CAPITAL GAINS

INCOME TAX

SUBMITTED TO:

MAM POONAM SUBMITTED BY:

SAKSHA

SHARMA

5810

MCOM II

TREATMENT OF ADVANCE MONEY

• Advance is to be reduced to find out the cost of acquisition.

Advance money is received by the

current owner for transferring the

property

• Advance received or forfeited is not to be reduced for calculating cost of acquisition.

Advance money is received by previous

owner of the property for

transferring the property

THIS PROVISION WAS

APPLICABLE FOR ADVANCE

RECEIVED OR FROFEITED

DURING 13-14

OR BEFORE A.Y. 2014-15.

TREATMENT OF ADVANCE

MONEY

• Received or forfeited during P.Y. 2014-15 OR AFTERWARDS.

• Treated under head INCOME FROM OTHER SOURCES. Taxable in the year of receipt. No subsequent treatment allowed when subsequently sold.

• NOT DEDUCTED for calculating the cost of acquisition.

TREATMENT OF ADVANCE

MONEY

Before 1/4/14: The advance money earlier

forfeited will be deducted from COA, before giving

the benefit of indexation.

Any advance or money forfeited during P.Y. 13-14

or before shall be reduced from cost of

acquisition even if such capital asset is

sold/transferred during P.Y. 2014-15 or onwards.

In case the advance money forfeited is more than

COA then the COA shall be reduced to NIL and

the excess of such advance money forfeited over

COA shall be capital receipt NOT taxable.

EXAMPLE:

Where money forfeited after P.Y. 2014- 15.

X decided to sell a property to Y for which he

received 50000 as advance on 1/4/15. The deal

could not be completed and X seized the money.

50000 will be income from other sources for 15-

16.

Later he sells the property to Z on 1/1/16 for

16,75,000. COA of X was 7,00,000, purchased on

5/5/5. Calculate the capital gain in the hands of

X.

EXEMPTIONS

SECTION 54 F

EXEMPTION OF CAPITAL GAIN ON TRANSFER OF

LONG TERM CAPITAL ASSETS IN CASE OF

INVESTMENT IN RESIDENTIAL HOUSE

In case any individual or HUF sells or transfers any long term

capital asset (other than a residential house the income of

which is taxable under the head Income from house property)

and constructs a residential house within 3 years after the sale

or purchases another residential house within 1 year before or

2 years after the sale, so much of capital gain shall be exempt

as in proportion of amount invested to net consideration.

SECTION 54 F Exemptions available only if certain conditions are

fulfilled:

i. Assessee is only an individual or HUF.

ii. Assessee does not own more than one residential house on the date of transfer of above mentioned assets.

iii. Assessee transfers the asset and there is a long term capital gain.

iv. Assessee invests the net sale consideration of the asset to construct a residential house within 3 years of sale of the asset or purchases an already built house within 1 year before or 2 years after the sale.

v. Assessee is not required to purchase another residential house within a period of 1 year after or constructs within a period of 3 years after the sale of the asset.

EXEMPTION AMOUNT UNDER

SECTION 54 F

Person invests the full amount of consideration in purchase or construction

of residential house

Full amount exempted

Person invests part amount of consideration in purchase or

construction of residential house

Only invested amount

exempted

Amount deposited in capital gain account

scheme up to the last date of filing return

Must be utilized to construct or purchase the house within

stipulated period

AMOUNT EXEMPT UNDER

SECTION 54F

Money should be spent for construction or

purchase of new residential house including cost

of land.

CASE I: Where investment exceeds the amount

capital gain, the whole amount is exempt from

tax.

CASE II: W here the value of house property is

less than the consideration then the amount of

exemption is calculated as:

Amount invested + Deposited * amount of capital

gain

CLAIM OF EXEMPTION IF MORE

THAN 1 ASSET IS SOLD

Where there is a sale of more than 1 capital asset that are transferred and the sale proceeds are used for purchase or to construct a residential house then the exemption is available from capital gains of all long term capital assets.

Assessee has 2 options:

(i) He may calculate the exemption under each asset separately and then compare the most beneficial alternative

(ii) Follow procedure as:

(a) calculate capital gain for each asset separately.

(b) calculate % of LTCG to net consideration.

(c) allow exemption u/s 54F out of LTCG of that asset whose % is higher.

(d) if amount invested in house is more than net consideration of 1 asset the balance investment is to be taken up from that asset whose % is next highest .

SECTION 54GCAPITAL GAIN ON SHIFTING OF INDUSTRIAL

UNDERTAKING FROM URBAN AREAS TO NON URBAN AREAS

In case following conditions are fulfilled:

(i)Capital asset is transferred due to shifting of industrial unit from urban to rural area.

(ii)Capital gain is reinvested within a period of 1 year or 3 years after the date in:

A- purchase of plant and machinery for the purpose of business of the industrial undertaking in the area to which the undertaking is shifted.

B- acquiring land and building for the purpose of business.

C- shifting the original asset and transferring the establishment of such undertaking to such area.

D-incurred expenses n such other purposes as may be specified in a scheme framed by the central government for this section.

NO EXEMPTION IN CASE OF TRANSFER OF FURNITURE

AMOUNT OF EXEMPTION UNDER

SECTION 54G

The exemption cannot exceed the amount of capital

gain.

Where the cost of investment is more than the capital

gain there the whole amount is exempt from tax but

incase of gain from new investment within 3 years of

purchase the cost of investment is to be reduced by

the amount of capital gain.

Where the investment is less than capital gain there

the excess amount has to be deposited in the relevant

scheme to be used within stipulated period to gain

exemption or else the income will be treated as income

of previous year. In case of gain from new investment

within 3 years of purchase the amount will be taxed as

SECTION 54GA

EXEMPTION ON CAPITAL GAIN ON TRANSFER OF

ASSETS IN CASE OF SHIFTING OF INDUSTRIAL

UNDERTAKING FROM URBAN AREA TO ANY SEZ

This is available to those undertakings that shift from

urban areas to SEZ:

A- There is transfer of assets or any right in building or

land of an industrial undertaking situated in any urban

area.

B- The transfer has been made with an intention of

shifting to a SEZ.

C- Transfer of an industrial unit – assessee should

establish an industrial unit within 1 year before or 3

years after the date on which such transfer took place.

EXEMPTION UNDER SECTION

54GA

Least of the 2 amounts shall be exemption amount:

A- Amount of capital gain earned on the transfer of the

asset.

B – Amount spent on the purchase, construction etc. of

the new asset in SEZ within specified time frame.

The asset so created shall not be transferred within 3

years of such expense other wise the capital gain

will become taxable in the year of transfer.

SECTION 54 GBLONG TERM CAPITAL GAIN ON TRANSFER OF

RESIDENTIAL PROPERTY IF NET CONSIDERATION IS INVESTED IN THE EQUITY

SHARES OF ELIGIBLE COMPANY

Allowed to only individual or HUF.

Gain must be on a house or plot of land transferred on long term capital gain on or after 1-4-12 but on or before31-3-17, where the amount is utilized for the purchase of shares before the date of filing of return and the company receiving the proceed purchases plant and machinery before filing of the return by the assessee or else the amount is utilized in accordance with any scheme which may be notified by the central government.

AMOUNT OF EXEMPTION UNDER

SECTION 54 GB

If net consideration > cost of new asset, then amount of

exemption=

LTCG * Cost of new asset

Net Consideration

If net consideration < cost of new asset then, amount of

exemption is equal to whole amount of LTCG.

Exemption stands forfeited if the shares of the company

acquired by the individual or HUF or the new plant and

machinery acquired by the company are sold or

transferred within a period of 5 years from the date of

purchase.

SECTION 54 H In case there is transfer of asset due to

compulsory acquisition under any law and the amount of compensation awarded for such acquisition is not received by the assessee on the date of such transfer the period or period available for depositing the amount under any of the section 54, 54B, 54D, 54EA 54EB, 54EC, 54F , I relation to such compensation is reckoned from the date of receipt of such compensation.

Enhanced compensation is taxable in the year it is received and if the assessee wants to avail exemption under 54, 54B,54D,54EC,54F etc. the time limit shall be determined from the date and year of receipt of enhanced compensation.

TREATMENT OF CAPITAL LOSS

U/S 74

SHORT TERM CAPITAL LOSS CAN BE SET FROM

EITHER SHORT TERM CAPITAL GAIN OR LONG

TERM CAPITAL GAIN, WHILE LONG TERM CAPITAL

LOSS CAN BE SET OFF ONLY FROM LONG TERM

CAPITAL GAIN.

Loss on transfer of long term equity shares cannot be

set off against any other long term capital gain and

hence it is ignored and the long term capital gain on the

transfer of equity shares subject to STT is exempted

u/s 10(38).

TAX ON CAPITAL GAINSA. SHORT TERM CAPITAL ASSETS

1- Short term capital asset being equity shares in a company or units of

equity oriented fund where transaction are covered under securities

transaction tax act:

(i) Rate of tax on gain from short term capital asset being equity shares in

a company or units of equity oriented fund where transaction is

covered under STT shall be 15% of such gain

(ii) Such gain will be reduced out of the total income and balance income

shall be deemed as total income on which the schedule of rates as

applicable to an individual shall be applied.

(iii) For allowing deductions under section 80 c to 80 u the total of all the

deduction should not exceed gross total income as reduced by an

amount of capital gain.

(iv) In case the balance income which is deem as total income is less than

the exempted income of 2,50,000 in case of both male and females

and 3,00,000 incase of senior citizen the amount equal to the exempt

income and balance deemed total income shall be reduced from gain

on short term capital asset being equity shares in the company .

LONG TERM CAPITAL GAIN Long term capital asset being equity shares in a

co. or units of equity oriented fund where transaction is covered under securities transaction is covered under STT is fully exempted u/s 10(38).

Long term capital asset being listed security where STT has not been paid-

Long term capital gain from such asset shall be subject to tax

i. 10% of such gain if such gain is computed without indexing the cost of acquisition

Ii. 20% of such gain if such gain is computed after indexing the cost of acquisition which ever is less.

LONG TERM CAPITAL GAIN

Iii. Long term capital gain other than as mentioned in above:

A. long term capital gain shall be assessed at 20% of such gain for all assesses.

B. such gain shall be reduced out of the total income and balance income shall be deemed as total income on which the schedule of rates as applicable to an individual shall be applied.

In case balance income which is deemed as total income is less than the exempted limit of 2,50,000 or 3,00,000 in case of senior citizen the amount equal to the difference between the exempted limit and balance deemed total income shall be reduced from gain on long term capital asset and balance gain on long term capital asset shall be assed to tax at rate of 20%.

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