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Types of 'Capital Gains '

Type of Capital Gains : Since there are two types of capital assets, there will be two types of capital gains i.e.—

(i)

Section 2(42B) Short-Term Capital Gain —

gain arising on the transfer of short-term capital asset.

(ii) Section 2(29B) Long-term Capital Gain —

gain arising on the transfer of long-term capital asset.

There is a need to make the distinction between short-term and long-term capital gain as short-term capital gain (other than referred to in section 111A) like any other incomes is taxable at normal rate of income-tax, whereas long-term capital gain is taxed at a concessional rate.

Computation of Short-term Capital Gain :

  1. Find out full value of consideration

  2. Deduct the following:

    1. expenditure incurred wholly and exclusively in connection with such transfer

    2. Cost of Acquistion

    3. Cost of Improvement

  3. From the resulting sum deduct the exemption provided by sections 54B, 54D, 54G and 54GA

  4. The balancing amount is Short-term Capital Gain

Computation of Long-term Capital Gain :

  1. Find out full value of consideration

  2. Deduct the following:

    1. expenditure incurred wholly and exclusively in connection with such tranfer

    2. indexed Cost of Acquistion

    3. indexed Cost of Improvement

  3. From the resulting sum deduct the exemption provided by sections 54, 54B, 54D, 54EC, 54ED, 54EE, 54F, 54G, 54GA and 54GB

  4. The balancing amount is Long-term Capital Gain

     

Note: Securities transaction tax is not deductible while computing income under the head “Capital gains”

Capital Assets :

Capital assets are of two types:

(1) Short-term capital asset

(2) Long-term capital asset

Short-term capital asset [Section 2(42A)]:

A capital asset held by an assessee for not more than 36 months immediately preceding the date of its transfer is known as a short term capital asset.
Exceptions

  1. The following assets shall be treated as short-term capital assets if they are held for not more than 12 months (instead of 36 months mentioned above) immediately preceding the date of its transfer:

    1. a security including shares (other than unit) listed in a recognised stock exchange in India

    2. a unit of an equity oriented fund

    3. a zero coupon bond

  2. The following assets shall be treated as short-term capital assets if they are held for not more than 24 months (instead of 36 months/12 months mentioned above) immediately preceding the date of its transfer:

    1. Share of a company (not being a share listed in a recognised stock exchange in India)

    2. An immovable property being land and building or both.

Hence, if unlisted share or immovable property is transferred after 24 months from the date of its acquisition, the gain arising from the transfer of share or immovable property shall be treated as long-term capital gain.

Exclusion/inclusion of certain period for computing the period of holding of an asset [Explanation 1(i) to section 2(42A)]

The period of holding in the following cases shall be determined as under:

Case Exclusion / Inclusion of Period
  1. Shares held in a company in liquidation

  2. Property acquired in any mode given under section 49(1) (e.g. by way of gift will, etc.)

Exclude the period subsequent to the date of liquidation

Include the holding period of previous owner also.

Long-term Capital Asset [Section 2(29A)]:

It means a capital asset which is not a short-term capital asset. In other words, if the asset is held by the assessee for more than 36 months/24 months/12 months, as the case may be, such an asset will be treated as a long-term capital asset.

 
 

 
 
 
 
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