Guide to .. Tax Management ,Tax Planning and Tax Saving

 

 

" What Is A Capital Asset? "

For the purposes of bringing to tax any gain under the head “capital gain”, the item transferred must be a capital asset. Hence its defmition becomes very important. As per Section 2(14) of the IT Act, 1961 it is defined as property of any kind held by an assessee whether or not connected with his business or profession, but not including:


(i)      Any stock-in-trade and raw materials held for the purposes of his business or profession;

(ii)     Personal effects, i.e. to say, movable property (including wearing apparel and furniture, but excluding jewellery, archaeological collections, drawings, paintings, sculptures and any work of art) held for personal use by the assessee or any member of his family dependant on him;

 

(iii) Agricultural land in India not being situated within the jurisdicdon of a municipality or within 8 km. of a municipality as may be notified;


(iv) Gold bonds;


(v) Special Bearer Bonds, 1991; and


(vi) Gold Deposit Bonds.


The most important item that should be noted in this regard is “personal effects” like silver utensils, wearing apparel, etc. which are not treated as capital assets.


Capital assets are of two types:

  1. long-term capital assets and
  2. short-term capital assets.

 

Under Section 2(42A) a “short-term capital” asset means a capital asset held by an assessee for not more than 36 months immediately preceding the date of its transfer.

 

However, in the case of a share held in a company or any other security listed in a recognised stock exchange in India or a unit of UTI or a unit of an approved mutual fund, the words “12 months” would be substituted for the words “36 months”.

 

Where any capital asset is held by an assessee in the case of a share held in a company in liquidation, the period subsequent to the date on which the company goes into liquidation would be excluded.

 

In the case of a capital asset which becomes the property of the assessee, say, by gift or by will or by partition of an HUF, etc., the period for which the asset was held by the previous owner referred in Section 49(1) would also be included.

 

In the case of a capital asset being a share or any financial asset subscribed to by the assessee on the basis of his right to subscribe to such financial assets or subscribed to by the person in whose favour the assessee has renounced his right to subscribe to such financial assets, the period would be reckoned from the date of allotment of such financial asset.

 

As regards a capital asset being a right to subscribe to any financial asset popularly known as right entitlements, which is renounced in favour of any other person, the period would be reckoned from the date of the offer of such right by the company or institution, as the case may be, making such offer. Thus the amount received on the renunciation of right share would normally be taxable as a short-term capital gain. As regards bonus shares, the cost price would be treated as “nil”. The asset which is not a short-term capital asset is regarded as a long-term capital asset which results in long-term capital gains, on its transfer as is described below.


As per Finance Act, 2005 Zero coupon bonds would be treated as a capital asset and the long-term capital gains arising thereon would be taxable at the rate of 10% without Indexation and at the rate of 20% with Indexation.


 

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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