By Dr. J. S.

Bidawat

Capital Gain
Any profit or gain arising from the transfer of a capital assets
affected in the previous year is chargeable to income tax under the head
“Capital Gain”.

The following assets have been held to be capital assets:-

i. Goodwill of a business.
ii. Share of a partner in a firm.
iii. Right to subscribe share in a company.
iv. Right to obtain conveyance of immovable property.
v. License to manufacture or Import.
vi. Leasehold right in a mine.
vii. Tenancy rights.
viii. Route permit.
ix. Foreign currency.
x. Old currency.
xi. Plot of land, Jewellery, House, Plant & Machinery etc.
xii. Shares and Securities.
The following assets are not considerable as capital assets:-
1. Stock in trade.
2. Personal depreciable assets like furniture, clothes, Scooter, car etc.
3. Rural agricultural land where the population is less than 10,000 according to
last census in any area of municipality or Cantonment board.
i. Not being more than 2 Km. from the local limits of any municipality
and which has a population of more than 10,000 but not exceed to
1,00,000 or
ii. Not being more than 6 Km. from the local limits of any municipality
and which has population of more than 1,00,000 but not exceed to
10,00,000 or
iii. Not being more than 8 Km. from the local limits of any municipality
and which has population of more than 10,00,000.

4. Gold bonds: 6.5% Gold bonds, 7% Gold bonds, National Defense Gold bonds.
5. Special Bearer bonds.
Short term and long term Capital assets:-
If the holding period of an asset is less than the months given below from the
date of transfer is known as short term capital assets.
a.) Shares in a company. 12 months
b.) Any other security listed in a recognized Stock exchange 12 months
c.) Units of the UTI or any Mutual fund 12 months
d.) Other assets 36 months

If the holding period of asset is more than the above mention period then it is
treated as long term asset.

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Computation of Short Term Capital Gain

a.) In respect of Non-depreciable assets:
Rs. Rs.
Sales value xxxxxx
Less: Transfer expenses xxxxx
Cost of acquisition xxxxx
Cost of improvement xxxxx xxxxxx
Short term Capital Gain xxxxxx

b.) In respect of depreciable Assets:

Rs. Rs.
Sales value xxxxxx
Less: Transfer expenses xxxxx
WDV of Block xxxxx
New Purchases xxxxx xxxxxx
Short term Capital Gain xxxxxx
Note: - Short term capital loss cannot arise unless all the assets of a block are
transferred.
Computation of Long-term Capital Gain:-
Rs. Rs.
Sales Value xxxxxx
Less: Transfer expenses xxxxx
Indexed cost of acquisition xxxxx
Indexed cost of Improvement xxxxx xxxxxx
Long term Capital Gain xxxxxx

Note: Index value for 2001-02 = 100 and for 2021-22 = 317

Value of Consideration
1. On sale of the assets: - Consideration means the selling price of the assets.
2. On exchange of assets: - Consideration means the market value of the
assets received in exchange on the date of such exchange.
3. On Compulsory acquisition: - Consideration of assets on compulsory
acquisition is consideration approved by Govt. or RBI as compensation.
4. On Conversion into Stock in trade: - Consideration means the fair market
value of the assets on the date of such conversion. The Index value of the
year in which the conversion took place is use for index cost but Capital
Gain is taxable in the year of actual sale of stock.
5. On assets transfer to a firm: - Consideration means the amount recorded
in the books of account of the firm.
6. On dissolution of a firm: - Consideration means the fair market value of the
assets on the date of such transfer.
7. On Liquidation of a company: - The money so received.

Rs.
Amount received xxxxxx

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Less: - Share in Profit xxxxx

Value of Consideration xxxxxx
The following are not treated as transfer:
1. Distribution of assets in kind by a company to its shareholders on its
liquidation.
2. Any distribution of capital assets in kind by a Hindu undivided family to its
members at the time of total or partial partition.
3. Any distribution of capital asset under a gift or a will or an irrevocable trust.
4. Transfer of capital asset between holding company and its 100% subsidiary
company, if the transferee company is an Indian company.
5. Transfer of capital asset in the scheme of amalgamation, if the transferee
company is an Indian company.
6. Transfer of shares to discharge the claim of purchase consideration.
7. Transfer of any work of art, archaeological, scientific or art collection, books,
manuscript, drawing, painting, etc. to Govt. or public museum or institution.
8. Conversion of preference shares of a company into equity shares.
9. Any transfer of capital asset in a reverse mortgage.

Cost of acquisition of a capital assets:

1. Assets purchased or constructed: - Actual expenditure is the cost of
acquisition for assessee.
2. If asset is acquired by an assessee before 1-4-2001:- Actual cost of
acquisition or market value on 1-4-2001 whichever is higher but market
value should not more than stamp duty value on 1-4-2001.
3. Assets acquired without consideration: - Assets received by the
following ways: -
a. Share in Hindu Undivided Family.
b. By Gift or Will.
c. By Succession or Devolution.
Cost of acquisition of assets to the previous owner shall be the cost of
acquisition.
4. Self generated assets: - Goodwill, rights, permits etc.
i. If purchased from a previous owner then amount paid for the same will
be treated as cost of acquisition.
ii If an assessee paid nothing for the acquisition of these assets than the
cost of acquisition will be nil.
Note: - 1. The Self-generated goodwill of profession is not included in capital
assets.
2. Purchased goodwill of a profession will be treated as capital asset.
3. If Intangible assets are acquired before 1-4-2001 then actual
amount paid will be treated cost of acquisition and never compare
with market value of 1-4-2001.

5. Forfeiture of Advance received in respect of an asset: - an assessee

received any advance in respect of his asset before 1st April 2015 and
forfeited by him then deduct such amount from the cost of asset for the
computation of index cost.

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Note: Forfeiture of Advance received on or after 1st April 2015 is

taxable under the head other sources.

5. Cost of bonus shares: -

Acquired after 1st Apr. 2001: Nil.
Acquired before 1st Apr. 2001: The market value of shares.

6. Cost of right shares or securities: - An assessee is entitled to get new

shares on the basis of his current holding of shares and securities then the
cost of acquisition is amount actually paid by him for acquiring such
shares or securities.
If the assessee acquired the right from any other person, the cost of
acquisition of right shares or securities means the aggregate of the amount
paid to the person renaming the right and the amount paid to company for
shares.
7. Shares in ESOP:-
 Acquired after 1st Apr. 2001: Actual Cost.
 Acquired before 1st Apr. 2001: The market value of shares on 1st
Apr. 2001
8. Cost when business stock is converted into capital asset:- The fair
market value of business stock on the date of conversion will be treated the
cost of capital asset.
9. Cost of acquisition of equity shares in a company or unit of an equity
oriented fund listed on a recognized stock exchange: For the purpose of
long-term capital gain acquired before 1-2-18. The cost of acquisition
shall be higher of:
i) Actual cost of acquision
ii) The lower of: a) The fair market value
b) Full value consideration of transfer.
Note: If above shares are not listed in a recognized stock exchange then the cost of
acquisition shall be the net asset value of such share or unit as on 31-1-18.

Exempted Capital Gain

1. Capital Gain on Compulsory Acquisition of Urban Agricultural Land

(Sec. 10(37)):- If Urban Agricultural Land is Compulsorily acquired by the
Government on approved authority and compensation of such received by
assessee on or after 1/4/2004, then such gain is exempt.
2. Tax incentive for the development of capital of Andhra Pradesh. {Sec.
10(37 A)}

3. Long term capital gain on sale of property used for residence:-A new
residential house purchased one year before transfer or after two years of
transfer or a new residential house is constructed within a period of three years
after the date of transfer.
Exemption:
Actual amount incurred or long term capital gain whichever is less.

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Note:-- With effect from Assessment year 2020-21 when amount of long-
term capital gain from residential house property is not more than by Rs.
2 crore then an option is given to the assessee to purchase or construct
two residential houses in India. This option is available to the assessee
once in a live time.
(Section 54)

4. Capital Gain on transfer of used for agricultural purposes: - Capital gain

arises from the transfer of a land being used by assessee or his parents for
agricultural purposes in the preceding two years. An assessee purchased any
other land in urban or rural area for agricultural purposes within a period of
two years after the date of transfer.
Exemption:
Actual amount incurred or long term capital gain which ever is less.
(Section 54B)

5. Capital Gain on compulsory acquisition of land and buildings: - If

compulsory acquisition of capital asset under any law resulting short term or
long term capital gain and an assessee re-establishes another industrial
undertaking and acquires or constructs Immovable Assets within a period of 3
years from the date of receipt of compensation.
Exemption:
Actual amount incurred or long term capital gain which ever is less.
(Section 54D)

6. Exemption of long term capital gain on investment in certain bonds: - An

assessee must invest within 6 months of transfer the whole or any part of
capital gains in the long term specified assets viz. any bonds redeemable after
3 years {5 years if bonds are issued on or after 1-4-2018} issued by
National Highways authority of India, Rural Electrification Corporation
of India and Power Finance Corporation.
Exemption:
Actual amount invested upto Rs. 50 lakhs or long term capital gain which
ever is less.
(Section 54EC)

7. Exemption of long term capital gain on Investment in Units notified by

Central Government: - An assessee must invest within 6 months of transfer,
the whole or any part of capital gains in the Units notified by Central
Government redeemable after 3 years. If new asset is sold within 3 years,
amount earlier exempted under this section will be reduced from its COA to
calculate capital gains thereon. If a loan is taken on the security of the new
specified asset within 3 years, the same will be treated as capital gains.
Investment in specified units should not exceed Rs. 50 lakhs during the current
and succeeding fiscal year.
Exemption Amount: Cost of new asset x Capital Gain / Net consideration
(Section 54 EE)

8. long term capital gain on transfer of certain capital assets in case of

investment in new residential house: - The long term capital gain arises from

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the transfer of any capital asset other than the residential house and an
assessee purchased a new residential house within one year before or two year
after the date of transfer or has constructed a new residential house within a
period of three years after the date of transfer.
Exemption:
Long term capital gain x Cost of new house/Sale-Transfer expenses
(Section 54F)

9. Exemption of Capital Gain on shifting of Industrial undertaking from

urban area: - This exemption is available when the industrial undertaking is
shifted from urban area to non-urban area by purchasing new machinery or
plant, acquiring building or land, or constructing building for the purposes of
business of the industrial undertaking within a period of one year before or
three years after the date on which the transfer took place.
Exemption:
Actual amount incurred or long term capital gain which ever is less.
(Section 54G)

10. Exemption of Capital Gain on shifting of Industrial undertaking to SEZ: -

This exemption is available when the industrial undertaking is shifted from
urban area to SEZ by purchasing new assets other than old machine and
furniture for industrial undertaking within a period of one year before or three
years after the date on which the transfer took place.
Exemption:
Actual amount incurred or long term capital gain which ever is less.
(Section 54GA)

11. Exemption of Long-term Capital gain from residential land and

building:-If an individual or HUF earns long-term capital gain from the
transfer of residential land and building and invested net consideration in
equity shares on a new startup eligible company before the due date of
submission of return of income.
Company must be a Small or Medium Enterprises under the Micro, Small and
Medium Enterprises Act 2006.
Investment in plant & Machinery is more than 25 lakhs but not more than Rs.
10 crore.
The assessee must hold more than 25% of equity share capital or 25% voting
right after such investment.
Plant & Machinery should not eligible for 100% depreciation.
Plant & Machinery should not transfer within 5 years.
Exemption:
Long term capital gain x Cost of new Investment/Sale-Transfer expenses
(Section 54GB)

Note: -
If an assessee deposited any amount in the Capital Gain Account Scheme
1988 for the purpose to get the above exemptions then assessee will entitle
to get the exemptions.

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If an assessee transfers the new purchased assets within 3 years of its

acquisition then its cost of acquisition become taxable as Short- term
capital gain in the year of transfer.