Tax ImplicationsCAPITAL GAINSBy C.Venkata KrishnaFor Community: Graduates studying Income Tax

Computation Of Total IncomeIncome from Salaries $$$$Income from House Property $$$$Profits & Gains of Business/Profess.$$$$Capital Gains(Sec 45)$$$$Income from Other Sources$$$$

CHARGEABILITYAny profits or Gains arising from the transfer of a Capital Asset during the previous year is Chargeable to Tax under this head of income.That is to Say:-

There Should be a Capital AssetCapital Assets should be transferred during the previous year.Profit/Gains should have arisen.Such Profit/Gains should be liable for tax.

What are Capital AssetsIt includes all type of assets Whether movable/immovable, tangible/intangible etc.,It excludes the following:-Stock in trade, consumable stores/raw materials held for business/profession.Personal effects including wearing apparel and furniture.Agricultural Land (Conditions on Situation applies)Certain Specified Gold BondsSpecial Bearer BondsGold Deposit Bonds

Judicial points on what is taxable and what is not taxable.

Personal effects should be movable property, it should be held for personal use and it should not be Jewellary, archaeological collections, drawings, paintings, sculptures, or any work of art.Gold and Silver coins and bars used for pooja of deities as a matter of pride or ornamentation are not personal effects. Therefore taxable.Furniture's are of personal use. Therefore not taxable.Foreign Stamp collections not a personal effect. Therefore taxable.Car, Scooter etc., are under personal effects. Therefore exempted.Securities, Loose diamonds, Goats are not personal effects. Therefore taxable.

TYPES OF CAPITAL ASSETS

SHORT TERM If the asset is held for Less than 36 Months then they are Short Term capital assets.

In case of Equity/Preference Shares in a Company, Securities such as Debentures/Government Securities and Units of UTI and Units of Mutual funds and Zero Coupon bonds the term is 12 instead of 36 months.

LONG TERM If the asset is held for More than 36 Months then they are Long Term Capital Assets.

TAX LIABILITYSHORT TERM CAPITAL GAINS

To determine the Value of ConsiderationTo deduct expenditure incurred for the transferTo deduct the cost of acquisition.To deduct cost of improvement.To avail exemption u/s 54 B, 54 D, 54 G, and 54 GA.The balance amount is Short Term Capital Gains.Short Term Capital Gains are chargeable to Tax based on SLAB RATES.

LONG TERM CAPITAL GAINS

To determine the Value of ConsiderationTo deduct expenditure incurred for the transfer.To deduct indexed cost of acquisitionTo deduct indexed cost of improvement.To avail exemption u/s 54, 54 B,54 D, 54 EC, 54F, 54 G, 54 GA,The balance amount is Long Term Capital Gains.Long Term Capital Gains are chargeable to Tax on Flat Rate i.e 20%

INDEXATION BENEFITWhat is Indexation:-Indexation is nothing but working out the value of asset based on cost inflation index. Cost inflation index for the year 1981-82 is 100 Cost inflation index for the year 2007-08 is 551. If an assessee had purchased an asset during the year 81-82 for a sum of Rs.100.00. The same assets value will be 551 if purchased during the year 2007-08 based on cost inflation index.

Therefore the assessee gets additional benefit by deducting 551 instead of 100.

EXEMPTED CAPITAL GAINSSection 54

Section54 B

Section 54 D

Transfer of a Long Term Residential House Property and Purchasing/Constructing a New Residential House Property.Transfer of Agricultural Land and acquires a new land for agricultural purpose.

Compulsory acquisition of land and buildings forming part of industrial undertaking and again invested.

EXEMPTED CAPITAL GAINSSection 54 EC

Section 54 F

Section 54 GTransfer of Long Term Capital Asset and investing in Long Term Bonds.

Transfer of a Long Term Capital Asset other than a House Property and investing in Long Term Residential House Property.

Transfer of Assets in shifting of industrial undertakings from urban area to rural area.

EXEMPTED CAPITAL GAINSSection 54 GA

Capital Gains from Transfer of assets in cases of Shifting of industrial undertaking from urban area to any special economic zone

Thanks

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