Provisions of Capital Gains Under Provisions of Capital Gains Under
Taxation Act 1961 Taxation Act 1961 Capital gains
Capital gains should be taken to should be taken to mean profits or gains arising to the assessee from the ‘transfer’mean profits or gains arising to the assessee from the ‘transfer’ of a ‘capital asset’.
of a ‘capital asset’.
""Capital assetCapital asset" means property of any kind held by an assessee, whether or not connected with" means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include
his business or profession, but does not include
-(i) Any stock-in-trade, consumable stores or raw materials held for the purposes of his business (i) Any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession
or profession
(ii) !ersonal effects, that is to say, moable property (including wearing ap
(ii) !ersonal effects, that is to say, moable property (including wearing ap parel and furniture,parel and furniture, but e#cluding $ewellery) held for personal use by the assessee or any member of his family but e#cluding $ewellery) held for personal use by the assessee or any member of his family
dependent on him. dependent on him.
%#planation & 'or the purposes
%#planation & 'or the purposes of this sub-clause, "ewelof this sub-clause, "ewellery" includes - lery" includes - (a) rnaments made of(a) rnaments made of gold, siler, platinum or any other precious metal or any alloy containing one or more of such gold, siler, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stone, and whether or precious metals, whether or not containing any precious or semi-precious stone, and whether or
not worked or sewn into any wearing apparel not worked or sewn into any wearing apparel
(b) !recious or semi-precious stones, whether or not set in any
(b) !recious or semi-precious stones, whether or not set in any furniture, utensil or other articlefurniture, utensil or other article or worked or sewn into any
or worked or sewn into any wearing apparelwearing apparel
(iii) Agricultural land in *ndia, not being land situate (iii) Agricultural land in *ndia, not being land situate
-(a) *n any area which is comprised within the $urisdiction of a municipality (whether known as a (a) *n any area which is comprised within the $urisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town
municipality, municipal corporation, notified area committee, town area committee, town
committee, or by any other name) or a cantonment board and which has a population of not less committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the releant figures hae been than ten thousand according to the last preceding census of which the releant figures hae been published before the +st day of the preious year or
published before the +st day of the preious year or (b) *n any area within such distance,
(b) *n any area within such distance, not being more than eight knot being more than eight kilometers from the local limits ofilometers from the local limits of any municipality or cantonment board referred to
any municipality or cantonment board referred to in item (a), as the entral oernment may,in item (a), as the entral oernment may, haing regard to the e#tent of, and scope for, urbanisation of that area and other releant haing regard to the e#tent of, and scope for, urbanisation of that area and other releant considerations, specify / in this behalf by notification in
considerations, specify / in this behalf by notification in the fficial a0ettethe fficial a0ette
(i) 1 +2 per cent old 3onds, +455, or 5 per cent old 3onds, +46/, 7ational 8efence old (i) 1 +2 per cent old 3onds, +455, or 5 per cent old 3onds, +46/, 7ational 8efence old 3onds, +46/, issued by the
3onds, +46/, issued by the entral oernmententral oernment () 9pecial 3earer 3onds, +44+, issued
() 9pecial 3earer 3onds, +44+, issued by the entral oernmentby the entral oernment
(i) old 8eposit 3onds issued under the old 8eposit 9cheme, +444 notified by the entral (i) old 8eposit 3onds issued under the old 8eposit 9cheme, +444 notified by the entral oernment
Short-term and long-term capital
assets-apital assets hae been subdiided into two categories i0. :short-term capital assets; and long-term capital assets;. 9ec (4A) defines a long long-term capital asset; as meaning a capital asset which is not a short term asset. <he e#pression :short- term capital asset has been defined in 9ec.(=A) to mean :a capital asset held by an assessee for not more than >1 months preceding the date of its transfer;. As regards holdings of shares, units, securities, or a 0ero coupon bond, the period of holding any capital asset has been statutorily reduced to + months.
<hus, ordinarily, a long term capital asset is one, which is held by a assessee for more than >1 months, otherwise the capital asset becomes a short-term capital asset.
Transfer-sec.!"#$
apital gains arise only on the transfer of a capital asset. 9ec (=5) defines the transfer in relation to a capital asset, and in sec.=? ()-(?) whereby certain transactions, by implication, hae been treated as case of transfer although normally those might not be so treated. <he e#pression includes&
i) <he sale, e#change or or relin@uishment of asset or ii) <he e#tinguishment of any rights therein or
iii) <he compulsory ac@uisition thereof any under law or
i) *n a case where the asset is conerted by the owner thereof into, is treated by him as stock-in-trade of a business carried on by him, such conersation or treatment or
*a) the maturity or redemption of 0ero coupon bond or Section "%
CAP&TA' GA&(S.
(+) Any profits or gains arising from the transfer 5>5 of a capital asset effected in the preious year shall, sae as otherwise proided in sections ?=, ?=3, ?=8, ?=%, ?=%A, ?=%3, ?=' , ?= and ?= be chargeable to income-ta# under the head "apital gains", and shall be deemed to be the income of the preious year in which the transfer took place.
(+A) 7otwithstanding anything contained in sub-section (+), where any person receies at any time during any preious year any money or other assets under an insurance from an insurer on account of damage to, or destruction of, any capital asset, as a result of - (i) 'lood, typhoon, hurricane, cyclone, earth@uake or other conulsion of nature or
(iii) Accidental fire or e#plosion or
(i) Action by an enemy or action taken in combating an enemy (whether with or without a declaration of war), then, any profits or gains arising from receipt of such money or other assets shall be chargeable to income-ta# under the head "apital gains" and shall be deemed to be the income of such person of the preious year in which such money or other asset was receied and for the purposes of section =6, alue of any money or the fair market alue of other assets on the date of such receipt shall be deemed to be the full alue of the consideration receied or accruing as a result of the transfer of such capital asset.
%#planation. - 'or the purposes of this sub-section, the e# pression "insurer" shall hae the meaning assigned to it in clause (4) of section of the *nsurance Act, +4>6 (= of +4>6).
() 7otwithstanding anything contained in sub-section (+), the profits or gains arising from the transfer by way of conersion by the owner of a capital asset into, or its treatment by him as, stock-in-trade of a business carried on by him shall be chargeable to income-ta# as his income of the preious year in which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of section =6, the fair market alue of the asset on the date of such conersion or treatment shall be deemed to be the full alue of the consideration receied or accruing as a result of the transfer of the capital asset.
(A) Chere any person has had at any time during preious year any beneficial interest in any securities, then, any profits or gains arising from transfer made by the d epository or participant of such beneficial interest in respect of securities shall be chargeable to income-ta# as the income of the beneficial owner of the preious year in which such transfer took place and shall not be regarded as income of the depository who is deemed to be registered owner of securities by irtue of sub-section (+) of section +/ of the 8epositories Act, +441, and for the purposes of - (i) 9ection =6 and
(ii) !roiso to clause (=A) of section , the cost o f ac@uision and the period of holding of any securities shall be determined on the basis of the first-in-first-out method.
%#planation. - 'or the purposes of this sub-section, the e# pressions "beneficial owner",
"depository" any "security" shall hae the meanings respectiely assigned to them in clauses (a), (e) and (l) of sub-section (+) of section of the 8epositories Act, +441.
(>) <he profits or gains arising from the transfer of a capital asset by a person to a firm or other association of persons or body of indiiduals (not being a company or a co-operatie society) in which he is or becomes a partner or member, by way of capital contribution or otherwise, shall be chargeable to ta# as his income of the preious year in which such transfer takes place and,
for the purposes of section =6, the amount recorded in the books of account of the firm,
association or body as the alue of the capital asset shall be deemed to be the full alue of the consideration receied or accruing as a result of the transfer of the capital asset.
(=) <he profits or gains arising from the transfer of a capital asset by way of distribution of capital assets on the dissolution of a firm or other association of p ersons or body of indiiduals
(not being a company or a co-operatie society) or otherwise, shall be chargeable to ta# as the income of the firm, association or body, of the preious year in which the said transfer takes place and, for the purposes of section =6, the fair market alue of the asset on the date of such
transfer shall be deemed to be the full alue of the consideration receied or accruing as a result of the transfer.
(?) 7otwithstanding anything contained in sub-section (+), where the ca pital gain arises from the transfer of a capital asset, being a transfer by way of compulsory ac@uisition under any law, or a transfer the consideration for which was determined or approed by the entral oernment or the Besere 3ank of *ndia, and the compensation or the consideration for such transfer is
enhanced or further enhanced by any court, <ribunal or other authority, the capital gain shall be dealt with in the following manner, namely &- (a) <he capital gain computed with reference to the compensation awarded in the first instance or, as the case may be, the consideration
determined or approed in the first instance by the entral oernment or the Besere 3ank of *ndia shall be chargeable as income under the head "apital gains" of the preious year in which such compensation or part thereof, or such consideration or part thereof, was first receied and (b) <he amount by which the compensation or consideration is enhanced or further enhanced by the court, tribunal or other authority shall be deemed to be income chargeable under the head "apital gains" of the preious year in which such amount is receied by the assessee.
%#planation & 'or the purposes of this sub-section, - (i) *n relation to the amount referred to in clause (b), the cost of ac@uisition and the cost of improement shall be taken to be nil
(ii) <he proisions of this sub-section shall apply also in a case where the transfer took place prior to the +st day of April, +466
(iii) Chere by reason of the death of the person who made the transfer, or for any other reason, the enhanced compensation or consideration is receied by any other person, the amount referred to in clause (b) shall be deemed to be the income chargeable to ta# under the head "apital
gains", of such other person.
(1) 7otwithstanding anything contained in sub-section (+), the difference between the repurchase price of the units referred to in sub-section () of section 6/3 and the capital alue of such
units shall be deemed to be the capital gains arising to the assessee in the preious year in which such repurchase takes place or the plan referred to in that section is terminated and shall be ta#ed accordingly.
Section "6
CAP&TA' GA&(S )( *&ST+&,UT&)( ) ASSTS ,/ C)0PA(&S &( '&U&*AT&)(.
(+) 7otwithstanding anything contained in section =?, where the assets of a company are distributed to its shareholders on its li@uidation, such distribution shall not be regarded as a transfer by the company for the purposes of section =?.
() Chere a shareholder on the li@uidation of a company receies any money or other assets from the company, he shall be chargeable to income-ta# under the head "apital gains", in respect of the money so receied or the market alue of the other assets on the date of
distribution, as reduced by the amount assessed as diidend within the meaning of sub-clause (c) of clause () of section and the sum so arried at, shall be deemed to be the full alue of the consideration for the purposes of section =6.
Section "#
T+A(SACT&)(S ()T +GA+** AS T+A(S+.
7othing contained in section =? shall apply to the following transfers & (i) Any distribution of capital assets on the total or partial partition of a indu undiided family
(iii) Any transfer of a capital asset under a gift or will or an irreocable trust
(i) Any transfer of a capital asset by a company to its subsidiary company, if - (a) <he parent company or its nominees hold the whole of the share capital of the subsidiary company and (b) <he subsidiary company is an *ndian company
() Any transfer of a capital asset by a subsidiary company to the holding company, if - (a) <he whole of the share capital of the subsidiary company is held by the holding company, and
(b) <he holding company is an *ndian company &
!roided that nothing contained in clause (i) or clause () shall apply to the transfer of a capital asset made after the 4th day of 'ebruary, +466, as stock-in-trade
(i) Any transfer, in a scheme of amalgamation, of a capital asset by the amalgamating company to the amalgamated company if the amalgamated company is an *ndian company
(ia) Any transfer, in a scheme of amalgamation, of a capital asset being a share or shares held in an *ndian company, by the amalgamating foreign company to the amalgamated foreign company, if - (a) At least twenty-fie per cent of the shareholders of the amalgamating foreign company continue to remain shareholders of the amalgamated foreign company, and
(b) 9uch transfer does not attract ta# on capital gains in the country, in which the amalgamating company is incorporated
(ib) Any transfer, in a demerger, of a capital asset by the demerged company to the resulting company, if the resulting company is an *ndian company
(ic) Any transfer in a demerger, of a capital asset, being a share or shares held in an *ndian company, by the demerged foreign company to the resulting foreign company, if - (a) At least
seenty-fie per cent of the shareholders of the demerged foreign company continue to remain shareholders of the resulting foreign company and
(b) 9uch transfer does not attract ta# on capital gains in the country, in which the demerged foreign company is incorporated &
!roided that the proisions of sections >4+ to >4= of the ompanies Act, +4?1 (+ of +4?1) shall not apply in case of demergers referred to in this clause
(id) 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
(ii) 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 - (a) <he transfer is made in
consideration of the allotment to him of any share or shares in the amalgamated company, and (b) <he amalgamated company is an *ndian company
(iia) Any transfer of capital asset, being bonds or shares referred to in sub-section (+) of section ++?A, made outside *ndia by a non-resident to another non-resident
(iii) Any transfer of agricultural land in *ndia effected before the +st d ay of Darch, +45/ (i#) 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 oernment or a Eniersity or the 7ational Duseum, 7ational Art allery, 7ational Archies or any such other public museum or institution as may be notified 5?> by the entral oernment in the fficial
a0ette to be of national importance or to be of renown throughout any 9tate or 9tates. %#planation & 'or the purposes of this clause, "Eniersity" means a Eniersity established or incorporated by or under a entral, 9tate or !roincial Act and includes an institution declared under section > of the Eniersity rants ommission Act, +4?1 (> of +4?1), to be a Eniersity for the purposes of that Act.
(#) Any transfer by way of conersion of bonds or debentures, debenture-stock or deposit certificates in any form, of a company into shares or debentures of that company.
(#i) Any transfer made on or before the 5?>ca >+st day of 8ecember, +446, 5?>ca by a person (not being a company) of a capital asset being membership of a recognised stock e#change to a company in e#change for shares allotted by that company to the transferor.
%#planation & 'or the purposes of this clause, the e#pression "membership of a recognised stock e#change" means the membership of a stock e#change in *ndia which is recognised under the proisions of the 9ecurities ontract (Begulation) Act, +4?1 (= of +4?1)
(#ii) Any transfer of a capital asset, being land of a sick industrial company, made under a scheme prepared and sanctioned under section +6 of the 9ick *ndustrial ompanies (9pecial !roisions) Act, +46? (+ of +461) where such sick industrial company is being managed by its workersF co-operatie &
!roided that such transfer is made during the period commencing from the preious year in which the said company has become a sick industrial company under sub-section (+) of section +5 of that Act and ending with the preious year during which the entire net worth of such company becomes e@ual to or e#ceeds the accumulated losses.
%#planation & 'or the purposes of this clause, "net worth" shall hae the meaning assigned to it in clause (ga) of sub-section (+) of section > of the 9ick *ndustrial ompanies (9pecial !roisions) Act, +46? (+ of +461).
(#iii) Chere a firm is succeeded by a company in the business carried on by it as a result of which the firm sells or otherwise transfers any capital asset or intangible asset to the company & !roided that - (a) All the assets and liabilities of the firm relating to the business immediately before the succession become the assets and liabilities of the company
(b) 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 succession
(c) <he partners of the firm do not receie any consideration or benefit, directly or indirectly, in any form or manner, other than by way of allotment of shares in the company and
(d) <he aggregate of the shareholding in the company of the partners of the firm is not less than fifty per cent of the total oting power in the company and their share holding continues to be as such for a period of fie years from the date of the succession
(#i) Chere 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 &
!roided that - (a) 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 (b) <he shareholding of the sole proprietor in the company is not less than fifty per cent of the total oting power in the company and his shareholding continues to so remain as such for a period of fie years from the date of the succession and
(c) <he sole proprietor does not receie any consideration or benefit, directly or indirectly, in an y 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 sub$ect to the guidelines issued by the 9ecurities and %#change 3oard of *ndia, established under section > of the 9ecurities and %#change 3oard of *ndia Act, +44 (+? of +44), in this regard.
Section "2
0)* ) C)0PUTAT&)(.
<he income chargeable under the head "apital gains" shall be computed, by deducting from the full alue of the consideration receied or accruing as a result of the transfer of the capital asset the following amounts, namely
&-(i) %#penditure incurred wholly and e#clusiely in connection with such transfer (ii) <he cost of ac@uisition of the asset and the cost of any improement thereto &
!roided that in the case of an assessee, who is a non-resident, capital gains a rising from the transfer of a capital asset being shares in, or debentures of, an *ndian company shall be computed by conerting the cost of ac@uisition, e#penditure incurred wholly and e#clusiely in connection
with such transfer and the full alue of the consideration receied or accruing as a result of the transfer of the capital asset into the same foreign currency as was initially utilised in the purchase of the shares or debentures, and the capital gains so computed in such foreign currency shall be reconerted into *ndian currency, so howeer, that the aforesaid manner of computation of capital gains shall be applicable in respect of capital gains accruing or arising from eery reinestment thereafter in, and sale of, shares in, or de bentures of, an *ndian company &
!roided further that where long-term capital gain arises from the transfer of a long-term capital asset, other than capital gain arising to a non-resident from the transfer of shares in, or
debentures of, an *ndian company referred to in the first proiso, the proisions of clause (ii) shall hae effect as if for the words "cost of ac@uisition" and "cost of any improement", the words "inde#ed cost of ac@uisition" and "inde#ed cost of any improement" had respectiely been substituted.
!roided also that nothing contained in the second proiso shall apply to the long-term capital gain arising from the transfer of a long-term capital asset being bo nd or debenture other than capital inde#ed bonds issued by the oernment.
%#planation & 'or the purposes of this section, - (i) "'oreign currency" and "*ndian currency" shall hae the meanings respectiely assigned to them in section of the 'oreign %#change Begulation Act, +45> (=1 of +45>)
(ii) <he conersion of *ndian currency into foreign currency and the reconersion of foreign currency into *ndian currency shall be at the rate of e#change prescribed in this behalf
(iii) "*nde#ed cost of ac@uisition" means an amount which bears to the cost of ac@uisition the same proportion as ost *nflation *nde# for the year in which the asset is transferred bears to the ost *nflation *nde# for the first year in which the asset was h eld by the assessee or for the year beginning on the +st day of April, +46+, whicheer is later
(i) "*nde#ed cost of any improement" means an amount which bears to the cost of
improement the same proportion as ost *nflation *nde# for the year in which the asset is transferred bears to the ost *nflation *nde# for the year in which the improement to the asset took place
() "ost *nflation *nde#" for any year means such *nde# as the entral oernment may, haing regard to seenty-fie per cent of aerage rise in the onsumer !rice *nde# for urban
