Exception to section 45(1)

As per the charging section of capital gains i.e. section 45(1) of the Income Tax Act, 1961, the capital gains shall be taxed in the previous year in which transfer is made. Accordingly the definition of Capital gains as provided in the section is:

“Any profits and gains arising from

Transfer

Of a capital asset

Effected in the previous year

Shall be chargeable to income tax under the head capital gains

In the previous year in which transfer took place.”

However, there are some exceptions to the clause relating to PREVIOUS YEAR, i.e. in some cases the gains shall be taxed in later years than the previous year in which transfer was made.

These exception are provided in the sections 45(1A), 45(2) and 45(5), the same are explained below.

·         Section 45(1A): If the assessee receives an insurance claim in respect of a capital asset destroyed on account of unforeseeable events, any money or FMV of other assets received from insurance company shall be considered to be sale consideration for the asset, and will be taxed in the year when such consideration is received.

·         Section 45(2): If an assessee converts a capital asset into stock-in-trade, such conversion shall be treated as a transfer, and the gains will be taxed in the year in which such stock-in-trade will be sold.

·         Section 45(5): If any capital asset is compulsorily acquired under any law, and the consideration of which is determined by CG or RBI, such acquisition shall be treated as transfer, and the gains will be taxed in the year in which compensation if first received by the assessee.

For any queries contact the undersigned.

Roopak Singh

CA-Final Student

Roopak@icai.org

9953144882