Capital Gains
Section 45 provides that any profits or gains arising from the transfer of a capital asset effected in the previous year will be chargeable to income-tax under the head ‘Capital Gains’. Such capital gains will be deemed to be the income of the previous year in which the transfer took place. In this charging section, two terms are important. One is “capital asset” and the other is “transfer”.
Hence, in this unit on capital gains, we begin our discussion with the definition of “capital asset” and “transfer”. Thereafter, we will proceed to discuss the various circumstances under which capital gains tax is levied. There are certain transactions which are not to be regarded as transfer for the purposes of capital gains. These transactions have also been discussed in this chapter. For computing long-term capital gains, application of cost inflation index is necessary. Again, there is a separate method of computation of capital gains in respect of depreciable assets. Also, there are exemptions in cases where capital gains are invested in specified assets. All these aspects are being discussed in this unit.
Definition: According to section 2(14), a capital asset means –
In a case where premium is payable by a person for more than one ULIP issued on or after 1.2.2021 and the aggregate of premium payable on such ULIPs exceed ₹ 2,50,000 for any of the previous years during the term of any such ULIP(s), the exemption under section 10(10D) would be available in respect of any of those ULIPs (at the option of the assessee) whose aggregate premium payable does not exceed ₹ 2,50,000 for any of the previous years during their term. All other ULIPs would be capital assets.
However, it does not include—
Whether a particular asset is stock-in-trade or capital asset does not depend upon the nature of the item, but the manner in which the same is held. The item would be stock-in-trade in the hands of the assessee who deals or trades in that item; however, the same item would be capital asset for the assessee who holds it as an investment.
Example: A dealer in real estate holds a piece of land as stock-in-trade. But the same will be capital asset for an assessee who holds it as an investment.
The exclusion of stock-in-trade from the definition of capital asset is only in respect of sub-clause (a) above and not sub-clause (b). This implies that even if the nature of such security in the hands of the Foreign Portfolio Investor is stock in trade, the same would be treated as a capital asset and the profit on transfer would be taxable as capital gains.
Further, the Explanatory Memorandum to the Finance (No.2) Bill, 2014 clarifies that the income arising from transfer of such security by a Foreign Portfolio Investor (FPI) would be in the nature of capital gain, irrespective of the presence or otherwise in India, of the Fund manager managing the investments of the assessee.
EXCLUSIONS:
Definition of Jewellery- Jewellery is a capital asset and the profits or gains arising from the transfer of jewellery held for personal use are chargeable to tax under the head “capital gains”. For this purpose, the expression ‘jewellery’ includes the following:
Ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stones and whether or not worked or sewn into any wearing apparel;
Precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel.
As per the definition, only rural agricultural lands in India are excluded from the purview of the term ‘capital asset’. Hence urban agricultural lands constitute capital assets. Accordingly, the agricultural land described in (a) and (b) below, being land situated within the specified urban limits, would fall within the definition of “capital asset”, and transfer of such land would attract capital gains tax -
| Shortest aerial distance from the local limits of a municipality or cantonment board referred to in item (a) | Population according to the last preceding census of which the relevant figures have been published before the first day of the previous year. | |
| (i) | ≤ 2 kms | > 10,000 |
| (ii) | > 2 kms but ≤ 6 kms | > 2 kms but ≤ 6 kms |
| (iii) | > 6 kms but ≤ 8 kms | > 10,00,000 |
Example:
| Area | Shortest aerial distance from the local limits of a municipality or cantonment board referred to in item (a) | Population according to the last preceding census of which the relevant figures have been published before the first day of the previous year. | Is the land situated in this area a capital asset? | |
| (i) | A | 1 km | 9,000 | No |
| (ii) | B | 1.5 kms | 12,000 | Yes |
| (iii) | C | 2 kms | 11,00,000 | Yes |
| (iv) | D | 3 kms | 80,000 | No |
| (v) | E | 4 kms | 3,00,000 | Yes |
| (vi) | F | 5 kms | 12,00,000 | Yes |
| (vii) | G | 6 kms | 8,000 | No |
| (viii) | H | 7 kms | 4,00,000 | No |
| (ix) | I | 8 kms | 10,50,000 | Yes |
| (x) | J | 9 kms | 15,00,000 | No |
In other words, the capital gains arising from the transfer of such urban agricultural land would not be treated as agricultural income for the purpose of exemption u/s 10(1). Hence, such gains would be subject to u/s 45.
Note – ‘Property’ includes and shall be deemed to have always included any rights in or in relation to an Indian company, including rights of management or control or any other rights whatsoever.
As per section 2(29A), long-term capital asset means a capital asset which is not a short-term capital asset.
Thus, a capital asset held by an assessee for more than 36 months immediately preceding the date of its transfer is a long-term capital asset.
Further, a share of a company (not being a share listed in a recognized stock exchange in India) or an immovable property, being land or building or both would be treated as a short-term capital asset if it was held by an assessee for not more than 24 months immediately preceding the date of its transfer.
Thus, the period of holding of unlisted shares or an immovable property, being land or building or both, for being treated as a long-term capital asset would be “more than 24 months” instead of “more than 36 months”.
Note – Capital gains arising from transfer of market linked debentures and units of a specified mutual fund would always be capital gains arising from transfer of short term capital assets irrespective of the period of holding of such assets. This is provided in section 50AA.
| Term | Meaning |
| Equity oriented fund |
A fund set up under a scheme of a mutual fund and (i) in a case where the fund invested in the units of another fund which is traded on a recognised stock exchange –
(ii) in any other case, a minimum of 65% of the total proceeds of such fund is invested in the equity shares of domestic companies listed on a recognised stock exchange. However, the percentage of equity shareholding or unit held in respect of the fund, as the case may be, shall be computed with reference to the annual average of the monthly averages of the opening and closing figures. |
| Zero Coupon Bond [Section 2(48)] |
a bond
|
Note: The income from transfer of a zero coupon bond (not being held as stock-in-trade) is to be treated as capital gains. Section 2(47)(iva) provides that maturity or redemption of a zero coupon bond shall be treated as a transfer for the purposes of capital gains tax.
Period of holding: A summary
Note – Capital gains arising from transfer of market linked debentures and units of a specified mutual fund would always be capital gains arising from transfer of short term capital assets irrespective of the period of holding of such assets. This is provided in section 50AA.
| S.No. | Circumstances (Column 1) | Period of holding (Column 2) |
| 1 | Where shares held in a company in liquidation | The period subsequent to the date of liquidation of company shall be excluded. |
| 2 | Where asset becomes the property of an assessee by virtue of section 49(1) | The period for which the capital asset was held by the previous owner shall be included. |
| 3 | Where inventory of business is converted into or treated as a capital asset by the assessee | Period from the date of conversion or treatment as a capital asset shall be considered. |
| 4 | Where share/s in the Indian company (amalgamated company), becomes the property of an assessee in lieu of share/s held by him in the amalgamating company at the time of transfer referred under section 47(vii). | The period for which the share(s) was held by the assessee in the amalgamating company shall be included. |
| 5 | Where the share or any other security is subscribed by the assessee on the basis of right to subscribe to any share or security or by the person in whose favour such right is renounced by the assessee | Period from the date of allotment of such share or security shall be reckoned. |
| 6 | Where the right to subscribe to any share or security is renounced in favour of any other person | Period from the date of offer of such right by the company or institution shall be reckoned |
| 7 | Where any financial asset is allotted without any payment and on the basis of holding of any other financial asset | Period from the date of allotment of such financial asset shall be reckoned |
| 8 | Where share/s in the Indian company being a resulting company becomes the property of an assessee in consideration of demerger | The period for which the share/s were held by the assessee in demerged company shall be included |
| 9 | Where equity share in a company becomes the property of the assessee by way of conversion of preference shares into equity shares referred under section 47(xb) | The period for which the preference shares were held by the assesse shall be included |
| 10 | (i) Where Electronic Gold Receipt is issued by a Vault Manager in respect of gold deposited [Conversion of gold into Electronic Gold Receipt as referred to in section 47(viid)] | The period for which such gold was held by the assessee prior to conversion into the Electronic Gold Receipt |
| (ii) Where gold is released in respect of an Electronic Gold Receipt [Conversion of Electronic Gold Receipt into gold as referred to in section 47(viid)] | The period for which such Electronic Gold Receipt was held [Conversion of Electronic Gold Receipt into gold as referred to in section 47(viid)] | |
| 11 | Where any specified security or sweat equity shares is allotted or transferred, directly or indirectly, by the employer free of cost or at concessional rate to his employees (including former employees) | Period from the date of allotment or transfer of such specified security or sweat equity shares shall be reckoned |
| “Sweat equity shares” means equity shares issued by a company to its employees or directors at a discount or for consideration other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called. | ||
Specifically, in the case of a capital asset, being a share or debenture of a company, which becomes the property of the assessee in the circumstances mentioned in section 47(x), there shall be included the period for which the bond, debenture, debenture-stock or deposit certificate, as the case may be, was held by the assessee prior to the conversion.
Note: Section 47(x) provides that any transfer by way of conversion of bonds or debentures, debenture-stock or deposit certificates in any form, of a company into shares or debentures of that company shall not be regarded as transfer for the purposes of levy of capital gains tax.
Section 2(47) contains an inclusive definition of the term ‘transfer’. Accordingly, transfer in relation to a capital asset includes the following types of transactions—
Example: Acquisition of industrial undertaking under the Industries (Development and Regulation) Act, 1951.
Example: Where an investor in shares starts a business of dealing in shares and treats existing investments as stock-in-trade of the newly set up business, such conversion shall be regarded as transfer for the purpose of capital gains.
Example:
A enters into an agreement for the sale of his house. The purchaser gives the entire sale consideration to A. A hands over complete rights of possession to the purchaser since he has received the entire sale consideration. Under the Income-tax Act, the above transaction is considered as transfer.
Example:
A person may become a member of a co-operative society, company or other association of persons which may be building houses/flats. When he pays an agreed amount, the society etc. hands over possession of the house to the person concerned. No conveyance is registered. For the purpose of income- tax, the above transaction is a transfer.
Any profits or gains arising from the transfer of a capital asset effected in the previous year (other than exemptions covered under this chapter) shall be chargeable to income-tax under this head in the previous year in which the transfer took place.
Year of chargeability - Capital gains are chargeable as the income of the previous year in which the sale or transfer takes place. In other words, for determining the year of chargeability, the relevant date of transfer is not the date of the agreement to sell, but the actual date of sale i.e., the date on which the effect of transfer of title to the property as contemplated by the parties has taken place.
However, as already noted, Income-tax Act has recognised certain transactions as transfer in spite of the fact that conveyance deed might not have been executed and registered. Power of Attorney sales as explained above or co-operative society transactions for acquisition of house are examples in this regard.
Where any person receives any money or other assets under any insurance from an insurer on account of damage to or destruction of any capital asset, as a result of
then, any profits or gains arising from receipt of such money or other assets shall be chargeable to income-tax under the head “Capital gains” and shall be deemed to be the income of such person for the previous year in which such money or other asset was received.
Full value of consideration: In order to compute capital gains, the value of any money or the fair market value of other assets on the date of such receipt shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of such capital assets.
A person who is the owner of a capital asset may convert the same or treat it as stock-in-trade of the business carried on by him. As noted above, the above transaction is a transfer.
As per section 45(2), notwithstanding anything contained in section 45(1), being the charging section, the profits or gains arising from the above conversion or treatment will be chargeable to income-tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him.
Full value of consideration: In order to compute the capital gains, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received as a result of the transfer of the capital asset.
Note – Both Capital Gains and Business income are chargeable to tax in the year in which stock-in-trade is sold or otherwise transferred.
Sometimes, a building or some other capital asset belonging to a person is taken over by the Central Government by way of compulsory acquisition. In that case, the consideration for the transfer is determined by the Central Government of RBI. When the Central Government pays the above compensation, capital gains may arise. Such capital gains are chargeable as income of the previous year in which such compensation is received.
Enhanced Compensation - Many times, persons whose capital assets have been taken over by the Central Government and who get compensation from the Government go to the Court of law for enhancement of compensation. If the court awards a compensation which is higher than the original compensation, the difference thereof will be chargeable to capital gains in the year in which the same is received from the government.
Cost of acquisition in case of enhanced compensation - For this purpose, the cost of acquisition and cost of improvement shall be taken to be nil.
Compensation received in pursuance of an interim order deemed as income chargeable to tax in the year of final order - In order to remove the uncertainty regarding the year in which the amount of compensation received in pursuance of an interim order of the Court, Tribunal or other authority is to be charged to tax, it is provided that such compensation shall be deemed to be income chargeable under the head ‘Capital gains’ in the previous year in which the final order of such Court, Tribunal or other authority is made.
Reduction of enhanced compensation - Where capital gain has been charged on the compensation received by the assessee for the compulsory acquisition of any capital asset or enhanced compensation received by the assessee and subsequently such compensation is reduced by any Court, Tribunal or any authority, the assessed capital gain of that year shall be recomputed by taking into consideration the reduced amount. This re-computation shall be done by way of rectification.
Death of the transferor - It is possible that the transferor may die before he receives the enhanced compensation. In that case, the enhanced compensation will be chargeable to tax in the hands of the person who receives the same.
Where the assets of a company are distributed to its shareholders on its liquidation, such distribution shall not be regarded as a transfer by the company for the purposes of section 45 [Section 46(1)].
The above section is restricted in its application to the circumstances mentioned therein i.e., the assets of the company must be distributed in specie to shareholders on the liquidation of the company. If, however, the liquidator sells the assets of the company resulting in a capital gain and distributes the funds so collected, the company will be liable to pay tax on such gains.
Shareholders receive money or other assets from the company on its liquidation. They will be chargeable to income-tax under the head ‘capital gains’ in respect of the market value of the assets received on the date of distribution, or the moneys so received by The portion of the distribution which is attributable to the accumulated profits of the company is to be treated as dividend income under section 2(22)(c), which would be taxable in the hands of shareholders. The same will be deducted from the amount received/fair market value for the purpose of determining the consideration for computation of capital gains.
7. CAPITAL GAINS ON BUYBACK OF SHARES OR SPECIFIED SECURITIES [SECTION 46A]
Any consideration received by a holder of specified securities (other than shares) from any company on purchase of its specified securities is chargeable to tax in the hands of the holder of specified The difference between the cost of acquisition and the value of consideration received by the holder of securities is chargeable to tax as capital gains in his hands. The computation of capital gains shall be made in accordance with the provisions of section 48.
Such capital gains shall be chargeable in the year in which such securities were purchased by the company. For this purpose, “specified securities” shall have the same meaning as given in Explanation to section 77A of the Companies Act, 1956.
As per Section 68 of the Companies Act, 2013,"specified securities" includes employees' stock option or other securities as may be notified by the Central Government from time to time.
Note – As far as shares are concerned, this provision would be attracted in the hands of the shareholder only if the shares are bought back by a company, other than a domestic company.
In case of buyback of shares (whether listed or unlisted) by domestic companies, additional income-tax@20% (plus surcharge @12% and cess@4%) is leviable in the hands of the company.
Consequently, the income arising to the shareholders in respect of such buyback of shares by the domestic company would be exempt under section 10(34A), since the domestic company is liable to pay additional income-tax on the buyback of shares.
Taxation provisions in respect of buyback
| (1) | (2) | (3) | (4) |
| Taxability in the hands of | Buyback of shares by domestic companies | Buyback of shares by a company, other than a domestic company | Buyback of specified securities by any company |
| Company | Subject to additional income- tax@23.296%. | Not subject to tax in the hands of the company. | Not subject to tax in the hands of the company. |
| Shareholder/holder of specified securities | Income arising to shareholders exempt under section 10(34A) | Income arising to shareholder taxable as capital gains u/s 46A. | Income arising to holder of specified holder of specified capital gains u/s 46A. |
Section 47 specifies certain transactions which will not be regarded as transfer for the purpose of capital gains tax:
Any distribution of capital assets on the total or partial partition of a HUF [Section 47(i)].Any distribution of capital assets on the total or partial partition of a HUF [Section 47(i)].
(2) A gift or will or an irrevocable trust
Any transfer of a capital asset under a gift or will or an irrevocable trust.
However, this clause shall not include transfer under a gift or an irrevocable trust of a capital asset being shares, debentures or warrants allotted by a company directly or indirectly to its employees under the Employees' Stock Option Plan or Scheme offered to its employees in accordance with the guidelines issued in this behalf by the Central Government [Section 47(iii)].
Any transfer of capital asset by a company to its subsidiary company [Section 47(iv)].
Transfer of capital asset by a subsidiary company to its 100% holding company, being an Indian company
Conditions:
Exception :
The exemption mentioned in 3 or 4 above will not apply if a capital asset is transferred as stock-in-trade.
(5) Transfer of capital asset by amalgamating company to amalgamated Indian company, in a scheme of amalgamation
Any transfer, in a scheme of amalgamation, of a capital asset by the amalgamating company to the amalgamated company if the amalgamated company is an Indian company [Section 47(vi)].
Any transfer in a demerger, of a capital asset by the demerged company to the resulting company, if the resulting company is an Indian company [Section 47(vib)].
Any transfer or issue of shares by the resulting company, in a scheme of demerger to the shareholders of the demerged company, if the transfer is made in consideration of the demerger of the undertaking [Section 47(vid)].
Any transfer by a shareholder, in a scheme of amalgamation, of shares held by him in the amalgamating company [Section 47(vii)].
Conditions:
Example:
Let us take a case where A Ltd., an Indian company, holds 60% of shares in B Ltd. B Ltd. amalgamates with A Ltd. Since A Ltd. itself is the shareholder of B Ltd., A Ltd., being the amalgamated company, cannot issue shares to itself. However, A Ltd. has to issue shares to the other shareholders of B Ltd.
Any transfer of a capital asset, being a Government Security carrying a periodic payment of interest, made outside India through an intermediary dealing in settlement of securities, by a non- resident to another non-resident [Section 47(viib)]
Redemption of sovereign gold bonds by an Individual of sovereign gold bonds issued by RBI under the Sovereign Gold Bond Scheme, 2015 [Section 47(viic)]
Any transfer of a capital asset, being conversion of gold into Electronic Gold Receipt issued by a Vault Manager, or conversion of Electronic Gold Receipt into gold [Section 47(viid)]
Any transfer of any of the following capital asset to the Government or to the University or the National Museum, National Art Gallery, National Archives or any other public museum or institution notified by the Central Government to be of national importance or to be of renown throughout any State Govrnment.
Any transfer by way of conversion of bonds or debentures, debenture stock or deposit certificates in any form, of a company into shares or debentures of that company [Section 47(x)].
Any transfer by way of conversion of preference shares of a company into equity shares of that company [Section 47(xb)].
(15) Transfer of capital asset under Reverse Mortgage
Any transfer of a capital asset in a transaction of reverse mortgage under a scheme made and notified by the Central Government [Section 47(xvi)].
The Reverse Mortgage scheme is for the benefit of senior citizens, who own a residential house property. In order to supplement their existing income, they can mortgage their house property with a scheduled bank or housing finance company, in return for a lump-sum amount or for a regular monthly/quarterly/annual income. The senior citizens can continue to live in the house and receive regular income, without the botheration of having to pay back the loan.
The loan will be given up to, say, 60% of the value of residential house property mortgaged. Also, the bank/housing finance company would undertake a revaluation of the property once every 5 years. The borrower can use the loan amount for renovation and extension of residential property, family’s medical and emergency expenditure etc., amongst others However, he cannot use the amount for speculative or trading purposes.
The Reverse Mortgage Scheme, 2008, now includes within its scope, disbursement of loan by an approved lending institution, in part or in full, to the annuity sourcing institution, for the purposes of periodic payments by way of annuity to the reverse mortgagor. This would be an additional mode of disbursement i.e., in addition to direct disbursements by the approved lending institution to the Reverse Mortgagor by way of periodic payments or lump sum payment in one or more tranches.
An annuity sourcing institution has been defined to mean Life Insurance Corporation of India or any other insurer registered with the Insurance Regulatory and Development Authority.
Maximum Period of Reverse Mortgage Loan:
| Mode of disbursement | Maximum period of loan | |
| (a) | Where the loan is disbursed directly to the Reverse Mortgagor | 20 years from the date of signing the agreement by the reverse mortgagor and the approved lending institution. |
| (b) | Where the loan is disbursed, in part or in full, to the annuity sourcing institution for the purposes of periodic payments by way of annuity to the Reverse mortgagor | The residual life time of the borrower. |
The bank will recover the loan along with the accumulated interest by selling the house after the death of the borrower. The excess amount will be given to the legal heirs However, before resorting to sale of the house, preference will be given to the legal heirs to repay the loan and interest and get the mortgaged property released.
Therefore, section 47(xvi) clarifies that any transfer of a capital asset in a transaction of reverse mortgage under a scheme made and notified by the Central Government would not amount to transfer for the purpose of capital gains.
Exemption of income received in a transaction of reverse mortgage [Section 10(43)]: Section 10(43), further, provides that the amount received by the senior citizen as a loan, either in lump sum or in installments, in a transaction of reverse mortgage would be exempt from income-tax.
(a) Amalgamation [Section 2(1B)]
“Amalgamation”, in relation to companies, means -
(the company or companies which so merge being referred to as the amalgamating company or companies and the company with which they merge or which is formed as a result of the merger, as the amalgamated company) in such a manner that
otherwise than as a result of the acquisition of the property of one company by another company pursuant to the purchase of such property by the other company or as a result of the distribution of such property to the other company after the winding up of the first mentioned company.
(b) Demerger [Section 2(19AA)]
"Demerger”, in relation to companies, means the transfer, pursuant to a scheme of arrangement under sections 230 to 232 of the Companies Act, 2013, by a demerged company of its one or more undertaking to any resulting company in such a manner that -
However, this provision does not apply where, in compliance to the Indian Accounting Standards specified in Annexure to the Companies (Indian Accounting Standards) Rules, 2015, the resulting company records the value of the property and the liabilities of the undertaking or undertakings at a value different from the value appearing in the books of account of the demerged company, immediately before the demerger.
For the purpose of determining the value of the property, any change in the value of assets consequent to their revaluation shall be ignored.
Note - If the resulting company is a shareholder of the demerged company, it cannot issue shares to itself. However, the resulting company has to issue shares to the other shareholders of the demerged company.
Reconstruction or splitting up of a public sector company into separate companies shall be deemed to be a demerger, if such reconstruction or splitting up has been made to transfer any asset of the demerged company to the resulting company and the resulting company –
(c) Demerged Company
Demerged company means the company whose undertaking is transferred, pursuant to a demerger, to a resulting company.
(d) Resulting Company
Resulting company means one or more companies (including a wholly owned subsidiary thereof) to which the undertaking of the demerged company is transferred in a demerger and, the resulting company in consideration of such transfer of undertaking, issues shares to the shareholders of the demerged company and includes any authority or body or local authority or public sector company or a company established, constituted or formed as a result of demerger.
(i) Computation of capital gains
The income chargeable under the head ‘Capital gains’ shall be computed by deducting the following items from the full value of the consideration received or accruing as a result of the transfer of the capital asset:
However, the cost of acquisition of the asset or the cost of improvement thereto would not include the deductions claimed on interest u/s 24(b) or under the provisions of Chapter VI-A.
Interest on loan taken for acquisition, construction, repairs, reconstruction of house property is allowable as deduction under section 24(b). Sections 80EE and 80EEA in Chapter VI-A provide for deduction of interest payable on loan taken for acquisition of house property, subject to fulfillment of certain conditions.
The interest allowed as deduction under section 24(b) while computing income from house property and interest allowed as deduction under section 80EE or 80EEA of Chapter VI-A would not be included in the cost of acquisition or cost of improvement while computing capital gains on transfer of house property.
(ii) No deduction in respect of STT
No deduction shall, however, be allowed in computing the income chargeable under the head “Capital Gains” in respect of any amount paid on account of securities transaction tax (STT) under Chapter VII of the Finance (No.2) Act, 2004.
(iii) Cost inflation index
Under section 48, for computation of long-term capital gains, the cost of acquisition and cost of improvement will be increased by applying the cost inflation index (CII). Once the cost inflation index is applied to the cost of acquisition and cost of improvement, it becomes indexed cost of acquisition and indexed cost of improvement.
This means an amount which bears to the cost of acquisition, the same proportion as CII for the year in which the asset is transferred bears to the CII for the first year in which the asset was held by the assessee or for the year beginning on 1st April, 2001, whichever is later.
Similarly, indexed cost of any improvement means an amount which bears to the cost of improvement, the same proportion as CII for the year in which the asset is transferred bears to the CII for the year in which the improvement to the asset took place.
“Cost Inflation Index” in relation to a previous year means such index as may be notified by the Central Government having regard to 75% of average rise in the Consumer Price Index (Urban) for the immediately preceding previous year to such previous year.
Note – The benefit of indexation will not apply to the long-term capital gains arising from the transfer of bonds or debentures other than –
(1) Capital indexed bonds issued by the Government; or
(2) Sovereign Gold Bond issued by the RBI under the Sovereign Gold Bond Scheme, 2015.
In case of depreciable assets, unit of a specified mutual fund and marked linked debenture (discussed later), there will be no indexation and the capital gains will always be short-term capital gains.
The cost inflation indices for the financial years so far have been notified as under:
| Financial Year | Cost Inflation Index |
| 2001-02 | 100 |
| 2002-03 | 105 |
| 2003-04 | 109 |
| 2004-05 | 113 |
| 2005-06 | 117 |
| 2006-07 | 122 |
| 2007-08 | 129 |
| 2008-09 | 137 |
| 2009-10 | 148 |
| 2010-11 | 167 |
| 2011-12 | 184 |
| 2012-13 | 200 |
| 2013-14 | 220 |
| 2014-15 | 240 |
| 2015-16 | 254 |
| 2016-17 | 264 |
| 2017-18 | 272 |
| 2018-19 | 280 |
| 2019-20 | 289 |
| 2020-21 | 301 |
| 2021-22 | 317 |
| 2022-23 | 331 |
| 2023-24 | 348 |
(iv) Full value of consideration of shares, debentures or warrants issued under ESOP in case of transfer under a gift etc.
In case where shares, debentures or warrants allotted by a company directly or indirectly to its employees under the Employees' Stock Option Plan or Scheme in accordance with the guidelines issued in this behalf by the Central Government are transferred under a gift or irrecoverable trust, then the market value on the date of such transfer shall be deemed to be the full value of consideration received or accruing as a result of transfer of such asset.
(v) Special provision for non-residents
In case of non-residents who invest foreign exchange to acquire capital assets, capital gains arising from the transfer of shares or debentures of an Indian company is to be computed in the following manner:
The aforesaid manner of computation of capital gains shall be applied for every purchase and sale of shares or debentures in an Indian company. This will provide relief from risk of foreign currency fluctuation to non-residents.
Benefit of indexation will not be available in this case.
Non-residents and foreign companies are subject to tax at a concessional rate of 10% (without indexation benefit or currency conversion) on long-term capital gains arising from transfer of unlisted securities or shares of a company in which public are not substantially interested [Section 112].
Note – The benefit of indexation and currency conversion would not be applicable to the long-term capital gains arising from the transfer of the following assets referred to in section 112A –
A person becomes the owner of a capital asset not only by purchase but also by several other methods. Section 49 gives guidelines as to how to compute the cost under different circumstances.
| Section | Circumstance | Cost of acquisition |
| 49(1) | Where the capital asset became the property of the assessee: |
Cost for which the previous owner of the property acquired it. Notes – Cost of improvement – To the cost of acquisition, the cost of improvement to the asset, incurred by the previous owner or the assessee on or after 1.4.2001 must be added. Period of holding - It may be noted that section 2(42A) provides that in all such cases, for determining the period for which the capital asset is held by the transferee, the period of holding of the asset by the previous owner shall also be considered. Benefit of indexation - The Bombay High Court, in CIT v. Manjula J. Shah 16 Taxman 42, held that the indexed cost of acquisition in case of gifted asset has to be computed with reference to the year in which the previous owner first held the asset and not the year in which the assessee became the owner of the asset. |
| (i) on any distribution of assets on the total or partition of a HUF; | ||
| (ii) under a gift or will; | ||
| (iii) by succession, inheritance or devolution; | ||
| (iv) on any distribution of assets on the liquidation of a company; | ||
| (v) under a transfer to revocable or an irrevocable trust; | ||
| (vi) under any transfer of capital asset by a holding company to its wholly owned subsidiary Indian company or by a subsidiary company to its 100% holding Indian company, referred to in section 47(iv) and 47(v), respectively; | ||
| (vii) under any transfer referred to in section 47(vi) of a capital asset by amalgamating company to the amalgamated Indian company, in a scheme of amalgamation; | ||
| (viii) under any transfer referred to in section 47(vib), of a capital asset by the demerged company to the resulting Indian company, in a scheme of demerger; |
As per the plain reading of the provisions of section 48, however, the indexed cost of acquisition would be determined by taking CII for the year in which asset is first held by the assessee. |
|
| (ix) by conversion by an individual of his separate property into a HUF property, by the mode referred to in section 64(2). | ||
| 49(2) | Where shares in an amalgamated company which is an Indian company become the property of the assessee in consideration of the transfer of shares referred to in section 47(vii) held by him in the amalgamating company under a scheme of amalgamation | The cost of acquisition to him of the shares in the amalgamated company shall be taken as the cost of acquisition of the shares in the amalgamating company. |
| 49(2A) | Where a person becomes the owner of shares or debentures in a company during the process of conversion of bonds or debentures, debenture stock or deposit certificates referred under section 47(x). | That part of the cost of debentures, debenture stock, bond or deposit certificate in relation to which such asset (shares or debentures) is acquired by that person. |
| 49(2AA) | Where the capital gain arises from the transfer of specified security or sweat equity shares referred to in section 17(2)(vi) | Fair market value which has been taken into account for perquisite valuation. |
| 49(2AE) | Where equity shares of a company, became the property of the assessee in consideration of transfer by way of conversion of preference shares of the company [Section 47(xb)] | That part of the cost of the preference share in relation to which such equity shares are acquired by the assessee. |
| 49(2C) | In case of demerger | The cost of acquisition of the shares in the resulting company shall be the amount which bears to the cost of acquisition of shares held by the assessee in the demerged company the same proportion as the net book value of the assets transferred in a demerger bears to the net worth of the demerged company immediately before such demerger. |
|
Cost of acquisition of shares in the resulting company = A = Cost of acquisition of shares held in the demerged company B = Net book value of the assets transferred in a demerger C = Net worth of the demerged company i.e., the aggregate of the paid up share capital and general reserves as appearing in the books of account of the demerged company immediately before the demerger. |
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| 49(2D) | In case of demerger | The cost of acquisition of the original shares held by the shareholder in the demerged company shall be deemed to have been reduced by the amount as so arrived under the sub-section (2C) |
| 49(4) | Where the capital gain arises from the transfer of such property which has been subject to tax under section 56(2)(x) | The value taken into account for the purposes of section 56(2)(x). |
| 49(9) | Where the capital gain arises from the transfer of a capital asset which was used by the assessee as inventory earlier before its conversion into capital asset | The fair market value of the inventory as on the date on such conversion determined in the prescribed manner |
| 49(10) | Where a capital asset, being an Electronic Gold Receipt issued by a Vault Manager became the property of the person as consideration for transfer of gold [Section 47(viid)] | The cost of gold in the hands of the person in whose name Electronic Gold Receipt is issued. |
| Where gold is released against an Electronic Gold Receipt, which became the property of the person as consideration for transfer of Electronic Gold Receipt [Section 47(viid)] | The cost of the Electronic Gold Receipt in the hands of such person. |
Cost of acquisition is the price that the assessee has paid, or the amount that the assessee has incurred, for acquisition of the asset. Expenses incurred for completing the title are a part of the cost of acquisition. For eg: Stamp duty.
Cost of acquisition in relation to the following assets is as follows:
(1) Goodwill of a business or profession or a trademark or brand name associated with a business or profession or any other intangible asset or a right to manufacture, produce or process any article or thing, or right to carry on any business or profession, tenancy rights, stage carriage permits and loom hours, or any other right
(i) In case of acquisition from previous owner:
In the case of the above capital assets, if the assessee has purchased them from a previous owner, the cost of acquisition means the amount of the purchase price.
Example:
If A purchases a stage carriage permit from B for ₹ 2 lacs, ₹ 2 lacs will be the cost of acquisition for A.
However, in case of a capital asset, being goodwill of a business or profession, in respect of which depreciation under section 32(1) has been obtained by the assessee in any previous year (upto P.Y.2019-20), the cost of acquisition of such goodwill would be the amount of the purchase price as reduced by the total amount of depreciation (upto P.Y.2019-20) obtained by the assessee under section 32(1).
(ii) In case of circumstances mentioned under section 49(1)(i)/(ii)/(iii)/(iv):
In cases where the capital asset became the property of the assessee by any of the following modes from the previous owner, and such capital assets were acquired by the previous owner by purchase, cost of acquisition to the assessee will be the amount of the purchase price for such previous owner:-
However, in case of a capital asset, being goodwill of a business or profession, in respect of which depreciation under section 32(1) has been obtained by the assessee in any previous year (upto P.Y.2019-20), the cost of acquisition of such goodwill would be the amount of the purchase price for such previous owner as reduced by the total amount of depreciation (upto P.Y.2019-20) obtained by the assessee under section 32(1).
(iii) In any other case [i.e., in case of self-generated assets]:
In case of self- generated assets, namely, goodwill of a business or profession or any other intangible asset or a trademark or brand name associated with a business or profession or a right to manufacture, produce or process any article or thing, or right to carry on any business or profession, tenancy rights, stage carriage permits, or loom hours, or any other right, the cost of acquisition will be taken to be nil.
Many a time, persons who own shares or other securities become entitled to subscribe to any additional shares or securities. Further, they are also allotted additional shares or securities without any payment. Such shares or securities are referred to as financial assets in Income-tax Act. Section 55 provides the basis for ascertaining the cost of acquisition of such financial assets.
(i) Original shares (which form the basis of entitlement of rights shares):
In relation to the original financial asset on the basis of which the assessee becomes entitled to any additional financial assets, cost of acquisition means the amount actually paid for acquiring the original financial assets.
(ii) Rights entitlement (which is renounced by the assessee in favour of a person):
In relation to any right to renounce the said entitlement to subscribe to the financial asset, when such a right is renounced by the assessee in favour of any person, cost of acquisition shall be taken to be nil in the case of such assessee.
(iii) Rights shares acquired by the assessee:
In relation to the financial asset, to which the assessee has subscribed on the basis of the said entitlement, cost of acquisition means the amount actually paid by him for acquiring such assets.
(iv) Bonus Shares:
In relation to the financial asset allotted to the assessee without any payment and on the basis of holding of any other financial assets, cost of acquisition shall be taken to be nil in the case of such assessee.
In other words, where bonus shares are allotted without any payment on the basis of holding of original shares, the cost of such bonus shares will be nil in the hands of the original shareholder.
Bonus shares allotted before 01.04.2001 - In respect of bonus shares allotted before 1.4.2001, although the cost of acquisition of the shares is nil, the assessee may opt for the fair market value as on 1.4.2001 as the cost of acquisition of such bonus shares.
Bonus shares allotted before 1.2.2018, on which STT has been paid at the time of transfer – In case of transfer of bonus shares allotted before 1.2.2018 on which STT has been paid at the time of transfer, the cost would be the higher of –
(v) Rights shares which are purchased by the person in whose favour the assessee has renounced the rights entitlement:
In the case of any financial asset purchased by the person in whose favour the right to subscribe to such assets has been renounced, cost of acquisition means the aggregate of the amount of the purchase price paid by him to the person renouncing such right and the amount paid by him to the company or institution for acquiring such financial asset.
(3) Long-term capital assets referred to in section 112A
The cost of acquisition in relation to the long-term capital assets being,
acquired before 1st February, 2018 shall be the higher of
Meaning of Fair Market value
| S.No. | Circumstance | Fair Market Value |
| (i) | In a case where the capital asset is listed on any recognized stock exchange as on 31.01.2018 |
If there is trading in such asset on such exchange on 31.01.2018 The highest price of the capital asset quoted on such exchange on the said date. If there is no trading in such asset on such exchange on 31.01.2018 The highest price of such asset on such exchange on a date immediately preceding 31.01.2018 when such asset was traded on such exchange. |
| (ii) | In a case where the capital asset is a unit which is not listed on any recognized stock exchange as on 31.01.2018 | The net asset value of such unit as on the said date |
| (iii) |
In a case where the capital asset is an equity share in a company which is
|
An amount which bears to the cost of acquisition the same proportion as CII for the financial year 2017-18 bears to the CII for the first year in which the asset was held by the assessee or on 01.04.2001, whichever is later. |
(4) Any other capital asset
(i) Where the capital asset become the property of the assessee before 1 - 4-2001, cost of acquisition means the cost of acquisition of the asset to the assessee or the fair market value of the asset on 1-4-2001, at the option of the assessee.
Example: A house property was purchased by Mr. A on 1.1.1992 for ₹ 30,000 and the fair market value of the same was ₹ 1,40,000 as on 1.4.2001. Cost of acquisition of the said property would be ₹ 1,40,000.
However, in case of capital asset, being land or building or both, the fair market value of such asset on 1-4-2001 shall not exceed the stamp duty value, wherever available, of such asset as on 1-4-2001.
Example: In the above example, if the stamp duty value of the property was ₹ 1,20,000 as on 1.4.2001, cost of acquisition of such property would be ₹ 1,20,000, being the stamp value as on 1.4.2001 and not ₹ 1,40,000.
(ii) Where the capital asset became the property of the assessee by any of the modes specified in section 49(1):
The cost of acquisition to the assessee will be the cost of acquisition to the previous owner. Even in such cases, where the capital asset became the property of the previous owner before 1-4-2001, the assessee can opt the fair market value as on 1-4-2001 as the cost of acquisition.
However, in case of capital asset, being land or building or both, the fair market value of such asset on 1-4-2001 shall not exceed the stamp duty value, wherever available, of such asset as on 1-4-2001.
Note: The provisions contained in (i) & (ii) of (4) above shall also apply to the financial assets mentioned in (i) to (v) of (2) and long term capital assets referred to in section 112A of (3) above.
(iii) Where the capital asset became the property of the assessee on the distribution of the capital assets of a company on its liquidation and the assessee has been assessed to capital gains in respect of that asset under section 46, the cost of acquisition means the fair market value of the asset on the date of distribution.
(iv) A share or a stock of a company may become the property of an assessee under the following circumstances:
In the above circumstances the cost of acquisition to the assessee will mean the cost of acquisition of the asset calculated with reference to the cost of acquisition of the shares or stock from which such asset is derived.
(5) Where the cost for which the previous owner acquired the property cannot be ascertained, the cost of acquisition to the previous owner means the fair market value on the date on which the capital asset became the property of the previous power.
Cost of Acquisition of certain assets: At a Glance
| Sl. No. | Nature of asset | Cost of acquisition |
| 1 | Goodwill of business or profession, trademark, brand name or any other intangible asset etc., | |
| Self generated | Nil | |
| Acquired from previous owner | Purchase price | |
| However, in case of capital asset, being goodwill of a business or profession, in respect of which depreciation u/s 32(1) has been obtained by the assessee in any P.Y. (upto P.Y.2019-20) | Purchase price as reduced by the total amount of depreciation obtained by the assessee under section 32(1). | |
| became the property of the assessee by way of distribution of assets on total or partial partition of HUF, under a gift or will, by succession, inheritance, distribution of assets on liquidation of a company, etc. and previous owner has acquired it by purchase | Purchase price for such previous owner | |
| However, in case of capital asset, being goodwill of a business or profession which was acquired by the previous owner by purchase and in respect of which depreciation u/s 32(1) has been obtained by the assessee in any P.Y. (upto P.Y.2019-20) | Purchase price for such previous owner as reduced by the total amount of depreciation obtained by the assessee u/s 32(1). | |
| 2 | Bonus Shares: | |
| Allotted before 1.4.2001 | FMV as on 1.4.2001 | |
| Allotted on or after 1.4.2001 | Nil | |
| Bonus shares allotted before 1.2.2018, on which STT has been paid at the time of transfer | The higher of – | |
| (i) Actual cost of acquisition (i.e., Nil, in case of bonus shares allotted on or after 4.2001; and | ||
| FMV on 1.4.2001, in case of bonus shares allotted before 1.4.2001) | ||
| (ii) Lower of – | ||
| (a) FMV as on 31.1.2018; and | ||
| (b) Actual sale consideration | ||
| 3 | Rights Shares: | |
| Original shares (which form the basis of entitlement of rights shares) | Amount actually paid for acquiring the original shares | |
| Rights entitlement (which is renounced by the assessee in favour of a person) | Nil | |
| Rights shares acquired by the assessee | Amount actually paid for acquiring the rights shares | |
| Rights shares which are purchased by the person in whose favour the assessee has renounced the rights entitlement | Purchase price paid to the renouncer of rights entitlement as well as the amount paid to the company which has allotted the rights shares. | |
| 4 | Long term capital assets being | Cost of acquisition shall be the higher of |
| equity shares in a company on which STT is paid both at the time of purchase and transfer or | (i) actual cost of acquisition of such asset; and | |
| unit of equity oriented fund or unit of business trust on which STT is paid at the time of transfer, | (ii) lower of | |
| acquired before 1st February, 2018 | the fair market value of such asset; and | |
| the full value of consideration received or accruing as a result of the transfer of the capital asset. | ||
| 5 | Any other capital asset | |
| Where such capital asset became the property of the assessee before 1.4.2001 | Cost of the asset to the assessee, or FMV as on 1.4.2001, at the option of the assessee. | |
| However, in case of capital asset being land or building, FMV as on 1.4.2001 shall not exceed stamp duty value as on 1.4.2001. | ||
| Where capital assets became the property of the assessee by way of distribution of assets on total or partial partition of HUF, under a gift or will, by succession, inheritance, distribution of assets on liquidation of a company, etc. and the capital asset became the property of the previous owner before 1.4.2001. | Cost to the previous owner or FMV as on 1.4.2001, at the option of the assessee. | |
| However, in case of capital asset being land or building, FMV as on 1.4.2001 shall not exceed stamp duty value as on 1.4.2001. | ||
| The provisions contained in (5) above shall also apply to the assets mentioned in (3) and (4) above. | ||
| 6 | Where cost of the property in the hands of previous owner cannot be ascertained | The FMV on the date on which the capital asset become the property of the previous owner would be considered as cost of acquisition. |
In relation to a capital asset being goodwill or any other intangible asset of a business or a right to manufacture, produce or process any article or thing, or right to carry on any business or profession or any other right, the cost of improvement shall be taken to be Nil.
| Circumstance | Cost of improvement | ||
| (i) | Where the capital asset became the property of the previous owner or the assessee before 1.4.2001 | ||
| (a) | In a case covered u/s 49(1), where the capital asset became the property of the previous owner and the assessee before 1.4.2001 | All expenditure of a capital nature incurred in making any addition or alteration to the capital asset on or after 1.4.2001 by the assessee. | |
| (b) | In a case covered u/s 49(1), where the capital asset became the property of the previous owner before 1.4.2001 but became the property of the assessee on or after 1.4.2001 | All expenditure of a capital nature incurred in making any addition or alteration to the capital asset on or after 1.4.2001 by the previous owner and the assessee. | |
| (c) | In a case not covered u/s 49(1) | All expenditure of a capital nature incurred in making any addition or alteration to the capital asset on or after 1.4.2001 by the assessee. | |
| (ii) | Where the capital asset became the property of the previous owner and the assessee on or after 1.4.2001 | ||
| (a) | In a case covered u/s 49(1) | All expenditure of a capital nature incurred in making any addition or alteration to the capital asset by the previous owner and the assessee. | |
| (b) | In a case not covered u/s 49(1) | All expenditure of a capital nature incurred in making any addition or alteration to the capital asset by the assessee after it became the assessee’s property. | |
In a nutshell, in a case covered under section 49(1), cost of improvement would include expenditure of a capital nature on addition or alteration to the capital asset by the previous owner or the assessee or both on or after 1.4.2001. In a case not covered under section 49(1), cost of improvement would include expenditure of a capital nature on addition or alteration to the capital asset by the assessee on or after 1.4.2001.
However, cost of improvement does not include any expenditure which is deductible in computing the income chargeable under the head “Income from house property”, “Profits and gains of business or profession” or “Income from other sources”. Routine expenses on repairs and maintenance do not form part of cost of improvement.
Section 50 provides for the computation of capital gains in case of depreciable It may be noted that where the capital asset is a depreciable asset forming part of a block of assets, section 50 will have over-riding effect in spite of anything contained in section 2(42A) which defines a short-term capital asset.
Accordingly, where the capital asset is an asset forming part of a block of assets in respect of which depreciation has been allowed, the provisions of sections 48 and 49 shall be subject to the following modification:
Where the full value of consideration received or accruing for the transfer of the asset plus the full value of such consideration for the transfer of any other capital asset falling with the block of assets during previous year exceeds the aggregate of the following amounts namely:
such excess shall be deemed to be the capital gains arising from the transfer of short-term capital assets.
Where all assets in a block are transferred during the previous year, the block itself will cease to exist. In such a situation, the difference between the sale value of the assets and the WDV of the block of assets at the beginning of the previous year together with the actual cost of any asset falling within that block of assets acquired by the assessee during the previous year will be deemed to be the capital gains arising from the transfer of short-term capital assets.
| Symbol | Description |
| V | Full value of consideration |
| C | Opening WDV of Block (+) Actual Cost of Asset acquired in the Block during the P.Y. (+) Expenses in connection with transfer of asset |
| STCG | Short Term Capital Gain |
| STCL | Short Term Capital Loss |
| WDV | Written Down Value |
(2) Cost of acquisition in case of power sector assets [Section 50A]:
With respect to the power sector, in case of depreciable assets referred to in section 32(1)(i), the provisions of sections 48 and 49 shall apply subject to the modification that the WDV of the asset [as defined in section 43(6)], as adjusted, shall be taken to be the cost of acquisition.
Section 50AA provides for the computation of capital gains in case of transfer of unit(s) of
Section 50AA will have an over-riding effect in spite of anything contained in section 2(42A) which defines a short-term capital asset.
Accordingly, capital gain arising from the transfer or redemption or maturity of unit of a Specified Mutual Fund acquired on or after 1.4.2023 or Market Linked Debenture would be deemed to be short term capital gains and chargeable to tax at normal rate of tax.
(2) Computation of capital gains:
The full value of consideration received or accruing as a result of the transfer or redemption or maturity of unit of a Specified Mutual Fund or Market Linked Debenture as reduced by the cost of acquisition of the debenture or unit and the expenditure incurred wholly and exclusively in connection with such transfer or redemption or maturity would be deemed to be the capital gains.
(3) No deduction in respect of STT:
No deduction would be allowed in computing the income chargeable under the head “Capital Gains” in respect of any sum paid on account of securities transaction tax (STT) under Chapter VII of the Finance (No.2) Act ,2004.
(4) Meaning of certain terms:
| S.No. | Term | Meaning |
| (i) | Market Linked Debenture | A security |
| (i) which has an underlying principal component in the form of debt security; and | ||
| (ii) where the returns are linked to market returns on other underlying securities or indices. | ||
| It includes any security classified or regulated as a market linked debenture by the SEBI. | ||
| (ii) | Specified Mutual Fund | A Mutual Fund where not more than 35% of its total proceeds is invested in the equity shares of domestic companies. |
| However, the percentage of equity shareholding held in respect of the Specified Mutual Fund shall be computed with reference to the annual average of the daily closing figures. |
| Term | Meaning |
| Undertaking [Explanation 1] | It includes any part of an undertaking, or a unit or division of an undertaking or a business activity taken as a whole, but does not include individual assets or liabilities or any combination thereof not constituting a business activity. |
| Transfer [Explanation 3] | Meaning assigned to it in section 2(47) [It would include sale, exchange, relinquishment of capital asset, extinguishment of any rights therein, compulsory acquisition under any law etc. |
Note - The determination of the value of an asset or liability for the sole purpose of payment of stamp duty, registration fees or other similar taxes or fees shall not be regarded as assignment of values to individual assets or liabilities.
(2) Capital gains – Whether long-term or short-term? [Section 50B(1)] -
Any profits or gains arising from the slump sale of one or more undertakings held for more than 36 months, shall be chargeable to income- tax as capital gains arising from the transfer of long-term capital assets and shall be deemed to be the income of the previous year in which the transfer took place.
Any profits and gains arising from such transfer of one or more undertakings held by the assessee for not more than 36 months shall be deemed to be short-term capital gains.
(3) Deemed cost of acquisition and cost of improvement [Section 50B(2)(i)] -
The net worth of the undertaking or the division, as the case may be, shall be deemed to be the cost of acquisition and the cost of improvement for the purposes of sections 48 and 49 in relation to capital assets of such undertaking or division No indexation benefit would, however, be available, even if the slump sale has taken place of an undertaking held for more than 36 months, resulting in a long-term capital gain.
(4) Deemed full value of consideration [Section 50B(2)(ii)] –
Fair market value of the capital assets as on the date of transfer, calculated in the prescribed manner, shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of such capital assets.
Accordingly, the CBDT has prescribed that, for the purpose of section 50B(2)(ii), the fair market value (FMV) of capital assets would be the higher of –
(5) Report of a Chartered Accountant [Section 50B(3)] -
Every assessee, in the case of slump sale, shall furnish in the prescribed form on or before 30th September of the A.Y. [i.e., the specified date referred under section 44AB, being the date one month prior to the due date for filing return of income under section 139(1)], a report of a chartered accountant indicating the computation of net worth of the undertaking or division, as the case may be, and certifying that the net worth of the undertaking or division has been correctly arrived at in accordance with the provisions of this section.
(6) Meaning of Certain Terms:
| Explanation | Term | Particulars |
| 1 | Net worth | Aggregate value of total assets of the undertaking or division as reduced by the value of liabilities of such undertaking or division as appearing in the books of account. |
| However, any change in the value of assets on account of revaluation of assets shall not be considered for this purpose | ||
| 2 | Aggregate value of total assets of undertaking or division | In the case of depreciable assets: The written down value of block of assets determined in accordance with the provisions contained in sub-item (C) of item (i) of section 43(6)(c); |
| In case of capital asset, being goodwill of a business or profession, which has not been acquired by the assessee by purchase from a previous owner [Self-generated goodwill]: Nil | ||
| Capital asset in respect of which 100% deduction is claimed: In case of capital assets in respect of which the whole of the expenditure has been allowed or is allowable as a deduction under section 35AD: Nil; | ||
| For all other assets: Book value |
| S. No. | Capital Asset | Section | Circumstance | Deemed Full Value of Deemed Full Value of consideration for computing Capital Gains |
| 1. | Land or Building or both | 50C | (1) If Stamp Duty Value >110% of consideration received or accruing as a result of transfer | Stamp Duty Value |
| (a) If date of agreement is different from the date of transfer and whole or part of the consideration is received by way of account payee cheque or account payee bank draft or ECS or through such other prescribed electronic modes (IMPS, UPI, RTGS, NEFT, Net banking, debit card, credit card or BHIM Aadhar Pay) on or before the date of agreement | Stamp Duty Value on the date of agreement | |||
| (b) If date of agreement is different from the date of transfer but the whole or part of the consideration has not been received by way of account payee cheque or account payee bank draft or ECS or through such other prescribed electronic mode on or before the date of agreement. | Stamp Duty Value on the date of transfer | |||
| However, if the stamp duty value on the date of agreement or the date of transfer, as the case may be £ 110% of the sale consideration received | Consideration so received | |||
| Example | ||||
| Let us take a case where for transfer of building – | ||||
| the actual consideration is ₹ 100 lakh; | ||||
| the stamp duty value on the date of agreement is ₹ 109 lakh; and | ||||
| the stamp duty value on the date of transfer is ₹ 112 lakh | ||||
| (i) If any part of the consideration is paid by prescribed electronic mode on or before the date of agreement | ||||
| The actual consideration of ₹ 100 lakh would be the full value of consideration, since stamp duty value of ₹ 109 lakhs on the date of agreement does not exceed 110% of actual consideration of ₹ 100 lakhs. | ||||
| (ii) If no part of the consideration is paid by prescribed electronic mode on or before the date of agreement | ||||
| Stamp duty value of ₹ 112 lakhs on the date of transfer would be the full value of consideration, since the same exceeds 110% of actual consideration of ₹ 100 lakhs. | ||||
| (2) Where the Assessing Officer refers the valuation to a Valuation Officer, on the assessee’s claim that the stamp duty value exceeds the FMV of the property on the date of transfer and the stamp duty value has not been disputed in any appeal or revision or no reference has been made before any other authority, court or High Court | ||||
| (a) If Valuation by Valuation Officer > Stamp Duty Value | Stamp Duty Value | |||
| (b) If Valuation by Valuation Officer < Stamp Duty Value | Valuation by Valuation Officer | |||
| 155(15) | (3) If stamp duty value has been adopted as full value of consideration, and subsequently the value is revised in any appeal or revision | Value so revised in such appeal or revision | ||
| 2. | Unquoted shares | 50CA | If consideration received or accruing as a result of transfer < FMV of such share determined in the prescribed manner | FMV of such share determined in the prescribed manner |
| The provisions of this section would not, however, be applicable to any consideration received or accruing as a result of transfer by such class of persons and subject to such conditions as may be prescribed. | ||||
| 3. | Any Capital asset | 50D | Where the consideration received or accruing as a result of the transfer of a capital asset by an assessee is not ascertainable or cannot be determined | FMV of the said asset on the date of transfer |
Meaning of certain terms:
| S. No. | Term | Section | Meaning |
| (i) | Stamp Duty Value | 50C | The value adopted or assessed or assessable by any authority of a State Government (Stamp Valuation Authority) for the purpose of payment of stamp duty |
| (ii) | Assessable | 50C | The term ‘assessable’ has been defined to mean the price which the stamp valuation authority would have, notwithstanding anything to the contrary contained in any other law for the time being in force, adopted or assessed, if it were referred to such authority for the purposes of the payment of stamp duty. The term “assessable” has been added to cover transfers executed through power of attorney. |
| (iii) | Quoted Shares | 50CA | The share quoted on any recognized stock exchange with regularity from time to time, where the quotation of such share is based on current transaction made in the ordinary course of business. |
Note – The valuation rules prescribed in Rule 11UA for valuation of unquoted equity shares would be dealt with at the Final level.
It is possible for an assessee to receive some advance in regard to the transfer of capital asset. Due to the break-down of the negotiation, the assessee may have retained the advance.
Section 51 provides that while calculating capital gains, the above advance retained by the assessee must go to reduce the cost of acquisition. However, if advance has been received and retained by the previous owner and not the assessee himself, then the same will not go to reduce the cost of acquisition of the assessee.
Section 56(2)(ix) provides for the taxability of any sum of money, received as an advance or otherwise in the course of negotiations for transfer of a capital asset. Consequently, such sum shall be chargeable to income-tax under the head ‘Income from other sources’, if such sum is forfeited on or after 1st April, 2014 and the negotiations do not result in transfer of such capital asset.
In order to avoid double taxation of the advance received and retained, section 51 provides that where any sum of money received as an advance or otherwise in the course of negotiations for transfer of a capital asset has been included in the total income of the assessee for any previous year in accordance with section 56(2)(ix), then, such amount shall not be deducted from the cost for which the asset was acquired or the written down value or the fair market value, as the case may be, in computing the cost of acquisition.
However, any such sum of money forfeited before 1st April, 2014, will be deducted from the cost of acquisition for computing capital gains.
Such exemption is available where the compensation or the enhanced compensation or consideration, as the case may be, is received on or after 1.4.2004.
The exemption is available only when such land has been used for agricultural purposes during the preceding two years immediately preceding the date of transfer by such individual or a parent of his or by such HUF.
Eligible assessees – Individual & HUF
Conditions to be fulfilled
Where the amount of capital gains exceeds ₹2 crore
Where the amount of capital gain exceeds ₹ 2 crore, one residential house in India should be –
Where the amount of capital gains does not exceeds ₹2 crore
Where the amount of capital gains does not exceed ₹ 2 crore, the assessee i.e., individual or HUF, may at his option,
Where during any assessment year, the assessee has exercised the option to purchase or construct two residential houses in India, he shall not be subsequently entitled to exercise the option for the same or any other assessment year.
This implies that if an assessee has availed the option of claiming benefit of section 54 in respect of purchase of two residential houses in Jaipur and Jodhpur, say, in respect of capital gains of ₹ 1.50 crores arising from transfer of residential house at Bombay in the P.Y. 2023-24, then, he will not be entitled to avail the benefit of section 54 again in respect of purchase of two residential houses in, say, Pune and Baroda, in respect of capital gains of ₹ 1.20 crores arising from transfer of residential house in Jaipur in the P.Y. 2026-27, even though the capital gains arising on transfer of the residential house at Jaipur does not exceed ₹ 2 crore.
Quantum of Exemption
However, if the cost of new residential house(s) exceeds ₹ 10 crores, the amount exceeding ₹ 10 crore would not be taken into account for exemption. It means the maximum exemption that can be claimed by the assessee u/s 54 is ₹ 10 crore.
Examples:
1. If the long-term capital gains is ₹ 05 crore and the cost of the new house is ₹ 3 crore, then, the entire long-term capital gains of ₹ 2.05 crore is exempt.
2. If long-term capital gains is ₹ 05 crore and cost of new house is ₹ 1.55 crore, then, long-term capital gains is exempt only upto ₹ 1.55 crore. Balance ₹ 50 lakhs is taxable @20%.
Example:
| (1) | (2) | (3) | (4) | (5) |
| S.No. | LTCG computed | Cost of new residential house | Amount in column (3) or ₹ 10 crore, whichever is lower | Exempt LTCG [Lower of column (2) and column (4)] |
| (1) | ₹ 7 crore | ₹ 12 crore | ₹ 10 crore | ₹ 7 crore |
| (2) | ₹ 12 crore | ₹ 14 crore | ₹ 10 crore | ₹ 10 crore |
| (3) | ₹ 11 crore | ₹ 9 crore | ₹ 9 crore | ₹ 9 crore |
| (4) | ₹ 15 crore | ₹ 13 crore | ₹ 10 crore | ₹ 10 crore |
Example:
1. If the LTCG is ₹ 8 crore and the assessee has incurred ₹ 5 crore in construction of new residential house upto the due date u/s 139(1) i.e., 7.2024/ 31.10.2024, as the case may be, then, as per section 54(2), he can deposit the amount of ₹ 3 crore not appropriated by him towards construction of house upto 31.7.2024/31.10.2024, as the case may be, in Capital Gains Account Scheme (CGAS) for claiming exemption under section 54. If he deposits, say, ₹ 2 crore, in CGAS on or before the due date u/s 139(1), the deemed cost of the new residential house would be ₹ 7 crore (₹ 5 crore +₹ 2 crore). The amount exempt u/s 54 would be ₹ 7 crore.
2. If the LTCG is ₹ 14 crore and the assessee has already incurred ₹ 7 crore in construction of new residential house upto 31.7.2024/31.10.2024, as the case may be, then, as per section 54(2), he can deposit the difference of ₹ 3 crore (₹ 10 crore - ₹ 7 crore) in CGAS for claiming exemption u/s 54. If he deposits, say, ₹ 2 crore in CGAS on or before the due date u/s 139(1), the deemed cost of the new residential house would be ₹ 9 crore (₹ 7 crore + ₹ 2 crore). The amount exempt under section 54 would be ₹ 9 crore.
Consequences of transfer of new asset before 3 years
If the new asset is transferred before 3 years from the date of its acquisition or construction, then cost of the asset will be reduced by capital gains exempted earlier for computing capital gains.
Example: The long-term capital gains is ₹ 2.05 crore and the cost of the new house is ₹ 3 crore, the entire long-term capital gains of ₹ 2.05 crore will be exempt. If the new house was sold after 18 months for ₹ 5 crore, then, short term capital gain chargeable to tax would be –
| Particulars | ₹ |
| Net Consideration | 5,00,00,000 |
| Less: Cost of acquisition minus capital gains exempt earlier (₹ 3,00,00,000 – ₹ 2 ,05,00,000) | 95,00,000 |
| Short term capital gains chargeable to tax | 4,05,00,000 |
(ii) Capital gains on transfer of agricultural land [Section 54B]
Eligible assessee – Individual & HUF
Conditions to be fulfilled
Quantum of exemption
Examples:
Consequences of transfer of new agricultural land before 3 years
| Particulars | ₹ |
| Net consideration | 6,00,000 |
| Less: Cost of acquisition minus capital gains exempt earlier (₹ 4,00,000 – ₹ 3,00,000) | 1,00,000 |
| Short-term capital gains chargeable to tax | 5,00,000 |
(iii) Capital Gains on transfer by way of compulsory acquisition of land and building of an industrial undertaking [Section 54D]
Eligible assessee – Any assessee
Conditions to be fulfilled
If such investment is not made before the date of filing of return of income, then the capital gain has to be deposited under the (Refer point (vi) and (vii) of this sub-heading). Amount utilized by the assessee for purchase of new asset and the amount so deposited shall be deemed to be the cost of new asset.
Note: The exemption in respect of capital gains from transfer of capital asset would be available even in respect of short-term capital asset, being land or building or any right in any land or building, provided such capital asset is used by assessee for the industrial undertaking belonging to him, even if he was not the owner for the said period of 2 years.
Consequences of transfer of new asset before 3 years
(iv) Capital Gains not chargeable on investment in certain bonds [Section 54EC]
Eligible assessee – Any assessee
Conditions to be fulfilled
The exemption under section 54EC is available in respect of capital gains on the transfer of capital asset being land or building or both.
Eligible assessees: Individuals/ HUF
However, if the cost of new residential house/ amount invested in new residential house exceeds ₹ 10 crore, the amount exceeding ₹ 10 crore would not be taken into account for exemption.
Example:
| (1) | (2) | (3) | (4) | (5) | |
| Net Consider- ation | LTCG computed | Cost of new residential house | Amount in column (3) or ₹ 10 crores, whichever is lower | Exempt LTCG | |
| (1) | ₹ 15 crore | ₹ 7.5 crore | ₹ 12 crore | ₹ 10 crore | ₹ 7.5 crore x 10/15 = ₹ 5 crore |
| (2) | ₹ 20 crore | ₹ 12 crore | ₹ 15 crore | ₹ 10 crore | ₹ 12 crore x 10/20 = ₹ 6 crore |
| (3) | ₹ 16 crore | ₹ 12 crore | ₹ 8 crore | ₹ 8 crore | ₹ 12 crore x 8/16 = ₹ 6 crore |
| (4) | ₹ 10 crore | ₹ 6 crore | ₹ 10 crore | ₹10 crore | ₹ 6 crore x 10/10 = ₹ 6 crore |
| (5) | ₹ 12 crore | ₹ 6 crore | ₹ 12 crore | ₹ 10 crore | ₹ 6 crore x 10/12 =₹ 5 crore |
Examples:
Consequences where the assessee purchases any other residential house within a period of 2 years or constructs any other residential house within a period of 3 years from the date of transfer of original asset:
The capital gains exempt earlier under section 54F shall be deemed to be taxable as long-term capital gains in the previous year in which such residential house is purchased or constructed.
Consequences if the new house is transferred within a period of 3 years from the date of its purchase
Note – In case the new residential house is sold after 2 years, the capital gains would be long-term capital gains and indexation benefit would be available.
(vi) Capital Gains Account Scheme (CGAS)
Under sections 54, 54B, 54D and 54F, capital gains is exempt to the extent of investment of such gains/ net consideration (in the case of section 54F) in specified assets within the specified time. If such investment is not made before the date of filing of return of income, then the capital gain or net consideration (in case of exemption under section 54F) has to be deposited under the CGAS. However, the capital gain in excess of ₹ 10 crore would not be taken into account for the purpose of deposit in CGAS in case of section 54 and the net consideration in excess of ₹ 10 crore would not be taken into account for the purpose of deposit in CGAS in case of section 54F.
Such deposit in CGAS should be made before filing the return of income or on or before the due date of filing the return of income, whichever is earlier. In such cases, the amount already utilized for purchase or construction of new asset plus the amount deposited under the CGAS on or before due date u/s 139(1) would be deemed to be the cost of new asset. However, for the purpose of sections 54 and 54F, the amount so deemed to be the cost of the new asset cannot exceed ₹ 10 crore.
Proof of such deposit should be attached with the return. The deposit can be withdrawn for utilization for the specified purposes in accordance with the scheme.
Consequences if the amount deposited in CGAS is not utilized within the stipulated time of 2 years / 3 years
If the amount deposited is not utilized for the specified purpose within the stipulated period, then the unutilized amount shall be charged as capital gain of the previous year in which the specified period expires. In the case of section 54F, proportionate amount will be taxable.
CBDT Circular No.743 dated 6.5.96 clarifies that in the event of death of an individual before the stipulated period, the unutilized amount is not chargeable to tax in the hands of the legal heirs of the deceased individual. Such unutilized amount is not income but is a part of the estate devolving upon them.
In case of compulsory acquisition of the original asset, where the compensation is not received on the date of transfer, the period available for acquiring a new asset or making investment in CGAS under sections 54, 54B, 54D, 54EC and 54F would be considered from the date of receipt of such compensation and not from the date of the transfer.
Section 55A provides that the Assessing Officer may refer the valuation of a capital asset to a Valuation Officer in the following circumstances with a view to ascertaining the fair market value of the capital asset for the purposes of capital gains -
Under this provision, the Assessing Officer can make a reference to the Valuation Officer in cases where the fair market value is taken to be the sale consideration of the asset. An Assessing Officer can also make a reference to the Valuation Officer in a case where the fair market value of the asset as on 01.04.2001 is taken as the cost of the asset, if he is of the view that there is any variation between the value as on 01.04.2001 claimed by the assessee in accordance with the estimate made by a registered valuer and the fair market value of the asset on that date.
This section provides for a concessional rate of tax (i.e. 15%) on the short- term capital gains on transfer of -
(ii) Conditions: The conditions for availing the benefit of this concessional rate are –
However, short-term capital gains arising from transactions undertaken in foreign currency on a recognized stock exchange located in an International Financial Services Centre (IFSC) would be taxable at a concessional rate of 15% even though STT is not leviable in respect of such transaction.
(iii) Adjustment of Unexhausted Basic Exemption Limit:
In the case of resident individuals or HUF, if the basic exemption is not fully exhausted by any other income, then, such short-term capital gain will be reduced by the unexhausted basic exemption limit and only the balance would be taxed at 15%. However, the benefit of availing the basic exemption limit is not available in the case of non-residents.
(iv) No deduction under Chapter VI-A against STCG taxable under section 111A:
Deductions under Chapter VI-A cannot be availed in respect of such short-term capital gains on equity shares of a company or units of an equity oriented mutual fund or unit of a business trust included in the total income of the assessee.
Where the total income of an assessee includes long-term capital gains, tax is payable by the assessee @20% on such long- term capital gains. The treatment of long-term capital gains in the hands of different types of assessees are as follows -
(1) Resident individual or Hindu undivided family:
Income-tax payable at normal rates on total income as reduced by long-term capital gains plus 20% on such long-term capital gains.
However, where the total income as reduced by such long-term capital gains is below the maximum amount which is not chargeable to income-tax then such long-term capital gains shall be reduced by the amount by which the total income as so reduced falls short of the maximum amount which is not chargeable to income-tax and the tax on the balance of such long-term capital gains will be calculated @20%.
(2) Domestic Company:
Long-term capital gains will be charged @20%.
(4) Residents (other than those included in (1) above):
Long-term capital gains will be charged @20%.
(ii) Lower rate of tax for transfer of listed securities and zero coupon bonds:
Where the tax payable in respect of any income arising from the transfer of a listed security (other than a unit) or a zero coupon bond, being a long-term capital asset, exceeds 10% of the amount of capital gains before indexation, then such excess shall be ignored while computing the tax payable by the assessee.
Consequently, long term capital gains on transfer of units and unlisted securities are not eligible for concessional rate of tax@10% (without indexation benefit). Therefore, the long-term capital gains, in such cases, is taxable@20% (with indexation benefit).
However, in case of non-corporate non-residents and foreign companies, long term capital gains arising from transfer of a capital asset, being unlisted securities or shares in a company in which public are not substantially interested are eligible for a concessional rate of tax@10% (without indexation benefit).
(iii) No Chapter VI-A deduction against LTCG:
The provisions of section 112 make it clear that the deductions under Chapter VIA cannot be availed in respect of the long-term capital gains included in the total income of the assessee.
Tax on long-term capital gains [Section 112]
| Person | Rate of tax | Particulars | ||
| 1. | Resident persons, other than companies | |||
| Resident Individuals and HUF | 20% | Unexhausted basic exemption limit can be exhausted against LTCG taxable u/s 112 |
In case of transfer of listed securities (other than units) and Zero Coupon (1) 10% without indexation benefit; and (2) 20% with indexation benefit. |
|
| Resident AOPs and BOIs | 20% | Unexhausted basic exemption limit cannot be adjusted against LTCG taxable u/s 112 | ||
| Resident Firms and LLPs | 20% | |||
| 2. | Domestic companies | 20% | ||
| 3. | Non-corporate nonresidents and foreign companies | 20% | Capital assets, other than unlisted securities or shares of closely held companies | |
| 10% | Unlisted securities or shares of closely held companies (without benefit of indexation or foreign currency fluctuation) | |||
In order to minimize economic distortions and curb erosion of tax base, section 112A provides that notwithstanding anything contained in section 112, a concessional rate of tax @10% will be leviable on the long-term capital gains exceeding ₹ 1,00,000 on transfer of –
(ii) Conditions: The conditions for availing the benefit of this concessional rate are –
However, the Central Government may, by notification in the Official Gazette, specify the nature of acquisition of equity share in a company on which the condition of payment of STT on acquisition would not be applicable.
Further, long-term capital gains arising from transaction undertaken on a recognized stock exchange located in an International Financial Service Centre (IFSC) would be taxable at a concessional rate of 10%, where the consideration for transfer is received or receivable in foreign currency, even though STT is not leviable in respect of such transaction.
(iii) Adjustment of Unexhausted Basic Exemption Limit:
In the case of resident individuals or HUF, if the basic exemption is not fully exhausted by any other income, then such long-term capital gain exceeding ₹ 1 lakh will be reduced by the unexhausted basic exemption limit and only the balance would be taxed at 10%.
However, the benefit of adjustment of unexhausted basic exemption limit is not available in the case of non-residents.
(iv) No deduction under Chapter VI-A against LTCG taxable under section 112A:
Deductions under Chapter VI-A cannot be availed in respect of such long-term capital gains on equity shares of a company or units of an equity oriented mutual fund or unit of a business trust included in the total income of the assessee.
(v) No benefit of rebate under section 87A against LTCG taxable under section 112A:
Rebate under section 87A is not available in respect of tax payable @10% on LTCG under section 112A.
Subsequent to insertion of section 112A, the CBDT has issued clarification F. No. 370149/20/2018-TPL dated 04.02.2018 in the form of a Question and Answer format to clarify certain issues raised in different for a on various issues relating to the new tax regime for taxation of long-term capital gains. The relevant questions raised and answers to such questions as per the said Circular are given hereunder:
Q 1. What is the meaning of long term capital gains under the new tax regime for long term capital gains?
A 1. Long term capital gains mean gains arising from the transfer of long-term capital asset.
It provides for a new long-term capital gains tax regime for the following assets–
The new tax regime applies to the above assets, if–
Q 2. What is the point of chargeability of the tax?
A 2. The tax will be levied only upon transfer of the long-term capital asset on or after 1st April, 2018, as defined in clause (47) of section 2 of the Act.
Q 3. What is the method for calculation of long-term capital gains?
A 3. The long-term capital gains will be computed by deducting the cost of acquisition from the full value of consideration on transfer of the long-term capital asset.
Q 4. How do we determine the cost of acquisition for assets acquired on or before 31st January, 2018?
A 4. The cost of acquisition for the long-term capital asset acquired on or before 31st of January, 2018 will be the actual cost.
However, if the actual cost is less than the fair market value of such asset as on 31st of January, 2018, the fair market value will be deemed to be the cost of acquisition.
Further, if the full value of consideration on transfer is less than the fair market value, then such full value of consideration or the actual cost, whichever is higher, will be deemed to be the cost of acquisition.
Q 5. Please provide illustrations for computing long-term capital gains in different scenarios, in the light of answers to questions 4.
A 5. The computation of long-term capital gains in different scenarios is illustrated as under
Scenario 1 – An equity share is acquired on 1st of January, 2017 at ₹ 100, its fair market value is ₹ 200 on 31st of January, 2018 and it is sold on 1st of April, 2023 at ₹ 250. As the actual cost of acquisition is less than the fair market value as on 31st of January, 2018, the fair market value of ₹ 200 will be taken as the cost of acquisition and the long-term capital gain will be ₹ 50 (₹ 250 – ₹ 200).
Scenario 2 – An equity share is acquired on 1st of January, 2017 at ₹ 100, its fair market value is ₹ 200 on 31st of January, 2018 and it is sold on 1st of April, 2023 at ₹ 150. In this case, the actual cost of acquisition is less than the fair market value as on 31st of January, 2018. However, the sale value is also less than the fair market value as on 31st of January, 2018. Accordingly, the sale value of ₹ 150 will be taken as the cost of acquisition and the long- term capital gain will be NIL (₹ 150 – ₹ 150).
Scenario 3 – An equity share is acquired on 1st of January, 2017 at ₹ 100, its fair market value is ₹ 50 on 31st of January, 2018 and it is sold on 1st of April, 2023 at ₹ 150. In this case, the fair market value as on 31st of January, 2018 is less than the actual cost of acquisition, and therefore, the actual cost of ₹ 100 will be taken as actual cost of acquisition and the long-term capital gain will be ₹ 50 (₹ 150 – ₹ 100).
Scenario 4 – An equity share is acquired on 1st of January, 2017 at ₹ 100, its fair market value is ₹ 200 on 31st of January, 2018 and it is sold on 1st of April, 2023 at ₹ 50. In this case, the actual cost of acquisition is less than the fair market value as on 31st January, 2018. The sale value is less than the fair market value as on 31st of January, 2018 and also the actual cost of acquisition. Therefore, the actual cost of ₹ 100 will be taken as the cost of acquisition in this case. Hence, the long-term capital loss will be ₹ 50 (₹ 50 – ₹ 100) in this case.
Q 6. Whether the cost of acquisition will be inflation indexed?
A 6. Third proviso to section 48, provides that the long-term capital gain will be computed without giving effect to the provisions of the second provisos of section 48. Accordingly, it is clarified that the benefit of inflation indexation of the cost of acquisition would not be available for computing long-term capital gains under the new tax regime.
A 7. The long-term capital gains exceeding ₹ 1 lakh arising from transfer of these assets made on after 1st April, 2018 will be taxed at 10 per cent. However, there will be no tax on gains accrued upto 31st January, 2018.
A 8. The holding period will be counted from the date of acquisition.
A 9. No. There will be no deduction of tax at source from the payment of long- term capital gains to a resident tax payer.
A 10. The cost of acquisition of bonus shares acquired before 31st January, 2018 will be determined as per section 55(2)(ac).Therefore, the fair market value of the bonus shares as on 31st January, 2018 will be taken as cost of acquisition (except in some typical situations explained in Ans 5), and hence, the gains accrued upto 31st January, 2018 will continue to be exempt.
A 11. The cost of acquisition of right share acquired before 31st January, 2018 will be determined as per section 55(2)(ac). Therefore, the fair market value of right share as on 31st January, 2018 will be taken as cost of acquisition (except in some typical situations explained in Ans 5), and hence, the gains accrued upto 31st January, 2018 will continue to be exempt.
A 12. Long-term capital loss arising from transfer made on or after 1st April, 2018 will be allowed to be set-off and carried forward in accordance with existing provisions of the Act. Therefore, it can be set-off against any other long-term capital gains and unabsorbed loss can be carried forward to subsequent eight years for set-off against long-term capital gains.
Ruchika Saboo
An All India Ranker (AIR 7 - CA Finals, AIR 43 - CA Inter), she is one of those teachers who just loved studying as a student. Aims to bring the same drive in her students.
Ruchika Ma'am has been a meritorious student throughout her student life. She is one of those who did not study from exam point of view or out of fear but because of the fact that she JUST LOVED STUDYING. When she says - love what you study, it has a deeper meaning.
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She specializes in theory subjects - Law and Auditing.
Yashvardhan Saboo
A Story teller, passionate for simplifying complexities, techie. Perfectionist by heart, he is the founder of - Konceptca.
Yash Sir (As students call him fondly) is not a teacher per se. He is a story teller who specializes in simplifying things, connecting the dots and building a story behind everything he teaches. A firm believer of Real Teaching, according to him - "Real Teaching is not teaching standard methods but giving the power to students to develop his own methods".
He cleared his CA Finals in May 2011 and has been into teaching since. He started teaching CA, CS, 11th, 12th, B.Com, M.Com students in an offline mode until 2016 when Konceptca was launched. One of the pioneers in Online Education, he believes in providing a learning experience which is NEAT, SMOOTH and AFFORDABLE.
He specializes in practical subjects – Accounting, Costing, Taxation, Financial Management. With over 12 years of teaching experience (Online as well as Offline), he SURELY KNOWS IT ALL.
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