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Capital Gain- Basis of Charge

4.1.      CAPTAL GAINS – BASIS OF CHARGE

Any gain arising from the transfer of a capital asset during a previous year is chargeable to tax under the head “Capital Gain” in the immediately following assessment year, if it is not eligible for exemption under Sec. 54, 54B, 54D, 54EC, 54G, and 54 GA.

Capital Gain (u/s 48) means any profit or gain arising from the Sale / Transfer of a  Capital Asset.

Capital Asset means property of any kind held by an assessee. However, it does not include :

  1. Stock, Stores, Raw Materials held in business
  2. Gold Bonds
  3. Rural Agricultural Land
  4. Personal effect like Furniture, Motor Car, A/C, Refrigerator etc.

“Jewellery” held for personal use is treated as Capital Asset. Jewellery includes ornaments made of Gold, Silver, Platinum or any other Precious Metal / Stone.

Capital Assets are of two types :

  1. Long - Term Capital Assets

  2. Short - Term Capital Assets

The nature of the Asset and the period of holding determine whether it is a Long-Term Asset or a Short-Term one as given below :

 Nature of Asset

LONG TERM
Capital Asset

SHORT TERM
Capital Asset

Shares of a Company, Units of UTI/ Mutual Fund

When held for MORE than 12 months

When held for LESS than 12 months

All other Assets
(other than above)

When held for MORE than 36 months

When held for LESS than 36 months

In other words, capital gain’s tax liability arises only when the following conditions are satisfied :

Condition 1

There should be a capital asset

Condition 2

The Capital Asset is transferred by the assessee.

Condition 3

Such transfer takes place during the previous year

Condition 4

Any profit or gains arises as a result of transfer

Condition 5

Such profit or gains is not exempt from tax under section 54, 54B, 54D, 54EC, 54G, and 54 GA.

However, the following points should be considered : ---

  1. In some cases Capital Gain is taxable in  a year other than the year in which the capital asset is transferred.
  2. In come cases Capital Gain arises even if there is no “Transfer” or Capital Assets.

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