CAPITAL GAIN TAX IN INDIA
CAPITAL ASSETS
A capital asset is defined to include property of any kind held by an assessee, whether connected with their business or profession or not connected with their business or profession. It includes all kinds of property, movable or immovable, tangible or intangible, fixed or circulating. Thus, land and building, plant and machinery, motorcar, furniture, jewellery, route permits, goodwill, tenancy rights, patents, trademarks, shares, debentures, securities, units, mutual funds, zero-coupon bonds etc. are capital assets.
EXCLUSIONS:
Capital assets include any property held by the assessee except the following:
- Stock in trade.
- Consumable stores or raw materials held for the purpose of business or profession.
- Personal effects that are movable except jewellery, archaeological collections, drawings, paintings, sculptures or any art work held for personal use.
- Agricultural land. The land must not be located within 8kms from a municipality, Municipal Corporation, notified area committee, town committee or a cantonment board with a minimum population of 10,000.
- 6.5 percent Gold Bonds, National Defence Gold Bonds and Special Bearer Bonds.
- Gold Deposit bonds under Gold Deposit Scheme.
TYPES OF CAPITAL ASSETS
There are two types of capital assets 1. Short -Term Capital Assets 2. Long- Term Capital Assets
1. Short-Term Capital Asset:
If any capital assets are held by the taxpayer for a period not more than 36 months preceding the date of its transfer will be treated as a short-term capital asset. However, in the following cases, an asset, held for not more than 12 months, is treated as short-term capital asset:
- Equity or preference shares in a company listed in recognised stock exchange in India.
- Securities like debentures, bonds, Government securities, derivatives etc. listed in a recognised stock exchange in India.
- Units of UTI whether quoted or not.
- Units of an equity oriented fund whether quoted or not.
- Zero coupon bonds whether quoted or not.
2. Long- Term Capital Assets:-
If the taxpayer holds the shares and securities for a period exceeding 36 months before the transfer will be treated as a long-term capital asset.
Equity shares which are listed in a recognized stock exchange, units of equity oriented mutual funds, listed debentures and Government securities, units of UTI and Zero Coupon Bonds’ period of holding will be considered for 12 months instead of 36 months.
MEANING OF TRANSFER OF CAPITAL ASSETS :-
Transfer is giving up your right on an asset it includes sale, exchange, compulsory acquisition under any law and relinquishment.
MEANING OF CAPITAL GAIN
When a person sells the capital asset for a price higher than its purchase price is called Capital Gain.
NOW WHAT IS CAPITAL GAIN TAX
The transfer of capital asset must be made in the previous year. This is taxable under the head ‘Capital Gains’ and there must exist a capital asset, transfer of the capital asset and profit or gains arising from the transfer.
How to Calculate Short-Term Capital Gains? 1. Start with the full value of consideration 2. Deduct the following: o Expenditure incurred wholly and exclusively in connection with such transfer o Cost of acquisition o Cost of improvement 3. This amount is a short-term capital gain
Short term capital gain = Full value consideration Less expenses incurred exclusively for such transfer Less cost of acquisition Less cost of improvement. How to Calculate Long-Term Capital Gains? 1. Start with the full value of consideration 2. Deduct the following: o Expenditure incurred wholly and exclusively in connection with such transfer o Indexed cost of acquisition o Indexed cost of improvement 3. From this resulting number, deduct exemptions provided under sections 54, 54EC, 54F, and 54B 4. This amount is a long-term capital gain
Long-term capital gain = Full value consideration Less expenses incurred exclusively for such transfer Less indexed cost of acquisition Less indexed cost of improvement
Expenses that Can be Deducted from Full Value for Consideration Expenses from sale proceeds from a capital asset that wholly and directly relate to the sale or transfer of the capital asset are allowed to be deducted. These are the expenses which are necessary for the transfer to take place.
In the case of sale of house property, these expenses are deductible from the total sale price: · Brokerage or commission paid for securing a purchaser · Cost of stamp papers · Travelling expenses in connection with transfer – these may be incurred after the transfer has been affected. · Where property has been inherited, expenditure incurred with respect to procedures associated with the will and inheritance, obtaining succession certificate, costs of the executor, may also be allowed in some cases.
In the case of sale of shares, you may be allowed to deduct these expenses: · Broker’s commission related to the shares sold · STT or securities transaction tax is not allowed as a deductible expense
Where jewellery is sold, and a broker’s services were involved in securing a buyer, the cost of these services can be deducted. Note that expenses deducted from the sale price of assets for calculating capital gains are not allowed as a deduction under any other head of the income tax return, and these can be claimed only once.
Indexed Cost of Acquisition/Improvement
Indexed cost of acquisition is calculated as: Cost of acquisition / Cost inflation index (CII) for the year in which the asset was first held by the seller, or 1981-82, whichever is later X cost inflation index for the year in which the asset is transferred.
Indexed cost of improvement is calculated as:
Indexed cost of acquisition = Cost of acquisition * Cost inflation Index (CII) of the year in which the asset is transferred Cost inflation index (CII) of the year in which asset was first held by the seller or 1981-82 whichever is later
Indexed cost of improvement = Cost of improvement *Cost inflation index of the year in which the asset is transferred Cost inflation index of the year in which improvement took place
(Note: From FY 2017-18, the base year of 2001-02 will be considered instead of 1981-82) CA POOJA MITTAL 8826006012 9990746500 EMAIL:- poojamittal2006@yahoo.co.in
|