Capital Gain
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Sunday, 15 May 2016
Capital Gain Exemption from Sale of Residential Agricultural Land – Sec 54B
Eligible Assessee – Individual and HUF
Eligible Capital Gain – Capital gain arising from transfer of land which in 2 years immediately preceding the date on which the transfer took place was being used by the HUF or individual or his parents for agriculture purposes.
Condition for exemption – The assessee has purchased any other land for being used for agricultural purposes within a period of 1 year before or 2 years after the date on which such transfer took place.
Amount of exemption – The amount of exemption will be lower of following
a) amount of capital gain
b) cost of such land
b) cost of such land
Lock in period – 3 years
If such new land is transferred within 3 years of its purchase or construction, then its cost of acquisition shall be reduced by the amount of the capital gains exempted earlier for the purpose of computing capital gains on such transfer.
Benefit of Capital Gains Account Scheme, 1988 is available under this section.
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Capital Gain Exemption from Sale of Residential House Property – Sec 54
Eligible Assessee – Individual and HUF
Eligible Capital Gain – Capital gain arising from transfer of long termcapital asset being buildings or lands attached thereto and being a residential house the income of which is taxable under head “Income from House Property”.
Condition for exemption – The assessee has
a) purchased a residential house within a period of 1 year before or 2 years after the date on which such transfer took place
or
b) constructed a residential house within a period 3 years after the date on which such transfer took place
Amount of exemption – The amount of exemption will be lower of following
a) amount of capital gain
b) cost of residential house so purchased or constructed
b) cost of residential house so purchased or constructed
Lock in period – 3 years
If such new residential house property is transferred within 3 years of its purchase or construction, then its cost of acquisition shall be reduced by the amount of the capital gains exempted earlier for the purpose of computing capital gains on such transfer.
Benefit of Capital Gains Account Scheme, 1988 is available under this section.
Case Laws
If provisional booking of flat is done, assessee has provisional letter of allotment and there is no agreement to sell then also it is treated as acquisition of residential house property and therefore exemption under this section is allowed. CIT vs Ram Gopal (2015 Delhi HC)
Exemption under section 54 is also available in respect of more than one residential house property. There is no condition that exemption is allowed only in respect of purchase or construction of only one property. CIT vs Syed Ali Ali (2013) (AP)
In case where the payment is made by co-owner to get the full ownership, it is considered as purchase and thus eligible for exemption. CIT vs V. Aravinda Reddy (1979) (SC)
Purchase of a portion is eligible for exemption. Eg – If an assessee purchases 20% share in a house property. CIT vs Chandanben Maganlal (2000) 245 ITR (Guj.)
Mere construction by way of extension of old existing house is not eligible for exemption. CIT vs V. Pradeep Kumar (2006) (Mad)
Computation of Short Term Capital Gain/Loss
Short term capital gain means capital gain arising from transfer of short term capital asset. No indexation benefit is available for short term capital gains.
Short term capital gain is computed as under
| Short Term Capital Gain/Loss | Amount |
| Full value of consideration Less: Expenses incurred wholly and exclusively in connection with such transfer Net ConsiderationLess: Cost of acquisition Less: Cost of improvement
Short Term Capital Gains
Less: Exemption under section 54B, 54D, 54G, 54GA | xxx xxx xxxxxx xxx
xxx
xxx |
| Taxable Short Term Capital Gain (Loss if negative) | XXX |
Securities Transaction Tax (STT) is not allowed as deduction of expenses while calculating capital gain whether short term or long term.
Computation of Long Term Capital Gain/Loss
Long term capital gain means capital gain arising from transfer of long term capital asset. Indexation benefit is available for long term capital gains.
Long term capital gain is computed as under
| Long Term Capital Gain/Loss | Amount |
| Full value of consideration Less: Expenses incurred wholly and exclusively in connection with such transfer Net ConsiderationLess: Indexed Cost of acquisition Less: Indexed Cost of improvement Long Term Capital Gains Less: Exemption under section 54, 54B, 54D, 54EC, 54F, 54G, 54GA, 54GB | xxx xxx xxxxxx xxxxxx xxx |
| Taxable Long Term Capital Gain (Loss if negative) | XXX |
Securities Transaction Tax (STT) is not allowed as deduction of expenses while calculating capital gain whether short term or long term.
Indexed Cost of Acquisition = (Cost of Acquisition x CII of year of transfer) / CII of year of acquisition of asset or CII for year 1981 whichever is later.
Indexed Cost of Improvement = Cost of Improvement x CII of year of transfer) / CII of year in which improvement took place
Cost Inflation Index (CII) Table
Financial Year
| Cost Inflation Index | Financial Year |
Cost Inflation Index
|
1981-82
| 100 | 1998-99 | 351 |
| 1982-83 | 109 | 1999-00 |
389
|
1983-84
| 116 | 2000-01 | 406 |
| 1984-85 | 125 | 2001-02 |
426
|
1985-86
| 133 | 2002-03 | 447 |
| 1986-87 | 140 | 2003-04 |
463
|
1987-88
| 150 | 2004-05 | 480 |
| 1988-89 | 161 | 2005-06 |
497
|
1989-90
| 172 | 2006-07 | 519 |
| 1990-91 | 182 | 2007-08 |
551
|
1991-92
| 199 | 2008-09 | 582 |
| 1992-93 | 223 | 2009-10 |
632
|
1993-94
| 244 | 2010-11 | 711 |
1994-95
| 259 | 2011-12 |
785
|
1995-96
| 281 | 2012-13 | 852 |
| 1996-97 | 305 | 2013-14 |
939
|
| 1997-98 | 331 | 2014-15 |
1024
|
| 2015-16 | 1081 |
Transactions not regarded as transfer of Capital Assets
The following transactions are not required as transfer in case of capital assets and thus no Capital gain/loss arises.
- any distribution of capital assetson the total or partial partition of a Hindu undivided family
- any transfer of a capital asset under a giftor will or an irrevocable trust
Provided that this clause shall not apply to transfer under a gift or an irrevocable trust of a capital asset being shares,debentures or warrants allotted by a company directly or indirectly to its employees under any Employees’ Stock Option Plan or Scheme of the company offered to such employees in accordance with the guidelines issued by the Central Government in this behalf - any transfer of a capital asset by a company to its subsidiary company, if—
- the parent company or its nominees hold the whole of the share capital of the subsidiary company, and
- the subsidiary company is an Indian company [Note 1]
- any transfer of a capital asset by a subsidiary company to the holding company, if—
- (a) the whole of the share capital of the subsidiary company is held by the holding company, and
- the holding company is an Indian company [Note 1]
- transfer, in a scheme of amalgamation, of a capital asset by the amalgamating company to the amalgamated company if the amalgamated company is an Indian company
- any transfer, in a scheme of amalgamation, of a capital asset being a share or shares held in an Indian company, by the amalgamating foreign company to the amalgamated foreign company, if—
- at least twenty-five per cent of the shareholders of the amalga-mating foreign company continue to remain shareholders of the amalgamated foreign company, and
- such transfer does not attract tax on capital gains in the country, in which the amalgamating company is incorporated
- any transfer, in a scheme of amalgamation of a banking company with a banking institution sanctioned and brought into force by the Central Government under sub-section (7) of section 45 of the Banking Regulation Act, 1949 (10 of 1949), of a capital asset by the banking company to the banking institution.
- any transfer, in a demerger, of a capital asset by the demerged company to the resulting company, if the resulting company is an Indian company;
- any transfer in a demerger, of a capital asset, being a share or shares held in an Indian company, by the demerged foreign company to the resulting foreign company, if—
- the shareholders holding not less than three-fourths in value of the shares of the demerged foreign company continue to remain shareholders of the resulting foreign company; and
- such transfer does not attract tax on capital gains in the country, in which the demerged foreign company is incorporated :
- any transfer in a business reorganisation, of a capital asset by the predecessor co-operative bank to the successor co-operative bank;
- any transfer by a shareholder, in a business reorganisation, of a capital asset being a share or shares held by him in the predecessor co-operative bank if the transfer is made in consideration of the allotment to him of any share or shares in the successor co-operative bank.
- any transfer or issue of shares by the resulting company, in a scheme of demerger to the shareholders of the demerged company if the transfer or issue is made in consideration of demerger of the undertaking
- any transfer by a shareholder, in a scheme of amalgamation, of a capital asset being a share or shares held by him in the amalgamating company, if—
- the transfer is made in consideration of the allotment to him of any share or shares in theamalgamated company, and
- the amalgamated company is an Indian company;
- any transfer of a capital asset, being bonds orGlobal Depository Receipts referred to in sub-section (1) of section 115AC, made outside India by a non-resident to another non-resident
- any transfer of a capital asset, being any work of art, archaeological, scientific or art collection, book, manuscript, drawing, painting, photograph or print, to the Government or a University or the National Museum, National Art Gallery, National Archives or any such other public museum or institution as may be notifiedby the Central Government in the Official Gazette to be of national importance or to be of renown throughout any State or States.
- any transfer by way of conversion ofbonds or debentures, debenture-stock or deposit certificates in any form, of a company into shares or debentures of that company
- any transfer by way of conversion of bonds referred to in clause (a) of sub-section (1) of section 115AC into shares or debentures of any company
- any transfer of a capital asset, being land of a sick industrial company, made under a scheme prepared and sanctioned under section 1846 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) where such sick industrial company is being managed by its workers’ co-operative :
Provided that such transfer is made during the period commencing from the previous year in which the said company has become a sick industrial company under sub-section (1) of section 1747 of that Act and ending with the previous year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses. - Conversion of firm into Company (Note-2) : any transfer of a capital asset or intangible asset by a firm to a company as a result of succession of the firm by a company in the business carried on by the firm, or any transfer of a capital asset to a company in the course of demutualisation corporatisation of a recognised stock exchange in India as a result of which an association of persons or body of individuals is succeeded by such company
Provided that—
- all the assets and liabilities of the firmor of the association of persons or body of individuals relating to the business immediately before the succession become the assets and liabilities of the company
- all the partners of the firm immediately before the succession become the shareholders of the company in the same proportion in which their capital accounts stood in the books of the firm on the date of the succession
- the partners of the firm do not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of allotment of shares in the company
- the aggregate of the shareholding in the company of the partners of the firm is not less than fifty per cent of the total voting power in the company and their shareholding continues to be as such for a period of five years from the date of the succession
- thedemutualisation or corporatisation of a recognised stock exchange in India is carried out in accordance with a scheme for demutualisation or corporatisation which is approved by the Securities and Exchange Board of India
- any transfer of a capital asset being a membership right held by a member of a recognised stock exchange in India for acquisition of shares and trading or clearing rights acquired by such member in that recognised stock exchange in accordance with a scheme for demutualisation or corporatisation which is approved by the SEBI
- any transfer of a capital asset or intangible asset by a private company or unlisted public company (hereafter in this clause referred to as the company) to a limited liability partnership or any transfer of a share or shares held in the company by a shareholder as a result of conversion of the company into a limited liability partnership in accordance with the provisions of section 56 or section 57 of the Limited Liability Partnership Act, 2008
Provided that—
- all the assets and liabilities of the company immediately before the conversion become the assets and liabilities of the limited liability partnership;
- all the shareholders of the company immediately before the conversion become the partners of the limited liability partnership and their capital contribution and profit sharing ratio in the limited liability partnership are in the same proportion as their shareholding in the company on the date of conversion;
- the shareholders of the company do not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of share in profit and capital contribution in the limited liability partnership;
- the aggregate of the profit sharing ratio of the shareholders of the company in the limited liability partnership shall not be less than fifty per cent at any time during the period of five years from the date of conversion;
- the total sales, turnover or gross receipts in the business of the company in any of the three previous years preceding the previous year in which the conversion takes place does not exceed sixty lakh rupees; and
- no amount is paid, either directly or indirectly, to any partner out of balance of accumulated profit standing in the accounts of the company on the date of conversion for a period of three years from the date of conversion.
- where a sole proprietary concern is succeeded by a company in the business carried on by it as a result of which the sole proprietary concern sells or otherwise transfers any capital asset or intangible asset to the company :
Provided that—
- all the assets and liabilities of the sole proprietary concern relating to the business immediately before the succession become the assets and liabilities of the company;
- the shareholding of the sole proprietor in the company is not less than fifty per cent of the total voting power in the company and his shareholding continues to remain as such for a period of five years from the date of the succession; and
- the sole proprietor does not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of allotment of shares in the company;
- any transfer in a scheme for lending of any securities under an agreement or arrangement, which the assessee has entered into with the borrower of such securities and which is subject to the guidelines issued by the SEBI or the Reserve Bank of India in this regard
- any transfer of a capital asset in a transaction of reverse mortgage under a scheme made and notified by the Central Government.
- Roll over in case of Fixed Maturity Plan (FMP) of mutual funds will not amount of transfer if the scheme remains the same.
Note no. 1 :-
Note no. 2 :- In point no. (xix),(xxi) and (xxii) , where the conditions laid down are not complied with then the profits and gains arising from the transfer of assets shall be taxable in hands of the successor company or LLP as the case may be, in the year in which such conditions are not complied with.
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