Income from Capital Gains

Section 45(1): Charging Section

As per Section 45, any profits or gains arising from the transfer of a capital asset effected in the
previous year will be chargeable to income-tax under the head ‘Capital Gains’. Such capital gains will
be deemed to be the income of the previous year in which the transfer took place.
Therefore, following conditions must be satisfied for taxability of Capital Gains:

1. There must be a Capital Asset

2. The capital asset must have been transferred
3. Such transfer must have taken place during the previous year
4. The transfer of such capital asset must give rise to profits or gains (includes loss also) 5. Such
capital gains should not be exempt from tax u/s 54, 54B, 54D, 54EC, 54F, 54G, 54GA, 54GB
and 54H.

Section 2(14): Meaning of Capital Asset

As per Section 2(14), a capital asset means:

1. property of any kind held by an assessee, whether or not connected with his business or
profession;
2. any securities held by a Foreign Institutional Investor which has invested in such securities in
accordance with the SEBI regulations.
However, it does not include:

1. Stock-in-Trade (Raw Materials/WIP/Finished Goods)

2. Moveable Personal Asset (Effect), except Jewelry, Drawing,
Painting, Sculpture, Archaeological Collections, or any other work of art
3. Rural Agricultural Land in India
4. Gold Bonds, 1999 or Deposit Certificate issued under Gold Monetization Scheme, 2015
[Interest on these bonds is also exempt].

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Meaning of Urban Area

• Kilometers are measured aerially.

• Population according to last census.
• Rural Area means area which is not urban area.

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Section 2(47): Meaning of Transfer
Transfer includes:

1. Sale of Capital Asset

2. Exchange of Capital Asset
3. Relinquishment of Capital Asset, or Extinguishment of Right in Capital Asset
4. Conversion of Capital Asset into SIT
5. Compulsory Acquisition of Capital Assets
6. Allowing possession of Immovable property
7. Transfer of Shares of any Co-Operative Society
8. Redemption of Zero Coupon Bonds (ZCB)

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Types of Capital Asset

S. No. Period of Holding for Considering

LTCA
1. House Property 2 Years
2. Jewelry 3 Years
3. Shares of Bajaj Finance Ltd. (Listed in BSE) 1 Year
4. Listed Preference Shares of Adani Ltd. 1 Year
5. Shares of Sorting Hat Technologies Pvt. Ltd. 2 Years
(Unlisted)
6. Unlisted Units of UTI 1 Year
7. Debt Oriented units of Kotak Mutual Fund listed in 3 Year
BSE
8. Shares of Facebook Inc. listed in Stock Exchange in 2 Years
USA

Section 48: Computation of Capital Gains

In case of STCA In case of LTCA

Particulars ₹ Particulars ₹
Full Value of Consideration xxx Full Value of Consideration (FVOC) xxx
(FVOC) xxx Less: Transfer Expenses xxx
Less: Transfer Expenses xxx Net Consideration xxx
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 Net Consideration xxx Less: Indexed Cost of Acquisition (ICOA) xxx
Less: Cost of Acquisition (COA) xxx Less: Indexed Cost of Improvement (ICOI) xxx
Less: Cost of Improvement (COI) xxx LTCG xxx
STCG

Notes:

1. Indexed Cost of Acquisition

𝐼𝑛𝑑𝑒𝑥 𝑜𝑓 𝑡ℎ𝑒 𝑌𝑒𝑎𝑟 𝑜𝑓 𝑇𝑟𝑎𝑛𝑠𝑓𝑒𝑟
𝐼𝑛𝑑𝑒𝑥𝑒𝑑 𝐶𝑂𝐴 = 𝐶𝑂𝐴 ×
𝐼𝑛𝑑𝑒𝑥 𝑜𝑓 𝑡ℎ𝑒 𝑌𝑒𝑎𝑟 𝑜𝑓 𝐴𝑐𝑞𝑢𝑖𝑠𝑖𝑡𝑖𝑜𝑛
2. Indexed Cost of Improvement
𝐼𝑛𝑑𝑒𝑥 𝑜𝑓 𝑡ℎ𝑒 𝑌𝑒𝑎𝑟 𝑜𝑓 𝑇𝑟𝑎𝑛𝑠𝑓𝑒𝑟
𝐼𝑛𝑑𝑒𝑥𝑒𝑑 𝐶𝑂𝐼 = 𝐶𝑂𝐼 ×
𝐼𝑛𝑑𝑒𝑥 𝑜𝑓 𝑡ℎ𝑒 𝑌𝑒𝑎𝑟 𝑜𝑓 𝐼𝑚𝑝𝑟𝑜𝑣𝑒𝑚𝑒𝑛𝑡
3. Any property acquired before 01-04-2001:
Cost of Acquisition
a.Cost of Asset
b.FMV as on 01-04-2001 Whichever is higher Note:
Amendment by Finance Act, 2020
FMV as on 01-04-2001 cannot be more than SDV as on 01-04-2001 if SDV is available as on
0104-2001.
4. Improvement done before 01-04-2001 → IGNORED
5. Cost Inflation Index (CII)
F.Y. CII F.Y. CII F.Y. CII
01-02 100 02-03 105 03-04 109
04-05 113 05-06 117 06-07 122
07-08 129 08-09 137 09-10 148
10-11 167 11-12 184 12-13 200
13-14 220 14-15 240 15-16 254
16-17 264 17-18 272 18-19 280
19-20 289 20-21 301 21-22 317

F.Y. 22- 331

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Section 45(2): Conversion of Capital Asset into Stock in Trade

Normally, Year of Tax = Year of Transfer, but in case of conversion of capital asset into stock in trade,
transfer takes place in the year of conversion, but tax is paid in the year in which stock is sold. In this
case, income is computed as follows:
Capi PGBP
tal
Gai
n

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 Particular ₹
s
FVOC x
(FMV as x
on Date of x
Conversio x
n) x
Less: x
Transfer x
Expenses x
Net x
Considerat x Particulars ₹
ion x
Less: Sale value of Stock xxx
x
COA/ICO x Less: FMV as on date of conversion xxx
A x PGBP
Less: x xxx
COI/ICOI x
ST/LTCG x
x

Section 45(5): Compulsory Acquisition of Capital Asset

Normally, year of tax = year of transfer, but in case of compulsory acquisition of capital asset, transfer
takes place in the year in which the asset is compulsorily acquired but tax is paid in the year in which
compensation is received.
Part A: Initial Compensation Part B: Enhanced Compensation
Computation of Capital Gain Computation of Capital Gain
Particulars ₹ Particulars ₹
FVOC Initial Compensation FVOC Additional Compensation
Less: xxx xxx Less: Legal/Litigation Charges
COA/ICOA ST/LTCG xxx
Less: xxx
COI/ICOI
ST/LTCG

Compensation Received in Instalments

1. Initial Compensation: If it is received in instalments, then total initial compensation is taxable
in the year in which the first instalment is received.
2. Additional Compensation/Enhanced Compensation: If it is received in instalments, then it is
taxable as and when received (jab milega, tab taxable hoga).
Note: If interest is received on late compensation, then such interest is taxable under Income from
Other Sources in the year in which it is received.
Taxable Amount = Interest Received × 50% (Standard Deduction 50%)

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Section 45(1A): Destruction/Damage of Capital Asset
Normally, destruction is not treated as transfer but if destruction/damage of capital asset is due to
following four reasons, then it is treated as transfer if assessee receives insurance claim:

1. Natural Calamity, e.g., Floods, Tsunami

2. Riot
3. Enemy attack
4. Fire

In above cases, asset is transferred in the year of destruction, but income is deemed to be of the year in
which insurance claim is received.
Particulars ₹
FVOC (Insurance Claim Received) (Money/FMV of Asset Received) xxx
Less: Transfer Expenses xxx
Net Consideration xxx
Less: COA/ICOA xxx
Less: COI/ICOI xxx
ST/LTCG xxx

Section 45(5A): Immovable Property Transfer in Joint Development

Agreement (JDA)
• The definition of transfer includes a transaction where the possession of immovable property
is given in execution of part performance of a contract.
• Consider the following situation: A owns a land. B is a builder who wants to develop some
real estate project on A’s land. Now, B would need to purchase A’s land, and given some
consideration to A. As a consideration, B promises to give A, a share in the real estate project
which he would develop, and maybe some extra consideration in cash.
• This kind of an agreement is known as a Joint Development Agreement.
• In such a case, even though the land has been transferred to the builder by the owner
(assessee) at a certain point of time, but consideration for that will be received only when the
real estate project is complete.
• In such cases, capital gains income is deemed to be the income of the year in which the
certificate of completion for the whole or part of the project is issued by the competent
authority.
• Certain conditions are to be satisfied for the provisions of Section 45(5A) to be applicable:
o The assessee, i.e., land/building owner is an Individual or an HUF.
o The assessee has entered into a “specified agreement” with a builder/joint developer
for development of housing project.
“Specified Agreement” means the registered agreement in which a person owing land
or building or both, agrees to allow another person to develop a real estate project on
such land or building or both, in consideration of a share, being land or building or
both in such project, whether with or without payment of part of the consideration in
cash.
o If the above two conditions are satisfied, capital gain shall be taxable in the hands of
owner of land/building as income of the previous year in which the certificate of
completion for the whole or part of the project is issued by the competent authority. o
Full Value of Consideration = SDV of the share of owner on the date of issuing
completion certificate + monetary consideration.

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 o However, if the owner of land/building transfers his share in the project to any other
person on or before the date of issue of said certificate of completion, the capital
gains (as determined under general provisions of the Act) shall be deemed to be the
income of the previous year in which such transfer took place and shall be computed
as per the provisions of the Act without considering the above special provisions of
Section 45(5A)

Normally, capital gain is taxable in the year of transfer, but in the following 4 cases, capital gain is
taxable in some other year:
Section Particulars Year of Transfer Year of Tax
45(2) Conversion of Capital Asset Year of Conversion Year in which Stock is sold
into Stock-in-Trade
45(5) Compulsory Acquisition of Year of Compulsory Year in which compensation is
Capital Asset Acquisition received
45(1A) Destruction of Capital Asset Year of Destruction Year in which Insurance Claim

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 is received
45(5A) Asset transfer in JDA Year is which possession Year in which completion
is transferred certificate is received

Special Case 1: Section 50C – Stamp Duty Value shall be treated as

Full Value of Consideration
What is Stamp Duty?
When you buy a house, you must pay two things to get the ownership of the house registered to your
name – Registration Charges, and Stamp Duty. Stamp Duty is a fee, levied by the State Government.
It is generally 5-7% of the property’s market value. The seller of the house property would earn
Capital
Gains and pay tax on it to the Central Government and the buyer of the house property would pay
Stamp Duty to the State Government. To evade taxes, people started buying and selling the properties
with black money, thus showing very little transaction value.
Example: I buy a house, the market value of which is ₹5,00,00,000. I pay ₹1,00,00,000 in white, and
₹4,00,00,000 in cash. Then I tell the government that I bought the house for only ₹1,00,00,000. This
way, I’ll have to pay Stamp Duty only on ₹1,00,00,000, and the seller of the property would treat
₹1,00,00,000 as his full value of consideration, thereby reducing the capital gain tax liability.

What is Stamp Duty Value?

To prevent this evasion of tax, Government came up with the concept of Stamp Duty Value. Stamp
duty value means any value adopted by any authority of the Central Government or a State
Government for the purpose of payment of stamp duty for the immovable property. Now, when the
seller sells the property at a value less than Stamp Duty Value, Central Government considers stamp
duty value only as the full value of consideration for the purpose of computation of capital gains.
Similarly, when the buyer buys a property at a value less than the Stamp Duty Value, the State
Government levies stamp duty on the stamp duty value only. However, during covid times, there were
genuine problems, so, the government came up with an amendment which provided that if the stamp
duty value is more than 110% of the sale consideration, only then, SDV will be considered to be the
FVOC, otherwise, actual sale consideration would be considered to be the FVOC.

In case of immovable property held as Capital Asset

If SDV > 110% of Sale Consideration, then such SDV shall be treated as FVOC.
Question 21
Case I Case II Case III Case IV
Selling Price 1,00,000 1,00,000 1,00,000 50,00,000
Stamp Duty Value 1,08,000 1,14,000 1,10,000 57,00,000
Full Value of Consideration 1,00,000 1,14,000 1,00,000 57,00,000

Notes:

1. If assessee is not satisfied with SDV, and he thinks that SDV is more than Market Value, then
his case may be transferred to a Valuation Officer by the Assessing Officer.

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 2. If the value determined by Valuation Officer is more than SDV, then value of VO shall be
ignored, and SDV is treated as FVOC.
3. If value determined by VO is less than SDV, then value of VO shall be treated as FVOC.

SDV on the Date of Registration or Agreement?

In a case where the date of agreement is different from the date of registration, stamp duty value on
the date of agreement can be considered provided the whole or part of the consideration is paid by
way of account payee cheque/bank draft or by way of ECS through bank account or through such
other electronic mode as may be prescribed, on or before the date of agreement.
Electronic Mode: Credit Card, Debit Card, Net Banking, RTGS, NEFT, IMPS, UPI, BHIM UPI, QR
Code

Special Case 2: Section 51 – Advance Money Forfeited (Token

Money)
If any advance money is forfeited before 01-04-2014, then it shall be reduced from:

1. Cost of Asset (if asset is acquired on or after 01-04-2001)

2. FMV as on 01-04-2001 (if asset is acquired before 01-04-2001)
3. WDV (in case of depreciable asset)

Note: Advance money forfeited by previous owner shall not be reduced.

Section 56(2)(ix)
If any advance money is forfeited on or after 01-04-2014, it shall be taxable under IFOS in the year of
forfeiture.

Special Case 3: Section 47 – Transactions not treated as Transfer

(Exempt Transfer)
1. Distribution of Capital Asset by HUF to members on partition.
2. Transfer of Capital Asset under Gift/Will/Inheritance
Note: If shares allotted under ESOPs, are gifted to someone then it is treated as transfer and
capital gain is applicable. For computation of capital gain, FMV as on date of gift is treated as
FVOC.
3. Transfer of Capital Assets by Holding Company to 100% Subsidiary Company and
Subsidiary Company should be Indian Company
4. Transfer of Capital Asset by 100% Subsidiary Company to Holding Company and Holding
Company should be Indian Company.
In above cases:

1. Cost of Acquisition = Cost to Previous Owner [Section 49(1)]

2. Cost of Improvement = Incurred by Previous Owner and Present Owner shall be considered
3. Period of Holding = POH of Previous Owner and Present Owner shall be considered
4. 𝐼𝐶𝑂𝐴 = 𝐶𝑂𝐴 × 𝐼𝑛𝑑𝑒𝑥 𝑜𝑓 𝑡ℎ𝑒 𝑌𝑒𝑎𝑟 𝑜𝑓
𝑇𝑟𝑎𝑛𝑠𝑓𝑒𝑟 (Manjula J Shah –
𝐼𝑛𝑑𝑒𝑥 𝑜𝑓 𝑡ℎ𝑒 𝑌𝑒𝑎𝑟 𝑖𝑛 𝑤ℎ𝑖𝑐ℎ 𝑃𝑟𝑒𝑣𝑖𝑜𝑢𝑠 𝑂𝑤𝑛𝑒𝑟 𝐴𝑐𝑞𝑢𝑖𝑟𝑒𝑑 𝑠𝑢𝑐ℎ 𝐴𝑠𝑠𝑒𝑡
Bombay High Court)

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 5. Benefit of FMV as on 01-04-2001 will be available.

Special Case 3: Section 47 – Transactions not treated as Transfer

(Exempt Transfer) Continued
5. Capital Asset transfer by Amalgamating Company to Amalgamated Company in the scheme
of Amalgamation and Amalgamated Company is an Indian Company.
6. Shareholder transfer shares of amalgamating company in the scheme of amalgamation and
received shares of amalgamated company is not treated as transfer.
7. Capital Asset transfer by Demerged Company to Resulting Company in the scheme of
Demerger and Resulting Company should be Indian Company.
8. Conversion of Bonds/Debentures/Deposit Certificates into shares/debentures of that company.
9. Conversion of Preference Shares into Equity Shares of that company.
10. Redemption of Sovereign Gold Bonds issued by RBI in case of Individual Assessee.
11. Transfer of Capital Asset under reverse mortgage scheme by senior citizen.
Note: Any money received by senior citizens under this scheme is fully exempt u/s 10(43).
12. Transfer of Rupee Denominated Bonds or Government Securities by one Non-Resident to
another Non-Resident outside India.

Special Case 4: Capital Gain in case of Shares and Debentures

1. Bonus Shares
a. If Bonus shares were acquired before 01-04-2001, then COA would be either actual
cost or FMV as on 01-04-2001 whichever is higher.
b. If Bonus shares were acquired after 01-04-2001, then COA would be taken as NIL.
c. If Bonus shares, which were acquired before 01-02-2018, are transferred on or after
01-02-2018, and STT is paid on such transfer, the COA of such shares shall be
determined as higher of (i) or (ii):
i. Lower of
1. FMV as on 31-01-2018; and
2. Actual Sale Consideration ii. Actual Cost of Acquisition (i.e.,
NIL in case the bonus shares were allotted on or after 01-04-2001; and FMV
on 01-04-2001 in case the bonus shares were allotted before 01-04-2001)
2. Right Shares
a. If the right shares are acquired by shareholder, then COA = Amount paid to company
and period of holding is considered from the date of allotment.
b. If the shareholder renounces the right in favour of someone else, then this will be
known as relinquishment of capital asset, and capital gains will arise. FVOC will be
the amount received from renouncement, and COA will be NIL. POH will be from
Offer Date to Renouncement Date, and this can never exceed 3 years. Therefore, this
will always be an STCG.
The person who has purchased the rights will be allotted the right shares. Therefore,
for these shares, his COA = Amount paid to the original shareholder + Amount paid
to the company. POH will be from the date of allotment of shares.

Special Case 4: Capital Gain in case of Shares and Debentures

(Contd.)
3. Indexation benefit is not available in case of debentures and bonds.
4. Sovereign Gold Bonds (SGB) issued by RBI:

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 a. Individual Assessee
i. Redemption on Maturity – No Capital Gain due to Section 47
ii. Transfer before Maturity – Capital Gain will apply, and Indexation benefit
will be available
b. Other Assessee – Capital Gain applicable on transfer or maturity and indexation
benefit is available.

Special Case 5: Section 50B – Slump Sale

Slump Sale means sale of undertaking or any segment/division for a lumpsum consideration without
assigning value of individual assets.
Computation of Capital Gains
Particulars ₹
Full Value of Consideration (Note 1) FMV of Capital Assets as per prescribed manner
Less: Transfer Expenses xxx
Net Consideration xxx
Less: COA (Net Worth) (No Index) (Note 2) xxx
ST/LTCG xxx

Note 1: Full Value of Consideration

Full Value of Consideration = FMV of Capital Assets calculated as per the prescribed manner.
Accordingly, CBDT has prescribed that the FMV of Capital Assets would be higher of:

1. FMV 1, being the fair market value of capital assets transferred by way of slump sale
(determined on the date of slump sale); and
2. FMV 2, being the fair market value of the consideration (monetary and non-monetary)
received or accruing as a result of transfer by way of slump sale.

Note 2: Calculation of Net Worth

Particulars ₹
Assets
Depreciable Assets WDV as per IT
Act
Other Assets Book Value
xxx
Less: Liabilities Book Value
Net Worth xxx
Notes:

1. Revaluation of Asset shall be ignored.

2. If undertaking is held for more than 3 years → LTCG If undertaking is held for 3 years or less
→ STCG
3. For Net worth calculation, value of self-generated goodwill is taken as NIL.
4. For net worth calculation, value of asset on which deduction is claimed u/s 35AD is taken as
NIL.
5. No profit under PGBP shall arise if stock is transferred in slump sale.
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Special Case 6: Section 55 – Capital Gain in case of Intangible Assets
In case of:

1. Goodwill of Business or Profession

2. Trademark or Brand Name
3. Right to Manufacture or Produce, Process any Article or thing (Patent & Copyright)
4. Right to carry on business or profession
5. Tenancy right
6. Loom hours
7. Route permit
Cost of Acquisition:

1. If the above assets are self generated → COA = NIL

2. If the above assets are purchased → COA = Purchase Price

Note:

1. In above case, FMV as on 01-04-2001 benefit is not available.

2. Index benefit available in case of purchased intangible assets.
3. Cost of Improvement
a. In case of Goodwill of business, patents, copyright, and right to carry on any business
or profession, cost of improvement is always taken to be NIL.
b. In case of other assets, cost of improvement = capital expenditure incurred on or after
01-04-2001.

Special Case 7: Section 50CA – Capital Gains in case of Unquoted

Shares (Unlisted)
In case of transfer of unlisted shares, if sale value is less than the FMV of such shares, then such FMV
is treated as FVOC.

Special Case 8: Section 50D – Capital Gain if Consideration is Not

Determinable
FVOC = FMV of Asset transferred (FMV of asset jo jaa rahi hai)
Note: In case of exchange of asset, FVOC = FMV of asset received in return.

Special Case 9: 1st Proviso to Section 48 – Capital Gains in case of

Shares and Debentures transferred by Non-Resident
If following conditions are satisfied, then we have to calculate Capital Gain in Foreign Currency and
after that reconvert into Indian Currency.

1. Assessee should be Non-Resident.

2. Asset should be Shares/Debentures of Indian Company.
3. Such asset is acquired in Foreign Currency.
Computation of Capital Gains
Particulars $

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 FVOC (Average Rate on Date of Transfer) xxx
Less: Transfer Expenses (Average Rate on Date of Transfer) xxx
Net Consideration xxx
Less: Cost of Acquisition (Average Rate on Date of Acquisition) [Indexation Benefit Not xxx
Available]
ST/LTCG in Foreign Currency xxx

This Capital Gain is converted into INR by applying TTBR on the date of transfer.
Note: Average Rate = (TTBR + TTSR) ÷ 2
Note: TTBR is Telegraphic Transfer Buying Rate, the rate at which Bank buys Dollar. TTSR is
Telegraphic Transfer Selling Rate, the rate at which Bank sells Dollar.

Exemptions :
Section 54 – Exemption for Residential House Property
1. Eligible Assessee: Individual/HUF
2. Asset Transferred: Residential House Property
3. Capital Gain on Transferred Asset: Long Term Capital Gain
4. Asset to be Acquired: ONE Residential House Property in India
Note: Amendment by Finance Act, 2019: If LTCG is upto ₹2 crore, then Assessee can
acquire TWO Residential House Properties in prescribed time limit. This benefit of two house
properties is available once in the lifetime.
5. Time Limit: New House Property should be purchased within one year before the date of
transfer or purchased within 2 years after the date of transfer or constructed within 3 years
after the date of transfer. (–1, +2, +3)
6. Capital Gain Account Scheme (CGAS): Assessee should acquire House Property or deposit
desired amount in Capital Gain Account upto due date of Return Filing.
Deposited Amount should be utilized for the purpose of House Property. If deposited amount
is mis-utilized or unutilized, then exemption claimed earlier shall be withdrawn.
7. Amount of Exemption:
a.Capital Gain
b.Cost of New Asset/Deposit Amount Whichever is lower
8. Lock in Period: New House Property should not be transferred within 3 years from the date of
its acquisition. If it is transferred within 3 years, then exemption claimed earlier shall be
withdrawn and it shall be reduced from the Cost of Acquisition of New House Property.

Section 54B – Exemption for Urban Agricultural Land

1. Eligible Assessee: Individual/HUF
2. Transferred Asset: Urban Agricultural Land, which was used by assessee or his parents for
agricultural purposes for 2 years before the date of transfer.
3. Capital Gain on Transferred Asset: STCG/LTCG
4. Asset to be acquired: Urban/Rural Agricultural Land
5. Time Limit: New agricultural land should be acquired within 2 years after the date of transfer
(+2).

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 6. Capital Gain Account Scheme (CGAS): Assessee should acquire Land or deposit desired
amount in Capital Gain Account upto due date of Return Filing.
Deposited Amount should be utilized for the purpose of Urban/Rural Agricultural Land. If
deposited amount is mis-utilized or unutilized, then exemption claimed earlier shall be
withdrawn.
7. Amount of Exemption:
a.Capital Gain
b.Cost of New Asset/Deposit Amount Whichever is lower
8. Lock in Period: New Land should not be transferred within 3 years from the date of its
acquisition. If it is transferred within 3 years, then exemption claimed earlier shall be
withdrawn and it shall be reduced from the Cost of Acquisition of new land.

Section 54D – Exemption for Compulsory Acquisition of Industrial

Land and Building
1. Eligible Assessee: All assessees.
2. Transferred Asset: Compulsory acquisition of industrial land and building which was used by
assessee for industrial purposes for 2 years before the date of transfer.
3. Capital Gain on transferred asset: STCG/LTCG
4. Asset to be acquired: Industrial Land and Building
5. Time Limit: New Industrial land and building should be purchased or constructed within 3
years after the date of receipt of compensation.
6. CGAS – Same as Section 54
7. Amount of Exemption – Same as Section 54
8. Lock in Period – Same as Section 54

Section 54EC – Exemption for Immovable Property

1. Eligible Assessee: All assessees.
2. Transferred Asset: Immovable property (Land, Building, Land and Building)
3. Capital Gain on transferred asset: LTCG
4. Asset to be acquired: NHAI/RECL/PFCL/IRFCL Bonds NHAI – National Highway Authority
of India RECL – Rural Electrification Corporation Ltd.
PFCL – Power Finance Corporation Ltd.
IRFCL – Indian Railway Finance Corporation Ltd.
5. Time Limit: Bonds should be acquired within 6 months after the date of transfer.
6. CGAS – Not Applicable
7. Amount of Exemption: Lower of:
a. Capital Gain
b. Cost of Bonds
Assessee can claim maximum exemption of ₹50,00,000 for bonds acquired during 6
months.
8. Lock in Period: Assessee cannot transfer Bonds or cannot convert bonds into money within 5
years from the date of its acquisition. If it is transferred or converted into money within 5
years, then exemption claimed earlier shall be withdrawn and treated as LTCG in the year in
which it is transferred or converted into money.
Note: Converted into money means loan or advances taken on the security of bonds. Note:
Under this section, time limit of 6 months is calculated from the date of transfer but as per

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 CBDT, in case of conversion of capital asset into stock in trade, time limit is calculated from
the date on which the stock is sold.

Exemption Table
Particular Section 54 Section 54B Section 54D Section Section 54F
s 54EC
Assessee Individual/ Individual/ All All Individual/ HUF
HUF HUF
Asset Residential Urban Industrial Immovable Any Long Term
Transferre House Agricultural Land & Property Capital Asset
d Property Land (Used Building
for 2 Years) (Compulsory
Acquisition)
(Used for 2
Years)
CG on Long Term Short Term/ Short Term/ Long Term Long Term Capital
Transferre Capital Gain Long Term Long Term Capital Gain
d Asset Capital Gain Capital Gain Gain
Asset 1 Residenti Urban/ Industrial NHAI/ 1 Residential House
Acquired al House Rural Land and RECL/ Property in India
Property in Agricultural Building PFCL/
India Land IRFCL
(Amendment Bonds
2 House
Property)
Time –1, +2, +3 +2 +3 +6 months –1, +2, +3
Limit
CGAS Yes Yes Yes Not Yes
Applicable
Amount of Lower of: Lower of: Lower of: Lower of: 𝐶𝐺
Exemption (i) Capital (i) Capit (i) Capit (i) Capit 𝐶𝑁𝐴/𝐷𝑒𝑝𝑜𝑠𝑖𝑡𝑒𝑑
Gain al Gain al Gain al Gain ×
(ii) Cost (ii) Cost (ii) Cost (ii) Cost
of of New of New of New 𝑁𝑒𝑡
New Asset/ Asset/ Asset/ Asset/ 𝐶𝑜𝑛𝑠𝑖𝑑𝑒𝑟𝑎𝑡𝑖𝑜𝑛
Deposit Deposit Deposit Deposit
Amount Amount Amount Amount
(Maximum
₹50 lakhs)
Lock in 3 Years 3 Years 3 Years 5 Years 3 Years
Period (Exemption (Exemption (Exemption (Full Cost) (Full Cost)
claimed claimed claimed
should be should be should be
reduced from reduced from reduced from
cost) cost) cost)
Section 10(37) – Exemption for Capital Gain on Urban Agricultural
Land
Long Term Capital Gain/Short Term Capital Gain on compulsory acquisition of Urban Agricultural
Land shall be exempt if following conditions are satisfied:

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 1. Assessee should be Individual/HUF
2. Such agricultural land should have been used by Assessee or his parents for agricultural
purposes for 2 years before the date of transfer.
3. Consideration is determined by RBI or Central Government.

Miscellaneous Provisions
Provision 1 – Transaction Not Regarded as Transfer
Any transfer of a capital asset, being any work of art, archaeological, scientific or art collection, book,
manuscript, drawing, painting, photograph or print, to the Government or a University or the National
Museum, National Art Gallery, National Archives or any such other public museum or institution as
may be notified by the Central Government in the Official Gazette to be of national importance or to
be of renown throughout any State(s) shall not be regarded as transfer.

Provision 2 – Liquidation of Companies

• Liquidation is the process of winding up of a company.
• At the time of liquidation, the assets of the company are distributed to the shareholders.
• Taxability in the hands of Company: The distribution of assets shall not be regarded as
transfer in the hands of company.
• Taxability in the hands of Shareholder:
o Shareholders get assets in return for their share in the company. o Therefore, it’s
actually like “transfer of their share”. o Hence, capital gains arise in the hands of
shareholders.
o At this time, any money received by a shareholder in respect of the accumulated
profits of the company shall be treated as deemed dividend u/s 2(22)(c), and it shall
be taxed under the head Income from Other Sources.
o Capital Gains shall be computed as under:
Particulars ₹
Money received xxx
Add: FMV of Assets distributed xxx
Less: Deemed dividend u/s 2(22)(c) xxx
Full value of consideration xxx
Less: COA/ICOA xxx
STCG/LTCG xxx

Provision 3 – Buy Back of Shares or Specified Securities

• In case of specified securities other than shares:
o Any consideration received by a holder of specified securities (other than shares)
from any company on purchase of its specified securities is chargeable to tax in the
hands of the holder of specified securities.
o The difference between the cost of acquisition and the value of consideration received
by the holder of securities is chargeable to tax as capital gains in his hands.
o The computation of capital gains shall be made in accordance with the provisions of
section 48.
o Such capital gains shall be chargeable in the year in which such securities were
purchased by the company.

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 o For this purpose, “specified securities” shall have the same meaning as given in
Explanation to section 77A of the Companies Act, 1956. (Now section 68 of
Companies
Act, 2013) o As per Section 68 of the Companies Act, 2013, "specified securities"
includes employees' stock option or other securities as may be notified by the Central
Government from time to time.
o As far as shares are concerned, this provision would be attracted in the hands of the
shareholder only if the shares are bought back by a company, other than a domestic
company.
• In case of shares (whether listed or unlisted) o In case of buyback of shares (whether listed or
unlisted) by domestic companies, additional income-tax @ 20% (plus surcharge @12% and
cess @ 4%) is leviable in the hands of the company.
o Consequently, the income arising to the shareholders in respect of such buyback of
shares by the domestic company would be exempt under section 10(34A), since the
domestic company is liable to pay additional income-tax on the buy back of shares.
Taxability in the Buyback of shares by Buyback of shares by Buyback of specified
hands of domestic companies a company, other securities by any
company
than a domestic
company
Company Subject to additional Not subject to tax in Not subject to tax in
income tax @ 23.296% the hands of the the hands of the
company company
Shareholder/ holder of Income arising to Income arising to Income arising to
Specified securities shareholders exempt shareholder taxable as holder of specified
under section 10(34A) capital gains u/s 46A securities taxable as
capital gains u/s 46A
Taxability of Capital Gains
Section 111A: Short Term Capital Gains
1. When the asset transferred is:
a. Equity Share of a Company; or
b. Unit of an Equity Oriented Fund; or
c. Unit of a Business Trust ,
on which Security Transaction Tax (STT) has been paid, capital gains are taxed @
15%.
a. For Resident Individual or HUF, if other income is less than the basic exemption
limit, then STCG shall be reduced by such shortfall, and the balance STCG shall be
taxed @ 15%.
b. Therefore, tax on such STCG = 15% × [Such STCG – (Basic Exemption Limit –
Other income)]
c. Also, deductions under Chapter VI-A are not applicable against STCG.
d. If the transaction has been undertaken on a recognized stock exchange located in any
International Financial Services Centre (IFSC) and the consideration has been paid in
foreign currency, then also the STCG shall be taxed @ 15%, even if STT is not
applicable.
e. An IFSC caters to customers outside the jurisdiction of the domestic economy.

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 f. Such centers deal with flows of finance, financial products, and services across
borders.
g. Gujarat International Finance Tec-City (GIFT City) in an IFSC in India.
2. Other Short Term Capital Gains are usually taxed at normal rates to the assessee.

Section 112: Long Term Capital Gains

1. Individual/HUF
a. In case of Resident Individuals/HUFs, LTCG shall be taxed @ 20%.
b. If other income is less than the basic exemption limit, then LTCG shall be reduced by
such shortfall, and the balance LTCG shall be taxed @ 20%.
c. Therefore, tax on such LTCG = 20% × [Such LTCG – (Basic Exemption Limit –
Other Income)]
2. Domestic Company: LTCG shall be taxed @ 20%.
3. Non-Resident (not being a company) or a Foreign Company
a. Unlisted Securities
i. LTCG shall be taxed @ 10%.
ii. The benefit of 1st Proviso to Section 48, i.e., calculating the Capital Gains
first in Foreign Currency and thereafter converting to Indian Currency won’t
be applicable here.
iii. The benefit of indexation won’t be applicable here.
b. Other Assets: LTCG shall be taxed @ 20%.
4. Any Other Case: LTCG shall be taxed @ 20%.
5. Notes:
a. Tax payable on listed securities (other than a unit) or zero coupon bonds, shall be
lower of:
i. 10% of Gross Capital Gains, i.e., Net Consideration – Cost of Acquisition
without Indexation (Without Basic Exemption)
ii. 20% of Long Term Capital Gains, i.e., Net Consideration – Indexed Cost of
Acquisition (After Basic Exemption)
b. Deductions under Chapter VI-A are not allowed against Long Term Capital Gains.

Section 112A: LTCG on Transfer of Equities on Which STT is Paid

1. Conditions for invoking Section 112A:
a. This section is applicable when the asset transferred is:
i. An Equity Share in a company; or
ii. A unit of an Equity Oriented Fund; or
iii. A Unit of a Business Trust
b. If the transferred asset is an equity share in a company, STT must be paid at the time
of acquisition, as well as at the time of transfer. (However, the Central Government
may specify the nature of acquisition by a notification in the official gazette on which
the condition of STT being paid on acquisition doesn’t apply.)
c. If the transferred asset is a unit of an equity-oriented fund, or a unit of a business
trust, STT must be paid at the time of transfer.
d. However, if the transfer has been undertaken on a recognized stock exchange located
in any International Financial Services Centre (IFSC), and the consideration for such

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 transfer is received or receivable in foreign currency, then the condition of STT
doesn’t apply.
2. Tax Computation:
a. LTCG is exempt upto ₹1,00,000, and beyond that, it shall be taxed @ 10%.
b. In case of Resident Individuals/HUFs, if other income is less than basic exemption
limit, then tax on such LTCG = 10% × [Such LTCG – (Basic Exemption Limit –
Other Income)].
c. The benefit of 1st Proviso to Section 48, i.e., calculating the Capital Gains first in
Foreign Currency and thereafter converting to Indian Currency, and indexation
benefit won’t be applicable here.
d. Rebate u/s 87A shall not be allowed against the tax payable u/s 112A.
e. Any deductions under Chapter VI-A shall not be allowed against such LTCG.
3. Computation of Cost of Acquisition of such assets acquired before 01-02-2018 shall be
computed as under [Section 55(2)(ac)]:
Particulars ₹
(i) FMV as on 31-01-2018 xxx
(ii) FVOC on Transfer of Such Asset xxx
(iii) Lower of (i) and (ii) xxx
(iv) Actual Cost of Acquisition xxx
(v) Cost of Acquisition (Higher of (iii) or (iv)) xxx
4. Meaning of Fair Market Value (FMV) as on 31-01-2018
a. If the capital asset was listed on any recognized stock exchange as on 31-01-2018
i. If there was trading in such asset on such exchange on 31-01-2018, FMV
shall be the highest price of the capital asset quoted on such exchange.
ii. If there wasn’t any trading in such asset on such exchange on 31-01-2018,
FMV shall be the highest price of the capital asset on the date immediately
preceding 31-01-2018 when such asset was trading on such exchange.
b. If the capital asset is a “unit”, which was not listed on any recognized stock exchange
as on 31-01-2018, FMV shall be the net asset value of such unit as on the said date.
c. If the capital asset is an “equity share”
i. If it was not listed as on 31-01-2018, but listed on the date of transfer; or
ii. If it was listed on the date of transfer and became the property of the assessee
in consideration of an unlisted share as on 31-01-2018 by way of transaction
not regarded as transfer u/s 47
𝐹𝑀𝑉
= 𝐶𝑜𝑠𝑡 𝑜𝑓 𝐴𝑐𝑞𝑢𝑖𝑠𝑖𝑡𝑖𝑜𝑛

𝐶𝐼𝐼 𝑜𝑓 2017 − 18, 𝑖. 𝑒. , 272

x

𝐶𝐼𝐼 𝑜𝑓 𝑡ℎ𝑒
𝑦𝑒𝑎𝑟 𝑜𝑓 𝑎𝑐𝑞𝑢𝑖𝑠𝑖𝑡𝑖𝑜𝑛, 𝑜𝑟 2001 − 02 𝑤ℎ𝑖𝑐ℎ𝑒𝑣𝑒𝑟 𝑖𝑠 𝑙𝑎𝑡𝑒𝑟

Other Issues in This Regime

1. Indexation benefit won’t be available.
2. If the transfer is made after 1 st April, 2018, LTCG exceeding ₹1,00,000 shall be taxed @
10%.
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 However, no tax shall be levied on LTCG accrued upto 31st January, 2018.
3. Period of Holding shall be counted from the date of acquisition.
4. No TDS is required to be deducted from the payment of LTCG to a resident tax payer.
Cost of Acquisition of Bonus Shares Acquired Before 1st February,
2018
The cost of acquisition of bonus shares acquired before 31 st January, 2018 shall be determined as per
Section 55(2)(ac). Therefore, fair market value of the bonus shares as on 31 st January, 2018 will be
taken as the cost of acquisition (except in some situations explained from Questions 50 to 53), and
hence, the gains accrued upto 31st January, 2018 will continue to be exempt.

Cost of Acquisition of Right Shares Acquired Before 1st February,

2018
The cost of right shares acquired before 31 st January, 2018 will be determined as per section 55(2)(ac).
Therefore, the fair market value of right share as on 31 st January, 2018 will be taken as cost of
acquisition (except in some situations explained from Questions 50 to 53), and hence, the gains
accrued upto 31st January, 2018 will continue to be exempt.

Treatment of Long-Term Capital Loss on Transfer On or After 1st

April, 2018
Long-term capital loss arising from transfer made on or after 1 st April, 2018 will be allowed to be
setoff and carried forward in accordance with existing provisions of the Act. Therefore, it can be set-
off against any other long term capital gains and unabsorbed loss can be carried forward to subsequent
eight years for set-off against long term capital gains.

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