Capital Gain

Section 45(1) Charging Section

Any profit and gain arising from Transfer of a Capital
Asset shall be chargeable under the head capital gain in
the P.Y.in which transfer took place
 Section 2(14): Definition of Capital Asset
 Capital Asset means -
A) Property of any kind held by assessee, whether or not connected with business or
profession.
B) Any security held by a Foreign Institutional Investor(FII)
C) But Capital asset does not include (means it exclude)
1.Stock in trade (RM/WIP/FG)
2.Movable personal property (used by assessee or his dependent
family member for personal purpose)
but excludes
Jewellery, Drawings, Paintings, Sculptures, Archaeological Collection or
Any other work of Art
3.Rural Agricultural Land in India
4.Gold Deposit Bonds,1999 or Deposit Certificates issued under the Gold
Monetization Scheme,2015
 Some important points
1. Assets used for personal purpose of assessee such as T.V, Car,
Mobile etc.-Not a capital asset-CG not applicable.
2. Gold utensils, Silver Bars, Silver Coins were held not to be
Consider as Personal Effects-Capital Gain Applicable (Case
Maharaja Rana Hemant Singh)
3. Silver utensils held to be Personal Effect- No Capital Gain
(Bansarilal Kataruka)
4. Car if used in the business is a capital asset.
Jewellery means,

A) Ornaments made of gold, silver, platinum or any other

precious metal or any alloy containing such metals.
B) Precious stones whether or not set in any furniture, utensils
or other article.
Definition of Urban Area
 A) Any area (municipality, cantonment board etc) which has population of
10,000 or more
 B) In the following area within the distance measured aerially

Shortest distance from point (A) Population as per last census

above
Up to 2 KM >10000 up to 100000
Up to 6 KM >100000 up to 1000000
Up to 8 KM >1000000
Rural Area

 Means an area which is not urban Area.

Section 2(47) Transfer
 Transfer Includes :
 1. Sale, exchange, or relinquishment of assets or
 2. Extinguishment of any right therein or
 3. Compulsory acquisition there of under any law or
 4. Conversion of Capital Asset into Stock In Trade
 5.Allowing the possession of any Immovable property to be taken or retained
in part performance of contract.
 6. Any Transaction (which has the effect of transferring or enabling the
enjoyment of immovable property
 7. Redemption of Zero Coupon Bond
Types of Capital Assets

 Short term Capital Asset (STCA) Long term Capital Asset (LTCA)

STCG LTCG
 Nature of Capital Asset

a) Security (Other Than Unit) a) Unlisted Shares (Shares

Listed in a Recognized stock
exchange in India
b) Units Of UTI/Equity Oriented MF
c) Zero Coupon Bond
not listed in Recognized
Any Other Assets
stock exchange in India)
b)Immovable Property

Held for Held for ≤ Held for ≤

≤ 1 Year 2 Year 3 Year

Held for > Held for > Held for >

1 Year 2 Year 3 Year

STCG

LTCA
Sec 48 Computation of Capital Gain
Particular Rs.

Full value of consideration (FVOC) xxxxx

Less : Expenses incurred in connection of transfer (xx)
Net Consideration xxxx
Less : Cost of Acquisition (COA) (xxx)
Less : Cost of Improvement (COI) (xx)
Capital Gain xxx
Second Proviso (exception) to section 48 :
Indexation

 In case of LTCA (long term capital asset) COA/COI should be

Indexed COA AND Indexed COI
 Cost Inflation Index (CII)
FY CII
2001-02 Base Year 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
2020-21 301
2021-22 317
Example COA is 1,00,000 FY 2001-02
CII FY 2001-02 100
CII FY 2021-22 317 Calculate Indexed Cost of Acquisition

 ICOA = 1,00,000 x 317

100

= 3,17,000
Example COI is 2,00,000 FY 2001-02
CII FY 2001-02 100
CII FY 2021-22 317 Calculate Index Cost of Improvement

 ICOI = 2,00,000 x 317

100

= 6,34,000
ICOA(Indexed Cost of Acquisition)

 ICOA = COA x CII for the year of transfer(sales date)

CII for first year in which asset
was held by the assessee (purchase date)
 Or
 For the year 2001-02
whichever is later
ICOI(Indexed Cost of Improvement)

 ICOI : COI x CII for the year of transfer (Sales)

CII for first year in which improvement
to the asset took place (improvement date)

COA
Asset acquired before 01-04-2001

COA will be :

Actual cost
or
FMV as on 01-04-2001 (Refer Note 1)

Note 1 : If on 01-04-2001 FMV and SDV both are given, then take
lower of FMV and SDV.(later)
Improvement done before 01-04-2001 should
be ignored
First proviso to section 48 : CG in case of Non
Resident

 In case of
Assessee who is Non Resident

Assets should be shares or debenture of Indian Company

& such shares are acquired in foreign currency by way of
purchase or reinvestment.
 Then CG shall be calculated in foreign currency and after that
it shall be reconverted into Indian currency.
Rule 115A method of conversion


COA Average of TTBR and TTSR
Transfer Expenditure Average of TTBR and TTSR
Sales consideration Average of TTBR and TTSR
CG into Indian currency TTBR
Remarks

1. Assessee should be NR in the year of sale

2. Indexation benefit not available where first proviso applies
Third Proviso to sec 48 :

 No indexation in case of -
a) Equity share,
b) Equity oriented mutual fund or Referred u/s 112A
c) unit of business trust
Fourth proviso to sec 48

 No indexation in case of Bonds and Debentures

Exception :
a) Capital Indexation Bond(CIB) and
b) Sovereign Gold Bond (SGB)

 Note As per sec 47, No CG will arise in case of only Individual on

Redemption of SGB issued by RBI (Redemption on maturity)
(LATER)

Sixth proviso to sec 48:

 Any gain arising on

rupee appreciation against foreign currency at the time of
redemption of RDB (Rupee denominated bonds) of Indian
company, shall be ignored for the purpose of computation of
full value of consideration (LATER)
Sixth proviso to sec 48: (will discuss with
section 47)
Seventh proviso to sec 48:

 STT paid is not allowed as deduction in CG

 Note : site and building are separate assets for the purpose of
CG.
if site acquired before 2 years and building constructed within 2
years then we have to calculate separate capital gain for both
the assets capital gain on land is treated as LTCG and building is
treated as STCG
Sec 55 : COA/COI

 COA :
1. In case of
a. Goodwill of Business (not profession)
b. Trademark
c. Copyright
d. Patent
e. Brand Name
f. Tenancy rights, loom hour or route permits

If self generated : NIL

If Purchased : Purchase Price
Remarks

 Benefit of
 1. FMV as on 01-04-2001 is not available
 2. COI is not available
In case of Bonus shares or securities

COA
or
FMV as on 01-04-2001

Period of Holding (POH) in case of share/securities – from

allotment date to transfer date

Note : if sec 112A apply then COA shall be calculated as per

112A(discussed with 112A later)
Right Shares/ Security

a) If acquired by Shareholder
COA= Amount paid to company
• (POH= From Allotment Date)

b) Renouncement of Right
CG Applicable
• FVOC= Renouncement of Right
• COA= NIL
• STCG=xxxx
• (POH= From offer date to
renouncement date
 In hands of purchaser of right:
 COA= Amount paid to company for shares+ Amount paid
for purchase of right
 POH= from date of allotment of shares
In case of demutualization/corporatization of
stock exchange

• ASSET COA
1. Equity Shares allotted to Cost of his original
Member of stock exchange membership of Exchange

2. Trading and Clearing Right Always NIL

Note: Benefit of FMV as on 01/04/2001 is NOT available

In relation to other Capital Assets
COA will be :

 a. If Asset acquired before 01/04/2001

 (i) Cost of acquisition xxx
 (ii) FMV as on 01/04/2001 xxx
 whichever is higher

 b. If Asset acquired on or after 01/04/2001: Cost of

acquisition
Summary :
1. Cost of Improvement(COI) is ignored ;
a) In case of goodwill of business, patent, copyright, right to
carry on any business/profession = always NIL
b) Improvement done before 01/04/2001 should be IGNORED
in all cases

2. Benefit of FMV is not available ;

a) In case of goodwill patent etc.
b) In case of demutualization/corporatization of stock exchange
Question

 Ms. Tamseel purchased a residential house on 26-06-1997 for

Rs.10,00,000. FMV as on 01-04-2001 is Rs. 12,00,000
 she constructed floor 2 for Rs. 3,50,000. in the year 19th March 2000.
 During the PY 2015-16 she constructed another floor for Rs. 2,00,000
 She sold the House Property in April 2021 for Rs. 49,00,000
 Compute Capital Gain for the AY 2022-23
 If CII for PY 2015-16 = 254
Computation of CG of Ms. Tamseel for
the AY 2022-23
FVOC 49,00,000.00
Less : Transfer Expenses -
Net Consideration 49,00,000.00
Less : ICOA (1200000*317/100)(Note 2) 38,04,000.00
Less : ICOI (200000*317/254) (Note 1) 2,49,606.30
Long Term Capital Gain 8,46,393.70
Note 1 Any improvement done before 01-04-2001 should be ignored.
Note 2 Asset is acquired before 01-04-2001 hence COA will be actual COA or
FMV as on 01-04-2001 which ever is higher.
Note 3 As per 2nd Proviso to sec 48 in case of LTCA COA/ COI should be
ICOA/ICOI
Exception to sec 45(1)
 As per section 45(1) CG is chargeable to tax in the year of
transfer but in the following 4 cases CG is not taxable in the
year of transfer.
Case 1
Section 45(2) Conversion of Capital Asset into
Stock in Trade
 Conversion of Capital Asset into SIT
is treated as transfer as per sec
2(47), CG shall arises where an assessee converts capital
asset into SIT

But It is Taxable In the year in which such SIT is sold.

 Capital Gain
FVOC (FMV as on conversion date) *******
Less : COA (****)
STCG/LTCG *******

Note : Amount recorded in books – Not relevant

FMV as on date of conversion - Relevant
 PGBP
SP of Stock In Trade *****
Less : FMV of asset on conversion date (***)
Less : Construction cost (if any) (***)
PGBP *****
Note :

 If any Part of SIT is sold then only part CG shall arise in

the year when such part is sold.

 In case of conversion of Capital Asset into SIT and

subsequent sale of stock, period of 6 month shall be
calculated from date of sale of such stock in trade for the
purpose of Exemption u/s 54EC (later)
 Example Conversion of CA into SIT
 Ms. Manasvi purchased land for Rs. 20,00,000 in 16-07-1985. FMV as on 01-04-2001 is
Rs. 40,00,000
During the year 2002-03 she constructed Boundary wall on the above land amounting
to Rs. 24,00,000
The above land is converted into 30 Flats (Stock in Trade) on 19-03-2018. FMV on the
conversion date is Rs. 4,50,00,000
Cost of construction of each flat is Rs. 8,00,000

10 Flats sold during the PY 2021-22 for Rs.30 Lakh each.

CII 2002-03 105 2017-18 272 2021-22 317

 From the following information Answer the following Questions

1. Year of Transfer
2. Year of Capital Gain
3. Amount of Taxable Capital Gain
4. Calculate PGBP if any
Solution

Year of Transfer = year of conversion (i.e. 2017-18)

Year of CG = year when SIT is sold (i.e. 2021-22)

ain

Computation of CG

Particular Amount
FVOC (FMV as on conversion date) 4,50,00,000
Less : Transfer Expenses 0.00
Net Consideration 4,50,00,000
Less : ICOA(40,00,000*272/100 1,08,80,000
Less : ICOI (24,00,000*272/105 62,17,143
Long Term Capital Gain for 30 Flats 2,79,02,857
LTCG (Per Flat) 9,30,095

In 2021-22
Taxable Capital Gain (9,30,095*10) =93,00,950
Calculation of PGBP

Particular Amount
Sales Value 3,00,00,000
Less : FMV of 10 Flats (4.50 crore *10/30 1,50,00,000
Less : Construction cost of Flat 80,00,000
PGBP 70,00,000
Conversion of SIT into Capital Asset

 Sec 28 PGBP : FMV of inventory on conversion date is taxable under PGBP.

COA of Capital Asset : shall be FMV

(i.e. Amount that is taxable under PGBP.)

POH : From conversion to transfer

Example : Raghuvanshi Trading Company acquired 10000 shares of AIR
Ltd @ 20 each on 14-05-2017 as SIT.
SIT not sold upto 31-03-2018 and NRV on 31-03-2018 is 22 per share.

Inventory of 10000 shares converted into Capital Asset on 10-07-2018

and FMV on such date is 26 per share. Assessee transfer 2000 shares
on 19-03-2019 @ 45 each and Balance 8000 share on 14-08-2019 @36
per share compute PGBP
 Computation of PGBP PY 2018-19

FMV on the date of conversion(sec 28) 2,60,000

Less : Purchase price 2,00,000
PGBP 60,000
 Computation of CG PY 2018-19 PY 2019-20

POH 10-07-18 to 18-03-2019 10-07-18 to 18-08-2019

 FVOC 90,000 2,88,000

(2000*45) (8000*36)
Less : COA(i.e. FMV
already taxes under
PGBP) (52,000) (2,08,000)
 STCG 38,000 80,000
Case 2
Sec 45(5) Compensation on compulsory
acquisition under any law
 Normally capital gain is taxed in the year of transfer but in
case of Compensation on compulsory acquisition CG is
taxable in the year in which compensation is actually
received.
Computation of CG

 Initial Compensation
FVOC(initial compensation) ******
Less : COA/ICOA (***)
Less : COI/ICOI (***)
LTCG/STCG *****

Enhanced Compensation
FVOC(enhanced compensation) ******
Litigation expenses (***)
LTCG/STCG *****
 If compensation received In instalment
 Initial compensation
Entire Compensation is taxable in the year in which first
Instalment is received
 Enhanced compensation
Taxable as and when received
 If Enhanced compensation is received by way of “interim
order” of court it is not taxable, only compensation received
by way of “final order” of court will be taxable in the year of
order.

 Notes :
 1. Interest received on enhanced compensation is taxable under
IFOS, subject to 50% standard deduction.
 2. If compensation is reduced by any court authority then
rectification has to be made give effect of the same.
Example of Case 2

 Mr. Zain purchased property of Rs. 10,00,000 on 01-04-1981. FMV as

on 01-04-2001 is 50,00,000
 Cost of Improvement incurred is Rs. 2,00,000 in 2004-05
 Property was compulsory acquired by Govt. in 2018-19.
 Initial Compensation received in 2021-22 was Rs. 10 Crore
 Enhance Compensation is Rs. 5 crore out of which only 50 lakh
received in 2021-22. Litigation expenses Rs. 50,000
 CII 2004-05 113
CII 2018-19 220
 CII 2001-02 100
CII 2021-22 317
 Calculation of Capital Gain 2021-22 (Initial Compensation)
Particular Amount
FVOC (Initial Compensation) 10,00,00,000
Less : Transfer Expenses 0.00
NC 10,00,00,000
ICOA (50,00,000*220/100) (1,40,00,000)
ICOI (2,00,000*220/113) (4,95,575)
LTCG 8,55,04,425
 Calculation of Capital Gain 2021-22 Enhanced Compensation

Particular Amount
FVOC ( Enhanced Compensation received) 50,00,000
Less : Litigation expenses (50,000)
LTCG 49,50,000
Case 3
Sec 45(1A) Insurance claim for Damage or
Destruction of Capital Asset.
 Normally capital gain is taxed in the year of transfer but in case of
Destruction of Capital Asset CG is taxable in the year in which
Insurance Claim is received.

where capital asset is destructed by way of

Riots
Natural Calamities
Civil Disturbances
Fire
Enemy Action(war)
if any insurance claim is received then CG is applicable.
if No insurance claim No CG.
Computation of CG


FVOC(Insurance claim) ******
Less : COA/ICOA (***)
Less : COI/ICOI (***)
LTCG/STCG *****
Example of Case 3
 Maharshi acquired a house property for Rs. 20,00,000 in 04-05-1998
 FMV as on 01-04-2001 is Rs. 18,00,000.
 During the year 2019-20 Asset was destructed due to enemy attack(war)
 Insurance claim received Rs. 85,00,000 in 2021-22

 From the following answer

 1. Is Capital gain applicable ?
 2. Nature of Capital Asset ?
 3. Amount of Capital Gain taxable in the year
Given CII 2019-20 289 2021-22 317
 4. Would your answer change if no insurance claim received.
 Answer 1. Yes Capital gain is applicable on destruction of capital
asset by Enemy action
 Answer 2. Since POH of Immovable property is more than 2 year,
it is LTCA
 Answer 3. Computation of Capital Gain in the hand of Maharshi in
PY 2021-22

Particular Amount

FVOC (Insurance Claim Received) 85,00,000

Less : ICOA(20 Lakh *289/100) (57,80,000)
LTCG 27,20,000

 Answer 4. Capital gain not applicable, since no insurance claim

received.
Meaning of JDA(specified Agreement)

 Means a registered agreement in which a person owning land or

building or both agrees to allow another person to develop a
real estate project on such land or building or both, the
consideration in this case is a share being land or building or
both in such project.

Part of the consideration may also be in cash.

Case 4 Sec 45(5A) Capital Gain in case of Joint
Development Agreement
 In case of Assessee being Individual and HUF
 Who entered into a specified agreement for development of
project(i.e JDA).

CG on transfer of land & Building or both shall be taxable in
the year in which Certificate of completion (CC) for the whole
or part of project is issued by competent authority

 Year of Transfer = Year in which possession is handed over.

 Year of Tax = Year in which CC is received.
 FVOC = SDV on the date of issue of CC of his share
in project + Consideration received in Cash
Sec 49(7) COA of share received in JDA

 COA = amount deemed as FVOC u/s 45(5A)

Example of Case 4
Mrs. Maaz purchased a plot for Rs. 5,00,000 in PY 2001-02. on 16th July
2018 she entered into JDA with Maaz Builder and handed over the
possession on the same date.
FMV of plot on such date is 32,00,000
as per JDA, Mrs. Maaz is to received two flats in develop project along
with Rs. 40,00,000.
She received money of Rs. 40,00,000 in PY 2020-21.
Completion certificate issued on 10-12-2021 and SDV on such date is
Rs. 50,00,000 per flat.

She got possession of two flats on 30-06-2022

CII 2001-02 100 CII 2018-19 280 CII 2021-22 317

Question 1 Year of Taxability = 2021-22 (i.e. year in which CC received)

Question 2 Compute CG.
Computation of CG
PY 2021-22 AY 2022-23
FVOC 1,40,00,000
((50lakh*2)+40lakh)
Less : ICOA(POH 01-02 to 15-07-2018) (14,00,000)
(5,00,000*280/100
LTCG 1,26,00,000
Example 2
Suppose in above example if Mrs. Maaz transfer 1 flat for
Rs. 92,00,000 on 14-02-2023. Compute CG.

 Computation of CG PY 2022-23 AY 2023-24

 FVOC 92 Lakh
 Less : COA (POH 30-06-2022 to 13-02-2023) (50 lakh)
STCG 42 lakh

 Alternate Solution :
 If we take rigid interpretation of Sec 49(7) then COA will be 70
lakh instead of 50 lakh
 FVOC 92 Lakh
 Less : COA (POH 30-06-2022 to 13-02-2023) (70 lakh)
STCG 22 lakh
Exception of Case 4

 Above benefit of deferment not applicable if assessee

transferred his share in project on or before the date of issue of
Completion certificate
 Capital Gain is taxable in the year in which transfer took
place
Transfer of Capital Asset between firm and Partner Sec 45(3)

 A. Sec 45(3) Transfer of CA by partner to partnership firm

 CG is applicable in hands of partner
 FVOC = amount recorded in books

 Note : If immovable property is transferred by partner to

firm and SDV is more than amount recorded in books then
SDV shall be treated as FVOC (Sec 50C).(DISCUSSED
LATER)
 Sec 45(4) Transfer of CA by firm to partner.
 CG is applicable in the hand of firm/AOP/BOI
 FVOC = FMV as on date of transfer.
Sec 45(2A) Transfer of securities held in
DMAT
 CG is applicable in hands of beneficial owner(i.e. share holder)
 COA and POH shall be determined on the basis of FIFO Method.

 If more than one DMAT account than FIFO method is applicable account wise.
Sec 50C Stamp Duty Value shall be
treated as FVOC.
In case of land and building or both held as capital
asset if
a) sales consideration is less than SDV
b) and SDV is more than 110% of sales consideration,
then Such SDV shall be treated as FVOC.
However if SDV is not more than 110% then actual sales
consideration will be FVOC.
Where assessee claims that SDV is more than FMV and such
SDV has not been disputed in any appeal etc then the AO may
on application by assessee refer the case to Valuation officer.

If value so find by the VO is

more than actual SDV then it shall be ignored
However if it is less than actual SDV then it shall be
treated as FVOC
When Registration date and agreement date are different
then SDV on Agreement date may be considered as FVOC if
any amount has been received through
Account payee cheque
Account payee Demand Draft
Any mode of ECS/RTGS
BHIM UPI and any other electronic mode
Calculate FVOC in following Independent
Cases
Particular Case 1 Case 2 Case 3 Case 4 Case 5
Asset Land Building Flat Jewellery Personal
Transferred Car
SP 100 100 100 100 Not a
SDV 108 111 110 125 Capital
Asset
hence
FVOC 100 111 100 100 No CG
Sec 50CA FMV of unquoted shares(unlisted)
shall be treated as FVOC

 Actual
 Or FMV
shall be FVOC
Sec 50D where sales consideration is
unascertainable or can not be determined.

FMV on the date of transfer will be FVOC

Sec 50B Slump Sale

 Slump sales means assessee transfer the entire undertaking/

Division for lumpsum consideration without assigning value/SP
to Individual asset
 Computation of CG
FVOC (FMV) *****
Less : Transfer Expenses (**)
Net Consideration ****
Less : COA (Net worth) (***)
STCG/LTCG ***

Note : No indexation in case of slump sale.

Net worth = Assets – Liabilities
 Computation of Net worth
Assets
1. Depreciable Asset : Value(WDV) as per IT ACT
2. Other Asset : Book Value
Total Assets
Less : Liabilities (Book Value)
Net Worth
Notes :

 1. Revaluation of assets shall be ignored

 2. If Net worth comes Negative then COA will be NIL
3. No profit in PGBP arises even if stock is transferred in slump
sale.
 4. For Computing Net worth IF asset (on which deduction us 35
AD was claimed , its value shall be taken as NIL
 5.Nature of Capital Gain (Long Term or Short Term Depends
upon 3 year criteria.)
Module/Exam Question
Mr. Akash is a proprietor of Akash Enterprises having 2 units. He transferred on 1.4.2021 his
Unit 1 by way of slump sale for a total consideration of Rs. 25 lacs. The fair market value of
the unit on 1.4.2021 is Rs. 30 lacs. Unit 1 was started in the year 2005-06. The expenses
incurred for this transfer were Rs. 28,000. His Balance Sheet as on 31.3.2021 is as under:

Other information:
(i) Revaluation reserve is created by revising the value of the building of Unit 1.
(ii) No individual value of any asset is considered in the transfer deed.
(iii) Other assets of Unit 1 include patents acquired on 1.7.2019 for Rs 50,000 on which no
depreciation has been charged. Compute the capital gain for the assessment year 2022-23.
 Other Assets as
on 31-03-2021

Patent 50,000 Other Asset 1,00,000

Depreciation to be charged
Solution

Calculation of WDV of Patent as on 01-04-2021

Calculation of Net Worth
Assets
Building 9,00,000
Machine 3,00,000
Debtor 1,00,000
Other Asset 1,00,000
Patent 28,125
Total Asset 14,28,125
Less : Liabilities
Bank Loan (1,40,000)
Trade Creditor (37,500)
Net Worth 12,50,625
Calculation of Capital Gain on slump Sale u/s 50B

Particular Amount
FVOC (FMV) 30,00,000
Less : Transfer Expenses 28,000
Net Consideration 29,72,000
Less : COA (Net Worth) 12,50,625
LTCG(3+ Years) 17,21,375
Section 51 Advance Money forfeited

 Any Advance Money forfeited by assessee before 01-04-2014

then it shall be deducted from COA
 However if forfeited after 01-04-2014 it shall be taxable in the
PY in which it is forfeited.
Tax Rates for Capital Gain
Tax Rates for Capital Gain

Long Term Capital gain Short Term Capital gain

112A or 112 111A or Slab Rate
Sec 112A Tax on LTCG of Certain Asset

 LTCG on transfer of
Equity Shares or
Equity Oriented units or
Units of business trust

 Tax @ 10% in excess of 1 Lakh

 If Conditions are satisfied
1. STT paid on acquisition & transfer of Equity shares
2. STT paid on transfer of Equity oriented fund & units of
business trust
Example : From following information calculate tax
liability
 PGBP 3,00,000
IFOS 60,000
LTCG (112A) 2,50,000
NTI 6,10,000


Tax on 3,60,000 Tax on 2,50,000
(Slab rate) (LTCG 112A)
5,500 15,000 = 20,500
Add : HEC = 820
Final Tax Payable 21,320
Notes

 1. LTCG arising on transaction undertaken under recognised stock exchange

located in IFSC would be taxable @ 10% even if no STT paid
 2. Deduction under chapter VI-A not allowable in respect of LTCG us 112A
3. Rebate u/s 87A is also not allowed.
 4. CG may notify certain modes of acquisition of equity shares where
condition of STT on acquisition will not be applicable.
 5. Indexation benefit is not available
Sec 55 Cost of Acquisition
 In case of Equity shares or unit of EOF or unit of Business trust
referred us 112A acquired before 01-02-2018

COA shall be
Sales Value(FVOC) or
FMV as on 31-01-2018

Lower or
COA

= COA
Example : Calculate COA

Case 1 2 3 4 5
1. SP(FVOC) 760 650 910 825 400
2. FMV as 730 780 300 1000 100
on 31-01-
2018
Lower of 1 730 650 300 825 100
or 2
COA 410 710 900 800 30
COA u/s 730 710 900 825 100
112A
Example : IN PREVIOUS EXAMPLE
Calculate CG
Case 1 2 3 4 5
FVOC 760 650 910 825 400
Transfer - - - - -
Expenses
Net 760 650 910 825 400
Consideration
COA 730 710 900 825 100
LTCG/(STCG) 30 (60) 10 0 300
Computation of FMV as on 31-01-2018
 1. Listed Shares/Unit on Recognized stock exchange as on 31-01-2018 :

FMV = highest price quoted on 31-01-2018

if no trading then take FMV of immediately preceding 31-01-2018(i.e. last day when shares
are traded.)

 2. Unit shares not listed on 31-01-2018

a. If case of Unit b. In case of shares

NAV on 31-01-2018 FMV : COA * CII for 2017-18
CII for first year in which asset
was held by the assessee
(purchase date)
 Or
 For the year 2001-02
whichever is later
 Sec 111A : Tax on STCG of certain assets
1. STCG on transfer of
Equity shares or
Unit of EOMF or
Unit of Business Trust shall

be taxable @ 15%
if STT paid on transfer of such shares.

Notes :
1. Benefit of concessional rate of 15% is available on transaction
undertaken in foreign currency in IFSC even though STT not paid.
2. Deduction under chapter VI-A is not available under sec 111A.
3. Rebate u/s 87A is available.
Capital Gain other than 112A & 111A

 LTCG - 20% US 112

STCG - Slab Rate

Proviso to sec 112

1. In case of LTCG on listed security (other than units) or ZCB
option 1 10% without indexation
option 2 20% with indexation
Sec 47 Certain transaction not regarded
as transfer. (i.e. Exempt)
 1. Distribution of Capital Asset on the partition of HUF
 2. Transfer of Capital Asset under Gift, Will , Irrevocable Trust
(exception ESOP)
 3. Transfer under amalgamation by amalgamating Co. to amalgamated
Co.
Condition : Amalgamated company is Indian Company.
4. Transfer of Capital Asset by
Holding to subsidiary or vice versa.

Condition :
1. Holding co. hold 100% shares of subsidiary
2. Transferee co. should be Indian Company
In above cases (1 to 4)

 COA : Cost to Previous Owner.

COI : Incurred by current and PREVIOUS owner.
 POH : of both current and Previous owner shall be considered.
 Benefit of FMV as on 01-04-2001 is available.
 Example : Mrs. Maaz purchased a plot for Rs. 20 lakh in 19-07-2018.
She gifted plot to Mr. Maaz on 26-06-2020
Ques. : Is Capital Gain Applicable ?
Ans. : No (Exempt Transfer u/s 47)
Suppose Mr. Maaz Sold such plot received in gift for Rs 50 lakh on 31-
03-2022 CII 2021-22 317 2018-19 280
Ques : Is CG applicable?
Ans : Yes CG is applicable in the Hand of Mr. Maaz as per 45(1)

Computation of Capital Gain u/s 48 (AY 2022-23)

FVOC 50,00,000
Less : Transfer Expenses 0.00
Net Consideration 50,00,000
ICOA (20,00,000 *317/280) 22,64,286
LTCG (Tax Rate : Section 112) 27,35,714
Tax u/s 112@ 20% 5,69,029
 5. Transfer of capital asset being shares of amalgamating company by
a shareholder in a scheme of amalgamation, Provided: Sec 47(vii)
(a) Amalgamated company is an Indian Company
(b) Consideration of allotment to him is shares in amalgamated company

6. Issue of shares by resulting Co. to the shareholder of the demerged Co.

will not be regarded as transfer of shares of demerged Co. is the hands of
such shareholders sec. 47(vid).

7. Transfer of Asset by Demerged Company to resulting Company

8. Transfer of Rupee Denominated Bond of an Indian company by one NR to

another NR outside India Sec 47(viia)
 8. Transfer of a Govt. securities (carrying a periodic payment of
interest) made outside India by one non- resident to another non-
resident, through an intermediary dealing in settlement of securities
Sec. 47(viib)

 9. Any transfer of sovereign Gold bonds issued by RBI under sovereign

gold bond scheme 2015, by way of redemption by an assessee being an
individual sec. 47(viic)

 10. Transaction of a capital asset being any work of art, archaeological/

scientific/art collection, book, manuscript, drawing,
painting/photograph/print to the Govt. university, national museum,
national art gallery, national archives any public museum or notified
institution: Sec 47(ix)
11. Conversion of bonds/ debentures/ deposit certificates of a Co. into
debentures or share of that Co. Sec. 47(x)
 Notes:
(i) COA of shares/ debentures received on conversion shall be cost of that
part of debenture/ bond/ debt stock/ deposit certificate, which is so
converted Sec. 49(2A).
(ii) POH of shares or debentures shall also include the period for which
deb/ bonds/deb stock/ deposit certificate held by assessee.
12. Conversion of preference shares of company into Equity shares of
that Co.
 Notes:
(i) COA of equity shares received on conversion shall be cost of that part
of preference shares, which is so converted Sec. 49(2AE)
(ii) POH of equity shares shall also include the period for which pref.
shares are held by assessee Sec. 2(42A)

 13. Transfer of capital asset in a transaction of Reverse Mortgage

(under a scheme made & notified by central govt.) Sec 47(xvi)
Benefit of Unexhausted Basic Exemption against LTCG/STCG
111A/LTCG 112A (LDR Concept)
Eligible Assessee : Resident Individual/HUF
If Income other than (LTCG u/s 112/112A and STCG u/s 111A is
less than Basic Exemption.

Then Unexhausted Basic Exemption can be used against CG in

following Preference
Preference 1 = LTCG u/s 112 if any
Preference 2 = STCG u/s 111A if any
Preference 2 = LTCG u/s 112 if any

Unexhausted Basic Exemption =

Applicable Slab Rate – Income Taxable at Slab Rate
 Example :
NTI of Ms. Muskan aged 20 years is 4,40,000 (it
includes LTCG on sale of land 2,50,000)
tax liability of Muskan will be
(2,50,000-60,000)= 1,90,000 * 20% = 38,000
Add : HEC 1,520
Final Tax 39,520
Whether Shares held as SIT or Capital
Asset
 Benefit of Sec 112A & 111A is available only if shares are held as
Capital asset
 If it held as SIT then profit is taxable under PGBP.(Slab Rate)
In deciding whether shares are CA or SIT
Following factors should be consider.
1. Treatment in books of assessee. (i.e. shown as investment or stock)
2. Quantum of purchase & sales.
3. Holding period.
4. If objective is to earn dividend then it is CA.
5. Whether shares are purchase out of own fund or loan fund.
CBDT circular no. 06/2016, dated 29-02-2016

 AO has to take following points while deciding whether profit on sale of

share is taxable in PGBP or CG
In case of Listed Security
A. Assessee opt to treat as SIT
(Taxable under PGBP) AO will not dispute.
B. Assessee opt to treat as Capital Asset and POH is more than 12 Month
(Taxable under CG) AO will not dispute.
C. In all other cases nature of transaction shall continue to decide
Income arising on transfer of unlisted share is always
taxable under CG irrespective of POH

In case of Unlisted Shares.

Always Taxable under CG
Exception :
1. Genuineness of the transaction itself is questionable, or
2. Transfer is relating to an issue pertaining to lifting up of Corporate Veil.
3. Transfer is made along with the control and management of underlying
business and AO would take appropriate view in such situations
Section 55A : Reference to Valuation Officer(VO)
(Theoretical Concept-NVI)
 AO may refer the case to VO in following circumstances.
 1. FMV claimed by assessee as per registered Valuer
 AO is of opinion that the value so claimed is at variance with its FMV

 2. In any other Case :

a) FMV as per AO Opinion is more than value claimed by Assessee by
 15% of value claimed by assessee
 Or
 25,000
 b) having regards to nature of asset and other relevant circumstances
it is necessary to do so.
Sec 10(37) Exemption of Capital gain in case of
COMPULSARY ACQUISITION of Urban Agriculture Land.

 LTCG/STCG on compulsory acquisition of urban agriculture

land shall be exempt if following conditions are satisfied.
 1. Assessee should be Individual and HUF
 2. Such agriculture land should be used for agriculture
purpose for 2 years before date of transfer by assessee or his
parents.
 3. Consideration is determined or approved by RBI or CG.
Exemptions in Capital Gain
(i.e. Sec 54/54B/54D/54EC/54F and 10(37)
1. Exemption available only to Individual and HUF
Provision Sec 54 Capital Gain on sale of Sec 54B Capital Gain on sale of Urban
Residential Property & used for Agriculture Land & used for another
Residential Property Agriculture Land

Assessee Individual/HUF Individual/HUF

Nature of Asset LTCA LTCA/STCA
Assets transfer Residential house property being Agriculture land used by Individual or
building or land appurtenant thereto his parents for agriculture purpose
during two years before the transfer
(date to date)

New Asset to be One Residential HP in India Agricultural land (can be rural or urban)
purchased or
constructed If LTCG is up to 2 crore
Once in lifetime assessee can
purchase two Residential HP in India.

Time Limit for Purchase within 1 year before Purchase 2 year after date of transfer
purchase/ Or 2 year after date of transfer
construction Construction completion within 3
years after date of transfer
CNA = Cost of New Asset

Deposit scheme Applicable Applicable

Amount of Exemption CG CG
or or
CNA/Deposit amount CNA/Deposit amount

Transfer of New Asset If New asset transferred If New asset transferred within
(Lock in Period) within 3 years from date of 3 years from date of purchase
purchase or construction

then COA of new asset shall then COA of new asset shall
be reduced by the be reduced by the exemption
exemption of CG claimed CG claimed earlier (Indirectly
earlier(Indirectly Taxable) Taxable)
Capital Gain Deposit Scheme (CGDS)
 In some sections (eg. 54 and 54B)
 If investment is not made up to the due date of filing, amount is
required to be deposited in CGDS on or before due date of
Income tax return u/s 139(1) to claim exemption.
 Amount Deposited in CGDS to be used within the time limit
prescribed in section.
 Amount Un utilize : In the year in which it remain unutilized ever
after expiry of time limit
 Amount Mis utilize is taxable in the year in which it is mis
utilized.
2. Exemption available to any person
Provision Sec 54D Compulsory acquisition of Sec 54EC Sale of Land, Building or Both
Industrial land & Building(Factory) & Investment in Certain bonds

Assessee Any person Any person

Nature of Asset LTCA/STCA LTCA
Assets transfer Compulsory acquisition of land or Land, Building or both
building which was used by assessee
in the business of industrial
undertaking during two years prior
to date of transfer(date to date)

New Asset to be New Land or building for Industrial Bonds redeemable after 5 years issued by
purchased or Undertaking (New factory) a) National Highway authority of India
constructed (NHAI)
b)Rural Electrification corp. ltd (RECL)
c) Power finance corp. ltd. (PFCL)
d) Indian railway finance corp. ltd(IRFCL)
Maximum exemption = 50 lakh within
prescribed time
Time Limit for Within 3 year from date of Within 6 month from date of
purchase/construction receipt of compensation transfer of original asset
Deposit scheme Applicable Not Applicable
Amount of Exemption CG CG
or or
CNA/Deposit amount CNA

Maximum 50 lakh

Transfer of New Asset If New asset transferred within If New asset transferred or
3 years from date of purchase converted into money within 5
or construction years from date of acquisition

then COA of new asset shall Then CG exempt earlier is

be reduced by the exemption taxable in the year of
CG claimed earlier (Indirectly transfer/Conversion. (Directly
Taxable) Taxable)
Provision Sec 54F CG on sale of LTCA not to
be charged in case of Investment
in residential property

Assessee Individual/HUF
Nature of Asset LTCA
Assets transfer Any Capital Asset not being
residential house property.

New Asset to be One Residential House in India

purchased or
constructed
Time Limit for Purchase within 1 year before
purchase/construction Or 2 year after date of
transfer
Construction completer within
3 years from date of transfer
Deposit scheme Applicable
Amount of Exemption CNA * CG
Net consideration

Transfer of New Asset New asset transferred within 3

years from date of purchase or
construction then Exempt CG
taxable in PY of transfer of
New Asset & Treated LTCG
 2. Section 54F ADDITIONAL CONDITIONS TO BE SATISFIED FOR AVAILING
EXEMPTION
 A. on the date of transfer of LTCA, assessee should not own more than one House
 B. should not purchase any residential house within prescribed time limit, other
then new asset
 C. If above conditions are not satisfied then exempt CG is taxable in PY in which
such residential house property is purchased or constructed.
3. Section 54H Extension of time for acquiring New Asset

 Where transfer of CA is by Compulsory acquisition under any law then limit for
acquiring new asset & for depositing in CGDS shall be computed from receipt
of compensation & not from the date of compulsory acquisition.
Sec 54

 5. IF LTCG is up to 2 crore then assessee can acquire Two residential house

property within prescribed time limit.
 The benefit of 2 HP is available only once in life time.
Amalgamation Demerger Liquidation and Buy Back

covered separately