Taxation Exam > Taxation Notes > Fast Track Quick Revision Income Tax > Capital Gain (Section 45 to 55A) - Part - 1
Capital Gain (Section 45 to 55A) - Part - 1 | Fast Track Quick Revision Income Tax - Taxation PDF Download
| Section 45(1). Charge | |||
| Profit arising from transfer of capital asset is chargeable under the head capital gain in the year of transfer. |
45(1) = 2(14)
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Exceptions to YOC = YOT : In following cases capital gain is charged to taxed on receipt basis |
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| 1. | S 45(1A). Insurance compensation. YOC = Year in which insurance compensation is received. |
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| 2. | Conversion of asset into SIT. YOC = Year in which SIT is sold. |
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| 3. | S 45(5). Compulsory acquisition of the property. YOC = Year in which whole or part of initial compensation is received. |
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| Section 2(14). Capital Asset | |||||
| Capital Asset means property (bundle of rights) of any kind. |
whether (it means every kind of right is a capital asset) | ||||
| movable | im movable | Personal Use | Business use |
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| Ex-cludes | 1. | SIT, RM, Consumable stores held for business. | |||
| 2. | Agricultural Land situated in rural area. |
Urban area : Municipal limits and upto 2 /6 / 8 k.m. (aerial distance) |
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| 3. | Personal Assets held for daily use. |
Not personal assets : JAD P SA therefore it is capital asset. |
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| 4. | Gold Bonds 1999, Certificates issued under Gold Monetisation Scheme 2015 |
5. | Special Bearer Bond 1991 |
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| Nature of Asset | STCA | LTCA | |||
| a | Depreciable assets | always STCA |
always STCA | ||
| b | F i n a n c i a l assets are |
a. Listed shares. | b. Listed bonds |
1 year or less |
more than 1 year |
| c . G o v t . Securities | d. Units of equity oriented fund |
e. ZCB | |||
| c | Equity shares or preference shares of unlisted companies |
2 year or less |
more than 2 year |
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| d | Other capital assets like gold, drawings, paintings, Sovereign Gold Bond |
3 years or less |
more than 3 years |
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| Note : In computing period of holding the day the asset is transferred is excluded | |||||
| Section 2(47). Transfer | |||
| 1. | Sale, Exchange and Relinquishment of the asset. |
4. | The extinguishment of any rights therein. |
| 2. | The compulsory acquisition of the asset by the Govt |
5. | Conversion of asset into stock-in-trade. |
| 3. | Possession of any immovable property in part performance of a contract. |
6. | Any transaction which has the effect of transferring, or enabling the enjoyment of, any immovable property. |
| 7. | Maturity or redemption of zero coupon bond. | ||
| Section 47. What is not transfer | Gift, will or inheritance of property |
| Section 48. Computation of STCG | Section 48. Computation of LTCG | ||
| Full value of consideration | xxx | Full value of consideration | xxx |
| (–) Cost of Acquisition (COA) | xxx | (–) Indexed Cost of Acquisition (COA) |
xxx |
| (–) Cost of Improvement (COI) | xxx | (–) Indexed Cost of Improvement (COI) |
xxx |
| (–) Expenses on transfer | xxx | (–) Expenses on transfer | xxx |
| STCG | xxx | LTCG | xxx |
| Formula for indexation | |
| Indexed COA = | Indexed COI = |
| Index value of transfer year ------------------------------------- x COA Index value of acquisition year in which the assessee first acquired the asset |
Index value of transfer year ------------------------------ x COI Index value of improvement year |
| Note : No Indexation bonds or debentures even if LTCA. [Proviso 3 to S 48] However indexation shall be done for Sovereign Gold Bond | |
| S 48. Full Value of Consideration (FVC) | ||
| General cases |
Consideration in cash |
Amount received or receivable |
| Consideration in kind |
FMV of asset. | |
| Special Cases |
50 C | Land & Building : Higher of Stamp value or consideration |
| 45(1A) | Insurance claim. | |
| 45(2) | FMV on date of conversion of asset into SIT | |
| 45(3) | Admission of partner. Amount recorded in books of accounts. |
|
| 45(4) | Dissolution of firm. FMV as on date of distribution. | |
| 45(5) | Initial compensation | |
| S 55(2). Cost of Acquisition (COA) | |||||||||||||||||||||||||
| General | Purchase price + Brokerage paid on acquisition of asset | ||||||||||||||||||||||||
| COA if asset is acquired before 1-4-1981 |
(Purchase price + Brokerage) or FMV as on 1-4-1981 whichever is higher. |
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| COA of shares. STT is ignored both at the time of purchase & at the time of sale. |
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| COA of self generated assets. Note : If the asset is purchased then purchase price is the COA. Note : FMV as on 1-4-1981 is ignored. |
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Section 49(1). Deemed cost of |
In case the asset is acquired through a mode given in section 47 (Gift to relative or will) then cost of acquisition is cost to the previous owner. Previous owner is the person who acquires the asset by paying the price. Period of holding shall be computed from the date the previous owner acquires the asset. | ||||||||||||||||||||||||
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FAQs on Capital Gain (Section 45 to 55A) - Part - 1 - Fast Track Quick Revision Income Tax - Taxation
| 1. What is capital gain? |  |
Ans. Capital gain is the profit obtained from the sale of a capital asset, such as stocks, bonds, real estate, or precious metals. It is the difference between the selling price of the asset and its original purchase price.
| 2. How is capital gain taxed? | |
Ans. Capital gain is subject to taxation based on the holding period of the asset. If the asset is held for less than a year, it is considered a short-term capital gain and taxed at the individual's ordinary income tax rate. If the asset is held for more than a year, it is considered a long-term capital gain and taxed at a lower rate, depending on the individual's income level.
| 3. Are there any exemptions or deductions available for capital gains? | |
Ans. Yes, there are certain exemptions and deductions available for capital gains. For example, if the capital gain arises from the sale of a primary residence, a certain portion may be excluded from taxation. Additionally, individuals may be able to offset capital gains with capital losses or claim deductions for investment-related expenses.
| 4. What is the difference between short-term and long-term capital gains? | |
Ans. The main difference between short-term and long-term capital gains is the holding period of the asset. If an asset is held for one year or less before being sold, it is considered a short-term capital gain. If the asset is held for more than one year, it is considered a long-term capital gain. The tax treatment for short-term and long-term capital gains differs, with long-term gains generally being taxed at a lower rate.
| 5. Are there any specific rules for capital gains on inherited assets? | |
Ans. Yes, there are specific rules for capital gains on inherited assets. When an individual inherits an asset, the cost basis of the asset is generally adjusted to its fair market value at the time of the original owner's death. This means that if the inherited asset is later sold, the capital gain or loss is calculated based on the difference between the selling price and the fair market value at the time of inheritance. This step-up in basis can often result in a lower capital gain or even no capital gain at all.
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