CAPITAL GAIN

BY
GEETHA.B
 MEANING
Any gain arising out of transfer of
a capital asset is termed as Capital
Gain.
 CAPITAL ASSET
Capital Asset refers to property of every kind
(movable or immovable, tangible or intangible,
fixed or circulating) but other than the following:-
• Stock-in-trade of any business/profession
• All personal effects (other than jewellery)
• Rural Agricultural land in India
• Certain Gold bonds (6.5%-1977 & 7%-1980)
• Specified Bearer bonds of 1991
• Gold deposit bonds under Gold deposit scheme of 1999
and 2000
 TRANSFER
• Sale
• Exchange
• Relinquishment of an asset
• Extinguishment of the right in an asset
• Compulsory acquisition under any law
• Conversion of capital assets into stock-in-trade
TYPES OF CAPITAL ASSETS

• Long Term Capital Assets (LTCA)

• Short Term Capital Assets (STCA)
 Long Term Capital Asset
Any asset held by an assessee for a period
of exceeding 36 months is termed as LTCA
(exceeding 12 months in case of shares, Listed
debentures and Govt securities, units of UTI &
mutual funds and zero coupon bonds)
 Short Term Capital Asset
•Not exceeding 36 months
Capital Gain arising from transfer of those property:
• The COA of previous owner shall be taken as COA of
the assessee in case of gift or inheritance
• While indexing such COA, the index of the year of gift
or inheritance shall be taken
• Any COI before 1.4.81 shall be ignored, COA before
1.4.81 or FMV as on 1.4.81, whichever is greater should
be indexed.
• Any COI after 1.4.81 shall be indexed according the year
of improvement only (if COA is indexed COI must be
indexed even it is less than 3 years)
• Any LTCG arising from sale of HP is eligible for
exemption u/s 54.
 FORMAT OF LTCG
SALE CONSIDERATION XXX

LESS: EXPESNSES ON TRANSFER XXX

NET SALE CONSIDERATION XXX

LESS: INDEXED COA XXX

XXX

LESS: INDEXED COI XXX

LTCG XXX
 FORMAT OF STCG
SALE CONSIDERATION XXX

LESS: EXPESNSES ON TRANSFER XXX

NET SALE CONSIDERATION XXX

LESS: COA XXX

XXX

LESS: COI XXX

STCG XXX
 EXEMPTIONS U/S 54
1. Exemptions is allowable from LTCG arising from sale
of a residential HP.
2. Exemptions is allowed in respect of cost of another HP
purchased within the specified period.
3. The specified period means either within one year
before the date of sale or within 2years from the date of
sale and in case of construction of HP, within 3years
from the date of sale.
4. Even amount deposited in “Capital Gain Deposit
Account” in any scheduled bank, made within the due
date for filing of returns is considered for exemption.
5. The new HP on which exemptions is claimed should be
held by the assessee for at least 3 years
 PROBLEMS
1. Mr. X purchases a house property for Rs.26,000 on
10.5.1962. He gets the 1st floor constructed during 1967-68 by
spending Rs.40,000. He died on 12.9.1978 and property was
transferred to Mrs. X. She spent Rs.30,000 and Rs.26,700
during 1979-80 and 1985-86 respectively for its reconstruction.
Mrs. X sold HP for Rs.21,50,000 on 15.3.10 (brokerage paid
Rs.11,500) and purchased a new house for Rs.10,00,000 on
1.5.10. The FMV of the house on 1.4.81 was Rs.1,60,000.
Compute taxable Capital Gain of Mrs. X for AY 2010-11.
2. Mr. X purchased a HP on 1.4.1976 for Rs.95,000. He entered
into an agreement for sale of the property to Mr. A on 1.4.81 for
Rs.1,15,000 and received Rs.10,000 as advance. A could not keep
up his promise and the advance of Rs.10,000 was forfeited by X.
Later X gifted the property to his friend Y on 15.5.85. The
following expenses were incurred by X and Y for the renewal of
the property:-
Additional 2 rooms by X during 78-79 costing Rs.25,000
Addition of 1st floor during 83-84 by X for Rs.40,000
Addition of 2nd floor during 90-91 by Y for Rs.1,15,000
Y entered into an agreement to sell the property for
Rs.8,50,000 to B on 1.4.93 and received an advance of
Rs.50,000. B could not pay the balance within the stipulated time
and Y forfeited the advance of Rs.50,000. Y ultimately finds a
buyer C to whom it is transferred for Rs.8,75,000 on 1.12.09.
Compute the Capital Gain chargeable to tax in the hand s of Y
during AY 2010-11.
3. Mr. X sold his HP during October 2009 for
Rs.12,00,000 subject to brokerage of 2%. He had
purchased this proper5y for Rs.80,000 during 89-90 and
had paid commission of 3% on it. Compute his taxable
CG assuming that he had purchased a new HP during
August 2009 costing Rs.3,00,000.
4. Calculate taxable CG of Mr. Y for AY 2010-11 from
the following details:
Site purchased in 1975 for Rs.33,000
Market value of the site on 1.4.81 Rs.75,000
Construction of Ground floor during 81-82 costing
Rs.1,50,000
First floor constructed during 85-86 for Rs.2,66,000
Sale Consideration received during 09-10
Rs.34,00,000
Investment in new property during April 2010
Rs.10,00,000.
 EXEMPTIONS U/S 54B
1. It is allowable from STCG or LTCG arising from sale
of urban agricultural land.
2. The exemption is allowed in respect of cost of another
such land purchased within 2 years from the date of sale.
3. Exemption is allowed only if the land sold was used for
agricultural purposes during the last 2 years by assessee
himself (not by tenant).
4. Even deposit made before the due date into “CG
Deposit Account” is considered for exemption.
5. The new land purchased should be held by assessee for
atleast 3 years.
PROBLEM

1. Mr. Z sold his agricultural land in Delhi city

for Rs.33,00,000 on 15.5.09 which was
purchased by him in June 84 for Rs.5,00,000. On
1.4.10 he purchased agricultural land for
Rs.4,00,000 and deposited Rs.2,00,000 in CG
Account in SBI u/s 54B.
Compute taxable CG for AY 2010-11.
 EXEMPTIONS U/S 54 EC

1. It is allowed from LTCG arising from sale of any

capital asset.
2. Exemption is allowed in respect of the amount
invested in bonds of NHA or REC.
3. The bonds should be purchased within 6 months
from the date of sale.
4. Such bonds should be held by the assessee for
atleast 3 years.
 PROBLEM
1. Mr. M purchased a plot of land during
1986-87 for Rs.2,00,000. It was sold on
15.1.10 for Rs.15,80,000 and he paid
brokerage of Rs.2,00,000. He invested
Rs.2,00,000 in bonds of NHAI on 31.3.10
and Rs.3,10,000 in bonds of RECL on
1.8.10.
Compute taxable CG of Mr. M for the AY
2010-11.
 EXEMPTIONS U/S 54 F
1. Exemption is allowed from LTCG arising from sale of capital asset other
than HP.
2. Exemption is allowed in respect of cost of only one HP purchased or
constructed within specified period.
3. Specified period means either within the one year before the date of sale
or within 2 years from the date of sale and for construction of HP within
3years form the date of sale.
4. The amount of exemption is:-
cost of new HP * LTCG/NSC
(Maximum is restricted to LTCG)
5. The assessee should not own more than one HP on the date of sale and he
shall not buy another HP within 2 years from the date of sale.
6. The new HP should held by the assessee for atleast 3 years.
7. Even deposit made before the due date in “CG Deposit Account” is
considered for exemption.
 PROBLEM
1. Mr. S furnishes following details relating to PY
2009-2010.
PARTICULARS JEWELLERY
YEAR OF PURCHASE 83-84
YEAR OF SALE 2009-10
COST RS.1,15,000
SALES PRICE RS.9,06,000
COMMISSION PAID ON RS.6,000
SALES

Mr. S purchased a new HP for Rs.4,50,000 on

15.3.2010 out of the sale proceeds of Jewellery. He
has no other HP. Compute his taxable CG for AY
2010-11.