1. CAPITAL GAINS

2. CHARGEABILITY:
[SEC.45]
 Any profit or gain arising from the sale
or transfer of a capital asset is
chargeable to tax under the head
capital gains.
 It is deemed to be the income of the
previous year in which the transfer of
the capital asset takes place.
 Capital gains arising on the transfer of
immovable property are chargeable to
tax in the previous year,in which the
effective transfer of title is conveyed or
registered.

3. CAPITAL ASSET
2(14) includes…..
Defined to include property of any
kind, whether fixed or circulating,movable or
immovable,tangible or intangible.

4. The following assets are,however excluded from the
definition from capital asset:
 Stock in trade,consumable stores or raw materials held for
the purpose of business.
 Personal effects of the assessee (but doesn’t include
jewellary,archaeological
collections,drawings,paintings,sculptures or any work of
art).
 Agricultural land in india provided it is not situated –
o In any area within jurisdiction of a municipality or a
contonment board having a population of 10,000 or
more; or
o In any notified area;
 6.5%gold bonds1977 or 7% gold bonds,1980 or national
defence gold bonds issued by central govt .
 Special bearer bonds,1991;and
 Gold deposit bonds issued under the gold deposit scheme.

5. AGRICULTURAL LAND:
LAND
municipality

6. SHORT TERM AND LONG TERM
CAPITAL ASSETS
“Short term capital assets” means a capital asset held by
the assessee for not more than 36 months, immediately
prior to its date of transfer. However, the following assets
are treated as short term assets if they are held for not
more than 12 months, they are:
 Equity or preference shares in a company.
 Securities like debentures, government securities listed in a
recognized stock exchange in India.
 Units of UTI and
 Units of mutual funds.
 An asset other than a short-term capital asset is regarded
as a “long term capital asset”.

7. SHORT TERM CAPITAL
GAIN
LONG TERM CAPITAL
GAIN
1)Find full value of
consideration
2)Deduct the followings.
a) Expenditure incurred
wholly and exclusively in
connection with such
transfer.
b) Cost of acquisition.
c) Cost of improvement
3) From resulting sum deduct
exemption provided by
u/s54 B, 54 D, 54 G, 54GA
4) The balancing amount is
Short Term Capital Gain.
1) Find full value of
consideration
2) Deduct the followings
a) Expenditure incurred
wholly and exclusively in
connection with such
transfer.
b) Indexed Cost of acquisition.
c) Indexed Cost of
improvement.
3) From resulting sum deduct
the exemption provided by
section 54, 54 B, 54 D,
54 EC, 54 F, 54 G, 54 GA
4) The balancing amount is
Long Term Capital Gain/Loss.

8. Transfer 2(47) includes:
 Sale;
 Exchange;
 Relinquishment of right;(sale of rights to
buy right shares);
 Extinguishment of asset;(buy back of
shares);
 Compulsory acquisition;
 Maturity or redemption of zero coupon
bonds(w.e.f a.y2006-07)
 In a case where the asset is converted by the
owner thereof into, or is treated by him as, stockin-trade of a business carried on by him, such
conversion or treatment.

9. Deemed transfer:
 But in case of immovable property (u/s 53A of
transfer of property act,it shall be deemed to
be transfer when)There is a contract for consideration
It should be in writing
It should be signed by the transferor
Should pertain to transfer of immovable
property
 Transferee should have taken possession
 Transferee should be ready& willing to
perform the contract




 Any transaction which has the effect of
transferring the enjoyment of,any immovable
property(member of a co-ooperative society)

10. Transactions not included in
transfer:[SEC 47]
 Any distribution of capital assets on the total or




partial partition of a HUF.
Any transfer of a capital asset under a gift or
will or an irrevocable trust.(not applicable for
shares,debentures or warrants by a company to
its employees)
Distribution of assets in kind by a company to
its shareholders on its liquidation
Any transfer of a capital asset by a company to
its wholly owned Indian subsidiary company.
Any transfer of a capital asset by a wholly
owned Indian subsidiary company to its Indian
holding company .

11.  Any transfer in a scheme of amalgamation
of a capital asset by a amalgamating
company to the amalgamated company,if
the latter company is an Indian company.
 Any transfer in scheme of amalgamation
of a banking company with a banking
institution.
 Any transfer in a demerger of a capital
asset by the demerged company to
resulting company provided that
resulting company is an Indian company.

12.  Any transfer of shares held in an indian
companyby demerged foreign company
to the resulting foreign company if :
 The shareholders holding not less than threefourth in value of the shares of the demerged
foreign company continue to remain
shareholders of the resulting foreign
company;and
 Such transfer doesnot attract capital gains in
the country,in which the demerged foreign
company is incorporated.

13.  Any transfer, in a scheme of
amalgamation of a capital asset being a
share held in an Indian company, by
the amalgamating foreign company to
the amalgamated foreign company, ifAt least twenty-five per cent of the
shareholders of the amalgamating 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.
•

14.  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 if the transfer
is made in consideration of the
allotment to him of any share or shares
in the successor .

15.  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 the
amalgamated company, and
• The amalgamated company is an Indian company.

16.  Any transfer of a capital asset, being bonds
or Global Depository Receipts referred to
in sub-section (1) of section 115C, made
outside India by a non-resident to another
non-resident.
 Any transfer of agricultural land
in India effected before 1/03/1970.
 Any transfer by way of conversion
of bonds or debentures, debenture-stock
or deposit certificates in any form, of a
company into shares or debentures of that
company.

17.  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 notified by the C.G in the
Official Gazette to be of national
importance or to be of renown
throughout any State or States.

18.  Any transfer by way of conversion of
bonds referred to in clause (a) of subsection (1) of section 115AC into
shares or debentures of any company.
 Any transfer made on or before the
31/12/1998 by a person (not being a
company) of a capital asset being
membership of a recognised stock
exchange to a company in exchange of
shares allotted by that company to the
transferor.

19.  Any transfer of a capital asset, being
land of a sick industrial company, made
under a scheme prepared and
sanctioned under section 18 of the Sick
Industrial Companies Act, 1985 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 section17 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.

20. 
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 or 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 firm or 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; and
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

21. 
Any transfer of a capital asset or intangible asset by a private company or
unlisted public 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.

22. 
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;
•

23.  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 w.e.f
a.y1999-2000 & from 2003-04 RBI.
 Any transfer of a capital asset in a
transaction of reverse mortgage under
a scheme made and notified by the
Central Government.

24. PROVISIONS OF SEC 112

Section 112 provides an alternative option
for charging long term capital gains to tax, if
the following conditions are satisfied :
•
•
•
The taxpayer is an individual, HUF, company or any
other person(may be resident or non resident)
The asset is a long term capital asset
The long term capital asset is
- a security listed in any recognised stock exchange in
India or,
- a unit of UTI or a mutual fund(whether listed or not)

25.  If the conditions are satisfied, then the other
option is to charge the capital gains at the rate
of 10% without taking the benefit of indexation
in the cost of acquisition.
 The tax payable by the assessee will be lower of
20%(+ surcharge)on the capital gain calculated
giving benefit of indexation or @10% without
the benefit of indexation, whichever is lower.
 In the case of listed bonus shares, listed
debentures and listed bonds, Option u/s 112 will
be better.
 Long term capital gains can avail the unavailed
basic exemption limit.

26. Insurance claim:
 Capital asset destroyed in fire
 Insurance claim received against the
destruction of the said asset
 Whether insurance claim liable to
tax as capital gains ?
 Vania Silk Mills (1991) 191 ITR 647
(SC)
 Section 45(1A) inserted wef 1-4-2000

27. Section 45(1A)

Profit or gains arising from
receipt of money or other asset from an
insurer on account of damage or
destruction of Capital Asset shall be
deemed to be income & chargeable to
tax under the head Capital Gains.

Money received or Fair
Market Value of the asset received shall
be treated as the Full Value of
consideration in the year of receipt.

28. Conversion of capital asset into stock
in trade [Section 45(2)]:
 Fair Market Value of the asset on the
date of conversion to be deemed to be
full value of consideration.
 Capital Gains deemed to be income of
the year in which such stock in trade is
sold.
 In such a case both capital gains and
business income arises.

29. Transfer of security in demat
form sec 45(2A)
 It is applicable when shares are
transferred in demat form.
 Beneficial owner of shares/securities
is chargeable to tax.
 For computing capital gain,cost of
acquisition and period of holding of
any security shall be determined on
the basis of first-in-first-out
method(FIFO).

30. Transfer by Partner to the Firm
[Section 45(3)]:
 Transfer of capital assets by partner to
the firm as capital contribution or
otherwise.
 Amount recorded in the books of
accounts of the firm to be treated as
full value of the consideration.
 Capital Gains taxable accordingly.

31. Transfer by Firm to the Partner
[Section 45(4)]:
 Transfer by firm to the partner by way of
distribution of capital asset on dissolution
of firm or otherwise shall be chargeable to
tax in the hands of the firm.
 Fair Market Value of the asset to be
deemed to be the full value of
consideration.

32. Compulsory acquisition 45(5):
 Transfer of asset is by way of
compulsory acquisition under any
law.
 Consideration is approved or
determined by central govt or RBI.
 Year of chargeability: year in which
compensation is received.
 Indexation facility is available till
the year of acquisition.

33. Enhanced compensation
 It is taxable in the year of receipt.
 Cost of acquisition is taken as nil.
 Litigation expenses incurred for
getting the enhanced compensation
are deductible as expenses on
transfer.