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Types of 'Capital Gains '

  1. Type of Capital Gains:

  2. Types of Capital Sssets:

  3. Computation of Tax on Short-Term Capital Gain if Security Transaction Tax (STT) is applicable (Section 111A).

  4. Computation of Tax on Long-Term Capital Gain

1. Type of Capital Gains:

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

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

  2. Gain arising on the transfer of short-term capital asset.

  3. 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 like any other incomes is taxable at normal rate of income-tax, whereas long-term capital gain is taxed at a concessional rate.

2. Types of Capital Assets:

Capital assets are of two types:

  1. Short-Term Capital Asset (STCA)

  2. Long-Term Capital Asset (LTCA)

(1) Short-Term Capital Asset - STCA [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.

(2) Long-Term Capital Asset - LTCA [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

(3) Meaning of Capital Assets in Graphical Chat (Section 2(14) :

Meaning of Capital Assets in Graphical Chat (Section 2(14)

3. Computation of Tax on Short-Term Capital Gain if Security Transaction Tax (STT) is applicable (Section 111A).

Where the total income of an assessee includes any income chargeable under the head "Capital gains", arising from the transfer of a short-term capital asset, being

  1. an equity share in a company or
  2. a unit of an equity oriented fund or
  3. a unit of a business trust

and

  1. the transaction of sale of such equity share or unit is entered into on or after 1.10.2004;
  2. such transaction is chargeable to Securities Transaction Tax (STT) ;

the tax payable by the assessee on the total income shall be computed as under—

  1. On such Short-Term Capital Gains — 15% [+SC+HEC] ; and

  2. On the balance amount of the total income — Special Rates or Normal as applicable.

For the purpose of short-term capital gain, the period of holding in this case of a unit of a business trust shall be 36 months instead of 12 months.

 

(A) Deductions Under Section 80C to 80U are NOT available -

Deductions under sections 80C to 80U are not available in respect of short-term capital gain, if securities transaction tax is applicable.

(B) Exemption Limit in some Cases [Proviso to Section111A] -

Short-term capital gain (where securities transaction tax is applicable) is taxable at the rate of 15% . The entire amount is taxable at 15% (no exemption limit).

However, in the case of a resident individual/HUF, the benefit of exemption limit is available if taxable income (minus short-term capital gain, which is subject to securities transaction tax) is less than exemption limit. In such a case, the following shall be deducted from the short-term capital gain –

Exemption limit—(Net income or taxable income–Short-term capital gain, where securities transaction tax is applicable)

After deducting the aforesaid amount, the balance amount of short-term capital gain is chargeable to tax at the rate of 15% [+ SC + HEC].

Example :

Mr. Clean (58 years) is a resident individual. For the assessment year 2018-19, she has the following incomes—

Short-term capital gain on transfer of shares (securities transaction tax is applicable) (ST)

24,000
Short-term capital gain on transfer of Gold 45,000
Bank Interest 36,000
Salary Income ( After Standard Deduction) 1,62,000
Net Income (NI) 2,67,000

In this case, Mr. Clean is a resident individual. His exemption limit is Rs. 2,50,000. Taxable income (minus short-term capital gain subject to securities transaction tax) is Rs. 2,43,000. It is less than exemption limit.

Consequently, from the short-term capital gain the following shall be deducted—

Rs. 2,50,000 (exemption limit)—[Rs. 2,67,000 (NI)—Rs. 24,000 (ST)] = Rs. 7,000

In this case, the short-term capital gain chargeable to tax will be Rs. 17,000 (i.e., Rs. 24,000 – Rs. 7,000).

Note :

- If Securities Transaction Tax is not applicable, short-term capital gain is taxable like any other income (no special rate).

4. Computation of Tax on Long-Term Capital Gain

  • Long-Term Capital Gain is Taxable at a Flat Rate of 20% [+ SC + HEC].

  • However, Long-Term Capital Gain in the hands of Non-Residents under Section 115AB, 115AC, 115AD or 115E is Taxable at the Rate of 10% [+ SC + HEC].

DEDUCTIONS UNDER SECTIONS 80C TO 80U ARE NOT AVAILABLE -

Deductions under sections 80C to 80U are not available in respect of long-term capital gain.

EXEMPTION LIMIT IN SOME CASES [Proviso to Section 112(1)(a)] -

Long-term capital gain is taxable at the rate of 20% (in some cases 10%). The entire amount is taxable at these rates (no exemption limit).

However, in the case of a resident individual/HUF, the benefit of exemption limit is available, if taxable income (minus long-term capital gain) is less than exemption limit. In such a case, the following shall be deducted from the long-term capital gain –

Exemption limit—(Net income or taxable income—Long-term capital gain)

After deducting the aforesaid amount, the balance amount of long-term capital gain is chargeable to tax at the rate of 20% or 10% [+ SC + HEC].

10% Tax Rate [+ SC + HEC]

  • Long-Term Capital Gain in the hands of Non-Residents under Section 115AB, 115AC, 115AD or 115E is Taxable at the Rate 10% [+SC+HEC]

  • Long-term capital gain in the hands of a non-resident/foreign company is taxable at the rate of 10% [+ SC + HEC], if such gain arises on transfer of unlisted securities or unlisted shares in a company in which the public are not substantially interested.

  • However, this rule is applicable only if the indexation benefit is not claimed and capital gain is calculated without giving effect to the first proviso to section 48 (under this proviso capital gain is calculated in foreign currency if a few conditions are satisfied).

  • Moreover, in the case of any taxpayer if listed securities (i.e., shares, bonds, debentures, Government securities) or zero coupon bonds are transferred and the taxpayer does not avail the benefit of indexation, he can pay tax at the rate of 10% [+ SC + HEC].

    In other words, in the case of these securities, etc., the taxpayer has an option. He can pay tax at the rate of 20% [+ SC + HEC], if indexation benefit is claimed or at the rate of 10% [+ SC + HEC], if indexation benefit is not taken.

  • In the case of debentures, indexation benefit is not otherwise available. Consequently, if debentures (long-term) are listed, one should opt for 10% Rate.

  • In the case of transfer of bonus shares, cost of acquisition is generally zero. One should opt for 10% Rate if bonus shares are long-term capital assets and are listed.

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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