Wednesday, May 7, 2014

INCOME UNDER THE HEAD CAPITAL GAINS - INCOME TAX NOTES




Brief History of Income Tax in India
In India, Income tax was introduced for the first time in 1860, The Income Tax Act 1961 has been brought into force with 1 April 1962. It applies to the whole of India including Jammu and Kashmir.
All income shall be classified under the following heads for the purpose of computation of taxable amount subject to certain Exemptions’ and deductions.

INCOME UNDER THE HEAD CAPITAL GAINS

Capital Asset .Sec.2(14) means property of any kind held by an assessee whether or not connected with his business or profession ,but does not include the following:
  1. Stock in trade, Raw materials and consumables stores held for the purpose of business or profession.
  2. Personal effects of movable nature, such as furniture, utensils and vehicles held for personal use by the assessee or any dependent member of his family.
  3. Agricultural land in India which is not situated in any specified area.
  4. Gold Bonds issued by the government of India including gold deposit bond issued under the gold deposit scheme notified by the cent.Govt.
CAPITAL  ASSETS  ARE  TWO  TYPES  LONG  TERN  &  SHORTERM

Capital gain arises from the transfer of any capital asset.

Short-term capital gain is a gain arising from the transfer of an asset which is held by the assessee for not more than: 12 months from the date of its acquisition in case of shares, units and any other listed securities and for not more than 36 months in the case of other assets . otherwise it is long term capital gain

Distribution of assets by a company at the time of liquidation shall be regarded as a transfer and subject to capital gain in the hands of the shareholders.

Transfer by holding company to its subsidiary company or by a subsidiary company to its holding company shall not be regarded as transfer if the holding company owns: 100 % shares of the subsidiary company

Amalgamation of company as per the scheme of amalgamation shall not be regarded as transfer provided the amalgamated company is: an Indian company

Transfer of capital asset in the scheme of demerger shall not be regarded as transfer for the purpose of capital gain if the resulting company is an Indian company

The assessee is allowed to opt for market value as on 1.4.1981 in case of: all capital assets other than depreciable assets, goodwill of a business, right to manufacture,etc.

Where the capital asset became the property of the assessee in any mode given under section 49(1), the cost of acquisition of such assets shall be: cost for which the previous owner of the property acquired it .

Period of holding would be considered from the date of which property was held by the previous owner but index would be available the year in which the property is acquired by the assessee


In computing capital gain arising from transfer of a long term capital asset deduction can be claimed for the cost of acquisition and cost of improvement after indexing the same.

Indexed cost of acquisition means an amount which bears to the cost of acquisition the same proportion as cost inflation index for the year in which the assets is transferred bears to the cost on inflation index for the first year in which the asset was held by the assessee or

for the year beginning on the 1St day of April 1981, which is later.

The benefit of indexation can be availed either from the year of acquisition of the asset by the assessee or from the base year 1981-82, which ever is later. if an asset is acquired prior to 01-04-1981 and if the cost is higher than market value as on 01-04-01981 then the assessee can adopt the cost and be entitled indexation with effect from 1981-82. In the alternative, if the market value as on 01-04-1981 is higher than the cost the assessee may be choose to adopt the market value as on 01-04-1981and entitled to indexation of such value of the asset from 1981-82


Indexation Benefit is not available in the following cases:
  1. Short term Capital Assets
  2. Bonds and debentures
  3. Where option of 10% tax rate is availed u/112 IV. Slump sale u/s50B
  4. Sale of shares by non resident
Tax on Short Capital Gain Sec.111A

Any short term capital gain arising from the transfer of an equity share in a company or a unit of an equity oriented fund shall be liable to tax @15% if the following conditions are satisfied:
  1. The Transaction of sale should take place through a recognized stock exchange.
  2. Such transaction is chargeable to Securities Transaction Tax.
If the total income of an assessee includes such short term capital Gain and other income ,the tax payable by the assessee in such a case shall be the aggregate of-
  1. The amount of income Tax calculated on such short term capital gain (15%)
  2. The amount of income tax payable on the balance amount of the total income as if such balance amount were the total income of the assessee.
In the case of an individual or HUF, being a resident, where the total income as reduced by such short term capital gain is below the basic exemption limit then the short term capital gain shall be reduced by the amount of basic exemption limit not exhausted by any other income and only the balance short term capital gain shall be chargeable @15%. For a non resident assessee adjusting of basic exemption limit against short term capital gain shall not be applicable .Hence the entire amount of STCH shall be subject to tax @15%.


Assessee is not entitled to claim any deductions provided under Chapter VI-A in respect of such Short Term Capital Gain.

Tax on Long Term Capital Gain Sec.112.
Where the total income of an assessee includes any income, arising from the transfer of a long-term capital asset, which is chargeable under the head Capital gains, such long term capital gain shall be charged to tax at 20% rate.

Any L.T.C.G araising from transfer of equity share of a company or a unit of equity oriented fund which are listed in a recognized stock exchange is excempt from tax u/s 10(38).

Where the transferred L.T.C.A is in the nature of listed securities or Units of UTI or Mutual fund or Zero coupon bond ,the gain arising from transfer of such securities or units shall be liable to tax at the rate of 10% on such LTCG computed without the benefit of indexation or at the rate of 20% on such LTCG computed availing the benefit of indexation whichever is more beneficial to the assessee.

The possibility of Applying 10% or 20% tax rate shall arise only in case where the listed shares are not traded through a recognized stock Exchange and not chargeable Securities Transaction Tax.

Exception from Capital Gain



2 comments:

  1. I need pdf. file of capital gain topic can u please provide

    ReplyDelete
    Replies
    1. Dear Sir/Madam,

      Please confirm purpose of PDF File.

      Delete

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