545 3,58,053

Less: Cost of IMP/ indexed cost of IMP ------------- ------------- -----------

Gross Capital Gain / Loss 2,73,431 97,455 16,01,947
Less: Exemptions U/S 54 ------------- ------------ 7,35,588
Net Capital Gain 2,73,431 97,455 8,72,389
Calculation of indexed cost of acquisition (ICOA):
=Cost of acquisition X CII for the year in which the asset is transferred/ CII of year of acquisition
Gold : 60,000 X 289/137 = 1,26,569
Securities: 40,000 X 289/ 220 = 52,545
Plot: 1,40,000X 289/ 113= 3,58,053

Exemption U/S 54F =Cost of New House X Capital Gain /Net sale consideration

=9,00,000 X 16,01,947/ 19,60,000 = 7,35,588

54F Investment Assessee Individual / HUF

in
residential Type of asset transferred Any long-term capital asset other than residential house
house
Type of transfer LTCG

New asset purchased Residential house property

Time Limit for investment in Purchase – Within 1 year before or 2 years after
new asset transferConstruction – Within 3 years from transfer

Exemption Amount Cost of new asset x Capital Gain / Net consideration (maximum
up to capital gain)

CGAS* available Yes – deposit by return filing due date

Note No 1: for determine the nature of capital assets, the period of holding shall be counted from the date of purchase
and to the date of sale.
 Assessee: Ms. Vimala 2017, 14 marks Problem Previous Year:2019-20
Status: Resident Assessment Year:2020-21
Assets Residential Residential Jewellery Motor car
House-I House-II
Nature of capital assets LTCA (1999 LTCA (2007-8 LTCA (2007-08 STCA
to to 31.08.2019) to (Depreciating
30.9.2019) 25.02.2020 asset)
Gross Sale Consideration 18,50,000 8,50,000 8,50,000 90,000
Less: Selling Expenses ------------ 47,800 ------------ -------------
Net Sale Consideration 18,50,000 8,02,200 8,50,000 90,000
Less: Cost of acquisition/ Indexed cost of acquisition 5,49,100 3,49,488 1,68,023 WDV 76,000

Less: Cost of IMP/ indexed cost of IMP 6,500 ------------ ----------- -------------
Gross Capital Gain / Loss 12,94,400 4,52,712 6,81,977 14,000
Less: Exemptions U/S 54 (Long-Term Capital 9,00,000 ------------ ------------ ------------
Gain OR Cost of new asset whichever lesser)
Net Capital Gain 3,94,400 4,52,712 6,81,977 14,000
Calculation of indexed cost of acquisition (ICOA):
=Cost of acquisition X CII for the year in which the asset is transferred/ CII of year of acquisition
1. Residential House I: 1,90,000 X 289/100 = 5,49,100
2. Residential House II: 1,56,000 X 289/ 129 = 3,49,488
3. Jewellery: 75,000 X 289/129= 1,68,023

Note No 1: for determine the nature of capital assets, the period of holding shall be counted from the date of purchase
and to the date of sale.

Note No 4: if the assessee acquires the asset before 1.4.2001, actual cost of the asset or FMV as on 1.4.2001, which
ever is high is cost of acquisition.

54 Profit on sale Assessee Individual / HUF

of property
used for Type of asset transferred Residential House Property
residence
Type of transfer LTCG

New asset purchased One Residential House

Time Limit for investment in Purchase – Within 1 year before or 2 years after transfer
new asset Construction – Within 3 years from transfer

Exemption Amount Long-Term Capital Gain OR Cost of new asset whichever lesser
 Assessee: Mr. Aneesh 2010, 14 marks Problem Previous Year:2019-20
Status: Resident Assessment Year:2020-21
Assets Jewellery Residential Machiner Self
House y Cultivated
Land
Nature of capital assets STCA LTCA (1974 STCA LTCA
(1.6.2017 to to (Deprecia (1.4.2003
31.5.2019) 31.10.2019) ting to
asset) 1.1.2020)
Gross Sale Consideration 3,00,000 38,00,000 90,000 14,00,000
Less: Selling Expenses ------------ 50,000 ------------ -------------
Net Sale Consideration 3,00,000 37,50,000 90,000 14,00,000
Less: Cost of acquisition/ Indexed cost of acquisition 1,60,000 5,78,000 (WDV)76,000 3,46,800

Less: Cost of acquisition/ indexed cost of IMP ------------- 97,635 ----------- -------------
Gross Capital Gain / Loss 1,40,000 30,74,365 14,000 10,53,200
Less: Exemptions U/S 54 ------------- ------------ ------------ ------------
Net Capital Gain 1,40,000 30,74,365 14,000 10,53,200
Calculation of indexed cost of acquisition (ICOA):

=Cost of acquisition X CII for the year in which the asset is transferred/ CII of year of acquisition

1. Residential House: 2,00,000 X 289/100 = 5,78,000

2. Self Cultivated Land: 1,30,800 X 289/ 109 = 3,46,800

Calculation of indexed cost of improvement (ICOI):

=Cost of improvement X CII for the year in which the asset is transferred/ CII of year of improvement

1. Residential House: 50,000 X 289/148 = 97,635

Note No 1: House hold furniture is not a capital asset hence it is fully exempted from tax

Note No 2: Any movable asset (excluding jewellery made out of gold, silver, precious stones and paintings, sculpture,
archaeological collections etc.) used for personal use by the assessee are excluded from the definition of capital assets.
Jewellery is treated as capital asset.

Note No 3: for determine the nature of capital assets, the period of holding shall be counted from the date of purchase
and to the date of sale.

Note No 4: if the assessee acquires the asset before 1.4.2001, actual cost of the asset or FMV as on 1.4.2001, which
ever is high is cost of acquisition.

Note no 5: cost of improvement only after 1.4.2001 shall be taken.