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Income under the hea

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7
CHAPTER
Capital gains" and it
Computation
WHAT IS THE BASIS OF CHARGE [SEC. 45]
92. Any gain arising from the transfer of a capital asset during a previous year is chargeable to tax und
head "Capital gains" in the immediately following assessment year, if it is not eligible for exemption
sections 54, 54B, 54D, 54EC, 54F, 54G, 54GA and 54GB$. In other words, capital gain's tax liability arises on
when the following conditions are satisfied:
See para 93.
Condition 1There should be a capital asset
For meaning of transfer, see para 94.
Condition 2 The capital asset is transferred by the assessee.
See para 94.2.
Condition 3 Such transfer takes place during the previous year.
For computation of capital gain, see para t
Condition 4 Any profit or gains arises as a result of transfer.
Such profit or gains is not exempt from tax under See para 103.
Condition 5 sections 54, 54B, 54D, 54EC, 54EE, 54F, 54G, 54GA
and 54GB.

If the aforesaid conditions are satisfied, then capital gain is taxable in the assessment year relevant to
few cases different rules are appla
previous year in which the capital asset is transferred. However, in a
These cases are narrated briefly in para 101

WHAT IS ACAPITAL ASSET [SEC. 2(14)]

93. "Capital asset" is defined by section 2(14). ting, movable «

Positive list - "Capital asset" means property of any kind, whether fixed or circulatirng
immovable, tangible or intangible. Besides, it includes the following anyothe

1. Any rights in or in relation to an Indian company, including rights of management orcont

rights whatsoever.
ssion)
2 .Property of any kind held by an assessee (whether or not connected with his business orpro a
3. Any securities held by a Foreign Institutional Investor which has invested in such securite
with the regulations made under the SEBI Act. mptionu n

4. Any unit-linked insurance plan (ULIP policy) issued on or after February 1,.2021 to whichexen
suh
term
of
the
iring
section 10(10D) does not apply (i.e., if insurance premium payable in any previous year dur
policy exceeds Rs. 2.50 lakh).
t Exemption under these sections can be claimed even by an assessee who opts for the alternative tax eg e
246
 NGRICULTURAL LAND SITUATED IN RURAL AREA
Negati list The following assets are Para 93.3
-

excluded
1. Stock-in-trade other than
securities referred to from
in
the definition of "capital assets"
2. Personal effects (movable assets). point 3 above).
Agricultural
3.
land in a rural area
in India
Oold bonds and special bearer
Deposit IBonds issued under the
bonds (this
5. Gold point does not have practical utility).
Gold Monetisation Scheme, 2015 Gold Deposit Scheme, 1999 any
deposit
or
sit certificates issued under the
1
93.1 Stock-in-trade s not a
capital asset Any stock-in-trade (not -

Institutio Investor), consumable stoTes or raw

apital asset. This is because of the fact material held for the beingofsecurities held
by a Foreg
numable that purpos business or profession is not
stores or raw
material is
any surplus arising on sale transfer of
lded in the term to
or
chargeable
income under section 28. What shall tax as business stock-in-trade,
taxpayer. For ins
instance, if
"stock-in-trade"
must always be
the dependent the nature of the business be
taxpayer deals in house upon
ot tne
nsequently, capital they are properties,
not
asset. If a dealer then such prop
roperties are stock-in-trade and,
anerties), the resulting profit is in
business income not properties transfers his stock-in-trade (ie.,
aroperty, the resulting income is taxable
under the head
capital gains. Conversely, if a doctor transters a house
house
a3.2 Personal effects (being
"Capital gains".
movable assets) are not
wearing apparel and furniture) held for personal use of capital assets Any movable property
dependent upon him, is not a the owner or for the use of (including any member of his
However, the purpose of income under the head capital asset" for the family
for
following are not personal effects" (in other words, the following are "capital"Capital gains.
these are personal use-jewellery, archaeological collections, assets") evennt
of art. drawings, paintings, sculptures, or any work
Provisions illustrated
Consider the following cases -
1. X purchased a computer tor his
personal use at his residence for Rs. 34,000 during 2021-22. He
Rs. 44,000. Personal computer is treated as
Rs. 10,000 cannot be taxed under the head
"personal effects". Consequently, it is not a capitalrecently sells it for
asset. Surphus of
"Capital gains". Since it is capital profit, it cannot be taxed under any
other head of income (this income of Rs. 10,000 will not be chargeable to tax at
of any other movable personal effects all). This rule is applicable on transfer
(not being jewellery, archaeological collections,
tures, or any work of art). For instance, on transter of personal car, drawings, paintings, sculp-
household goods, nothing is chargeable to tax. personal garments, personal furniture, personal
2. Personal
jewellery/house property/immovable asset/archaeological collections, drawings, paintings, sculptures
or
any work of art
are
capital assets. Suppose, an individual purchases jewellery/house property/immovable
asset/archaeological collections, drawings, paintings, sculptures or any work of art for his personal use or for the
use of his
family members. Although these are purchased for personal purposes, these are not taken as
effects" (by default such items are not taken as "personal
which arises on transfer of such
personal effects). Consequently, these are capital asset. Any surplus,
capital asset, is taxable under section 45 under the head
*********************************************** *** *************************************************** "Capital gains".
93.3 Agricultural land situated in rural area is not a capital asset Agricultural land in India in a rural
areat is not capital asset.

Provisions illustrated **************************

Consider the following cases -

Aa farmer, transfers a piece of agricultural land situated in a village (population : 6,000) in Madhya Pradesh.
nce this agricultural land is situated in a rural area, any surplus on its transfer cannot be taxed under the head
P 8ains". Nor can it be taxed under any other head of income. It will be a tax-free income.
R which is outside the jurisdiction of a municipality or cantonment board having
ural area for the above purpose is any
10,000 of which does not fall within distance (to be measured aerially) given below
area
-
a

On or more and also

kilometers from the local limits of If the population of the municipality/cantonment board is more

Cantonment board municipality/ than 10,00 but not more than 1 lakh
board is
If the population of the municipality/cantonment
more
Kilometers from the local limits of municipality/ than 10 lakh
Cantonment board than 1 lakh but not more

the municipality/cantonment board is more

IIOmeters from the local limits of municipality/ If the population of
cantonment board than 10 lakh

For the census of which the relevant figures have

to the last preceding
en
above purpose,"popul
opulation" means the population according
published before the first day of the previous year.
Para 93.4 INCOME UNDER CAPITAL GAINS AND ITS COMPUTA
2. The above rule is equally applicable if X is not a farmer, but the land which is transferred
is
purposes either by X or by any other person authorized by A used tor agicultun
a then
in a village which
comes within munCipanty, population
3. It agricultural land is situated
shall be In such a case
it population ot the municipalit
of
the municipalih
the,
considered not of (and village).
of the village is less
than 10,0oo. exceed
cultural land is a capital asset, even if population 10000, th
934 Short-term long-term cepitel assets "Short-term capital asset means a capital
to its date hela
ranster. In other worSet
prior of
assessee for not more than 36 months, immediately capital assetta Capit
is held by an assessee for more than 36 months, then it is known as
"long-term set
ass .

When such period is taken as 12 months/24 months - If a capital asset is transterred after 36 m
in the following
cases a capital asset becomes months, it is
long-terho
as long-term capital asset. However,
is transferred after 12 months or 24 months-
than 12 months (if transter takes place after July 10, 2014
Categony A -

holding
Period of
ding more
-

stock exchange in India).

in a recognised
. bquity or preference shares in a company (listed
Government securities,
derivatives, etc.) listed in a recognised sth
2. Securities (like debentures, bonds,
in India. exchang
3. Units of UTI (whether quoted or not).
or not).
4. Units of a n equity oriented mutual fund (whether quoted
Zero coupon bonds (whether quoted or not).
5.
Category B -

Period of holding more than 24 months-

1. Equity o r preference shares in a company (unlisted)
(if transfer takes place on or after April 1? 2016).
2. Immovable property (being land or building or both) (if transter takes place on or after April 1, 2017

assets The tax "Canital

incidence under the head
Why capital assets are divided in short/long-term
short-term or long-term. Long-term capital gain is generallu agai
depends upon whether the capital gain is short-term
at a lower rate. If the asset transferred
is a capital asset, capital gain will be short-term canitale
a long-term capital
asset.
arises on transfer of
Conversely, long-term capital gain

Problemss
in the cases given below -

uwhether the asset is short-term or long-term

93.1-P1 State, giving reason, 2021.
March 10, 2020 and transfers it on June 6,
1. X purchases a house property on it on June 6, 2021.
on March 10, 2020 and transfers
2. Ypurchases listed shares in an Indian company these units on July 10, 2021.
on July 7, 2020 and he transfers
3. Z acquires units equity oriental
of an mutual fund B on December 31, 2019. B transfers the aset
4. A purchases diamonds on September 12,
2018 and gifts the same to his friend
on October 20, 2021. 2019; the
a NSE broker (date by the broker November 21,2021.
of purchase :
5. Cpurchases unlisted shares in a company through December 20,
shares are transferred by C on
shares in the name of C : January 5, 2020). These
company transfers
Solution Short-termo
Taxpayer Asset Minimum period Period ofholding long-term
to becomelong
term capital asset Short-term

24 months+ March 10, 2020 to June 6, 2021 (i.e.,

House property
14 months and 27 days) Long-term
Listed Shares 12 months+ 14 months and 27 days Long-term

12 months and 3 days

Units of a equity 12months+
oriented mutual fund Long-term

October 20,
Diamonds
36 months +
September 12, 2018 to

2021 Long-term

to December
20,
Unlisted shares 24 months + November 21, 2019
2021
thenthe
then
101.1],
Notes para
will, etc. [i.e, circumstances mentioned under section 49(1)-seEP
see
1. If an asset is acquired by gift,
owner is also taken into consideration.
period of holding of the previous
date by the broker is taken as the date of acquisition.
2. In the case of shares, the purchase
 CETAIN TRANSACTIONS NOT INCLUDED IN TRANSFER Para 94.1

49
AT IS TRANSFER OF CAPITAL ASSET
# E
W H A T I

for. in relation to a capital asset, includes sale, the

9 4 . Transfen

extinguishment
exchangethereof
hment of any rights therein or the compulsory acquisition or
relinquishment
under y law ot[sec.
E 2(47)]t
4
lowing points should be noted -

follo
The lending share
saction of lending shares of some distinctive numbers and receiving back shares of some other
of
1.The transaction
is not "exchange" of assets within the meaning of "transfer" as defined in section 2(47)- Circular No.
umbers is not"

10, 1997.
dated February
751,
ion of duration of fixedmaturity plan of closely ended mutual fund, is not transter
a a
3. efer" includes relinquishment of the asset or the extinguishment of any right thereon.
"Transfe
A relinquish-
kes place when the owner withdraws himself from the property and abandons his rights thereto. t
when
ment takes place
that the property. continues to exist after the
esumes
relinquishment.
Redemption of preterence shares is transfer.
there is a reduction of share capital by a company by paying a part of capital to its shareholders, it would
5.
extinguishmene" of proportionate right in shares held by shareholiders and chargeable to capia
hands of shareholders.
tax in the
gain's
94.1
1 Certain transactions not incuded in transfer -For the purpose of section 45, the following transactions
regarded
are not regarded as transters (in other words, in the
following casest, there is no capital gain)-
of aassets in kind by a company to its
Distribution
shareholders on its
Anv distribution of capital assets in kind by a Hindu undivided familyliquidation.
1.
to its members at the time of total or
partial partition.
3. Any transfer of capital asset under a gift or a will or an irrevocable trust (exception - gift of ESOP° shares is
chargeable to tax).
4 Transfer of capital asset between holding company and its 100 per cent subsidiary company, if the
transferee-company is an Indian company.
5. Transfer of capital asset in the scheme of amalgamation/demerger, if the transferee-company is an Indian
company.
6. Transfer of shares in amalgamating company/ demerged company in lieu of allotment of shares in amal-
gamated company/resulting company in the above case.
7. Transfer of capital asset in a scheme of amalgamation of a banking company with a banking institution.
8. Any transfer in a business reorganization, of a capital asset by the predecessor co-operative bank to the
successor co-operative bank or the converted
banking company.
9.Transfer of shares in an Indian company held by a foreignm company to another
foreign company in a scheme
of amalgamation/ demerger of the two foreign companies, if a few conditions are satisfied.
10. Transfer of a capital asset by a non-resident of
foreign currency
Receipts to another non-resident if the transfer is made outside
convertible bonds or Global
Depository
India and if a few conditions are satisfied.
11. Transfer by individual of
an
Sovereign Gold Bond
(issued by RBI under the Sovereign Gold Bond Scheme,
2015) by way of redemption.
12. Transfer of
any work of art, archaeological, scientific or art collection, book,
photograph print, to the Government or a University or the National Museum,
or
manuscript, drawing, painting,
National Archives National Art
Gallery,
any other notified public museum or institution.
or

5. Any transfer by way of conversion of bonds or debentures, debenture-stock or deposit certificate in

torm, of a company into shares or debentures of that any
4.
company.
Iransfer by way of conversion of
preference shares of a company into equity shares of that company.
. Land transferred by a sick industrial company, if a few conditions are satisfied.

ransfer of capital asset a

Case of conversion of company intocompany/unlisted
by private LLP, if a few conditions
a
publicare
company to a limited liability
1 satisfied. partnership
ansfer of capital assets at the time of conversion of a firm/sole proprietary concern in a company, if a few
conditions are satisfied.
18
transfer involved in a scheme for lending of any securities, if a few conditions are
satisfied.
Any transfer of
capital asset ina reverse mortgage
t Pso as O gift of ESOP shares, fair market value on the date of gift is taken as full value of consideration.

t The do sections 46 and 47 are given in brief (keeping in view the requirement of undergraduate/IPC students).
Pertainingtoinotransfer under section 2(47) shall also apply for the purpose of computation of tax under section 115BBH
oCome from transfer of
any virtual digital asset (whether capital asset or not).
 AND ITS COMPUTATION
ww.waw WW ww.www.w.w*VROVAKOOEww

GAINS
Para 94.2INCOME UNDER CAPITAL
security carrying
peric eriodic payment
20. Transfer of a

Outside India through

an
capital asset (being
intermediary
a
Government

dealing in
settlement
or securities
by a non-residontere
esident toofintanoteresthet mad
resident. vehicle) to a busi
usiness trust in ne
21. Transfer of a capitalasset (being
allotted by that trust to the transferor.
share ofaspecial purpose
scheme of a m u .
exchange of
him in the consolidating fund
unitholder of units held by scheme of the mutual f
22. Any transfer by a
allotment to him of units in the consolidated
schemes of aa funde
,if the c
consideration of the oriented fund or
of two or more
other fund
schemes of equity than
tion is of two
oriented fund.
or more

a mutual fund.
Anenult
in the consolidating plan of sc
of units held by him that scheme of thee
23. Transfer by a unitholder

consideration of the allotment to

him of units, in the consolidated plan
of

of a mutual fund fon made'n

the consolidating plan
24. Transfer by a unitholder of
units held by him in
consolidated plan of that schemeof of the
the scheme, madey
consideration of the allotment to
him of units, in
the
section 115AC(1) or rupee denon
mutual fund
25. Transfer of capital asset [being
bonds/GDR
referred to in
securities made by a
non-resident on on a inated bod d
recognised stock
an indian company or derivative or notified
financial services
centre and where the consideration is paid/Dav exchang
located in any international torem
capital gain 1S taxable in the year in wh
currency.
94.2 Transter when complete and effective- Generally,
in case of movable/immovable assets to
findap
assetis transferred. Different rules
are applicable whena
asset is "transferred".
capital
registered- Title to
immovable assets will not pass till thecom.
Immovable property when documents
are onveyantce
deed is executed or registered.
Even if the documents are not registered hue.
documents are not registered
-

Immovable property when in an immwl

Transfer of Property Act are satistied, ownership ale
conditions of section 53A of the
following
property is "transferred"-

a. there should be a contract in writing

consideration or is willing to perform
his part of the contract; and
b. the transferee has paid
c. the transferee should
have taken possession of the property.
transaction will constitute "transfer"
for the purpose of capital gais
When these conditions are satisfied, the
time when property is delivered pursuantba
Movable property Title to a movable property passes at the
-

Contract to sell.

Problem
cases given beuu
which capital gain is chargeable to tax in the
94.2-P1 State, giving reasons, the assessment yearfor
1. X sells a house property to Yas per sale deed dated
March 30, 2022. The documents are, however, registered omApri
dated May 6, 2021.A pays the consideration on sameday.1nepo
to sale
the
2.Zsellsa housepropertyto A peragreement
as
is given on June 1, 2021. The sale deed is yet to be registered.
3.B sells shares to Con March 1, 2022. Transfer deed is signedon the same day. Share certificates aredeliveredat te
the transfer deed. Shares are, however, transferred in the name of C in the records of the company on Mny1 a

transer
Solution:
1. In the case of immovable property, ownership is transferred when sale deed is registered. In suUcnaiahad En
takes effectfrom the date ofexecution of the sale deed (and not from the date of registration)-CIlv vear
Co. (P.) Ltd. [2001] 116 Taxman 268 (Delhi). Therefore, in this case transfer takes place during the prev

consequently, capital gain is taxable for the assessment year 2022-23.

o fsection l

22 and,
2. Even if sale deed is not registered, an immovable property is transferred when the three condi021, Theet Iheredne

on June y
of the Transfer of Property Act (see para 94.2] are satisfied. The three conditions are satisfied
capital gain is taxable for the assessment year 2022-23 t r a n s f e r r e d .
In thisa
3. When a movable property is delivered pursuant to a contract to sell, the ownership 1s traenment year

ownership is transferred on March 1, 2022 and, consequently, capital gain is taxable for the asse

SCAPITAL GAINS-HOWCOMPUTED [SEC.48] iz., short-terma p

shorte
95. Computation of capital gain depends upon the nature of capital asset transterrel 9set is >
as
asset or long-term capital asset. Capital gain arising on transfer of a short-term cep