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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.

Related Topics....Under the head 'Capital Gain'

Capital Assets, Capital Gain & Transfer of Capital Assets for Taxation of 'Capital Gain'
Types of Capital Assets for Computing ‘Capital Gain’
Computation Of ‘Period Of Holding of an Asset' for Computing Gapital Gain [Explanation 1(i) to Section 2(42A)]
Transfer Of A Capital Asset [Section 2(47)] for Computing Capital Gain
Transactions Not regarded as ‘Transfer’ for Computing Capital Gain [Section 46 and 47]
Method of Computing Capital Gain [Section 48]
Deemed Cost of Acquisition of Asset for Computing Capital Gain
[Section 55(2)] : Cost of Acquisiton of Assets for Computation of Capital Gain
Capital Gains Accounts Scheme, 1988.
Types of Capital Gain
Tax on Long-Term Capital Gain in certain Cases (Section 112A)
Exemption of Capital Gains under Section 10 and 115JG

Exemption of Capital Gains under Sections 54, 54B, 54D, 54EC, 54EE, 54F, 54G, 54GB anf 54H

(Section 54) : Exemption of Capital Gains from the Transfer of Residential House Property
(Section 54B) : Exemption of Capital Gain on Transfer of Land used for Agricultural Purposes
(Section 54D) : Exemption of Capital Gains on Compulsory Acquisition Of Land And Buildings forming part of Industrial Undertaking
(Section-54EC) : Exemption of Capital Gain on Transfer of any Long Term Capital Asset on the basis of Investment in certain Bonds
(Section 54EE) : Capital Gain not to be charged on Investment in Units of a Specified Fund
[Section 54F] : Exemption of Capital Gain on Transfer Of Long-Term Capital Assets other than a House Property
[Section 54G] : Capital Gain on Shifting of Industrial Undertaking from Urban Areas to Non-Urban Areas :
[Section 54GA] : Exemption of Capital Gain on transfer of assets in case of shifting of Industrial Undertaking from an urban area to any Special Economic Zone (SEZ)
(Section 54GB) : Exemption of Long term Capital Gain Tax on Transfer of Residential Property if Net Consideration is Invested in the Equity Shares of a new Start-up SME Company :
(Section 54H) : Extension of time limit for acquiring new Asset or Depositing or Investing amount of Capital Gain, in case of Compulsory Acquisition :

Capital Gain in various Special Cases - How to Find Out or Calculate

  1. Capital Gain from Zero Coupon Bonds

  2. Capital Gain in case of amount Received from an Insurer on account of Damage or Destruction of any Capital Asset [Section 45(1A)]:

  3. Capital Gain in the case of Transfer of Depreciable Assets [Section 50] -

  4. Capital Gain on Conversion of Capital Asset into Stock-in-Trade [Section 45(2)]-

  5. Capital Gain on Transfer of Capital Asset by a Partner/Memeber to a Firm/AOP/BOI as Capital contribution [Section 45(3)]-

  6. Capital Gain on Distribution of Capital Assets by a Firm, AOP/BOI to Partners at the time of Dissolution [Section 45(4)]-

  7. Capital Gain on Compulsory Acquisition of a Capital Asset [Section 45(5)]-

  8. Computation of Capital Gains in case of Joint Development Agreement [Section 45(5A)] [W.e.f. A.Y. 2018-19]

  9. Capital Gain on Conversion of Debentures / Bonds into Shares [Section 47(x), 49(2A) and rule 8AA] :

  10. Capital Gain on Transfer of Shares / Debentures in the hands of Non-Residents (Proviso 1 to Section 48 and Rule 115A) :

  11. Capital Gain on Transfer of Self-Generated Capital Assets :

  12. Capital Gain on Transfer of Bonus Shares -

  13. Capital Gain on Transfer of Right Entitlement -

  14. Capital Gain on Transfer of Securities in Demat Form -

  15. Capital Gains on Distribution of Assets by Companies in Liquidation [Section 46]:

  16. Computation of Capital Gains in the case of Transfer of Land and Building or in Real Estate Transactions [Section 50C] -

  17. Capital Gains on Purchase by Company of its Own Shares or Other Specified Securities [Section 46A]:

  18. Capital Gain on Sale of Land and Building to be computed separately in case of Building Constructed by the Assessee:

 
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