Any profits or gains arising from the transfer of a capital asset effected in the previous year shall be chargeable to income-tax under the head ‘Capital Gains’.
Capital asset means –
- Property of any kind held by an assessee whether or not connected with his business or profession.
- Any securities held by a Foreign Institutional Investor which has invested in such securities
Period of Holding
- Period for which the asset is held by the assessee.
- While the computing period of holding the date of purchase is included the date of transfer is excluded
Assets received as a gift
The period for which the asset was held by the previous owner shall also be considered for computing period of holding
Short-term capital asset
This means a capital asset held by an assessee for not more than thirty-six months immediately preceding the date of transfer.
Property constructed on a land purchased earlier
Land and property are held by the assessee for more than 24 months but the building constructed over it is held for not more than 36 months, then there will be long-term capital gains on the sale of the land and short-term capital gains on the sale of a building.
Period of holding in a case where an asset was initially not held as a capital asset but is a capital asset at the time of transfer:
The period of holding from the date of initial acquisition up to date of transfer will be considered.
Tax Rates on Capital Gains
- Short term capital gains – Slab rates have been provided for taxing STCG
- Long term capital gains are taxable @ 20%
COMPUTATION OF CAPITAL GAINS
- Short term capital gain means capital gains arising from the transfer of a short-term capital asset.
- Long-term capital gain means capital gains arising from the transfer of a long-term capital asset
- Long term capital asset, Index cost of acquisition will be used instead of Cost of acquisition, Index cost of acquisition will be used instead of Cost of acquisition
- Mode of computation u/s Section 48
Full Value of Consideration
- Means actual what the transferor receives, or is entitled to receive as consideration for the capital asset transferred.
- It is not always the market value of the asset on the date of transfer.
Expenses on transfer
It includes any expenditure incurred, whether directly or indirectly, for the purpose of transfer like any expenses, brokerage, stamp duty, registration fees, legal expenses, etc.
Cost of acquisition
- The cost of acquisition is the price paid or the amount incurred by the assessee for the acquisition of the asset.
- Expenses incurred for acquiring the title are also considered to be part of the cost of acquisition.
- Any Interest on money borrowed, for acquiring capital assets, will form part of the cost of the asset.
- Where the capital asset is received as a gift etc. The COA shall be deemed to be the cost for which the previous owner acquired it.
Cost of acquisition for assets acquired before 1.4.2001
Where the assessee acquired the asset himself on or before 1.4.2001, he has an option to take either:
- the actual cost of acquisition or
- the fair market value of the asset as on 1.4.2001
to be the cost of acquisition for computation of capital gain.
Cost of improvement
- In relation to a capital asset being goodwill of a business or a right to manufacture, produce or process any article or thing or right to carry on any business shall always be nil, whether self-generated or acquired.
Indexed cost of acquisition
Cost of acquisition x Cost Inflation Index of the year of transfer
Cost Inflation Index (CII)of the year in which the asset was held by the assessee or CII of 2001−02 Whichever is later
Indexed Cost of Improvement
Long term capital assets
- The cost of the improvement will also be indexed irrespective of the year in which it was incurred.
- Obviously COI incurred before 1/4/2001 is to be ignored.
- The COI incurred by Previous year owners will also be indexed.
Cost of Improvement x Cost Inflation Index of the year of transfer Cost Inflation Index (CII)of the year in which improvement took place
