Income from Capital gains

Meaning of capital gain a. Any stock, consumables or raw material, held

any profit or gain that arises from the sale of a
‘capital asset’ is a capital gain.
Meaning of capital asset
Land, building, house property, vehicles,
patents, trademarks, leasehold rights,
machinery, and jewellery are a few examples of
capital assets.
The following do not come under the category of
capital asset:
Types of capital asset
Short term capital asset:
Immovable property held for less than 2 years
Movable property held for less than 3 years
Listed shares held for less than 1 year
Equity oriented mutual fund held for less
Than 1 year
Debt oriented mutual fund held for less
3 years
for the purpose of business or profession
b. Personal goods such as clothes and furniture
held for personal use
c. Agricultural land in rural India
d. 6½% gold bonds (1977) or 7% gold bonds
(1980) or national defence gold bonds (1980)
issued by the central government
e. Special bearer bonds (1991)
f. Gold deposit bond issued under the gold
deposit scheme (1999) or deposit certificates
issued under the Gold Monetisation Scheme,
2015
Long term capital asset
Immovable property held for more than 2 years
Movable property held for more than 3 years
Listed shares held for more than 1 year
Equity oriented mutual fund held for more than
1 year
Debt oriented mutual fund held for more than
3 years

Format for computation of capital gains

Particulars Short term capital gain Long term capital gain

Full value of sale consideration xxxx xxxx
Less: Expenses of sale xxxx xxxx
Net sale consideration xxxx xxxx
Less: Indexed cost of acquisition xxxx xxxx
Less: Indexed cost of improvement xxxx xxxx
Gross capital gain xxxx xxxx
Less Exemption under section 54B xxxx
Less Exemption under section 54,54B xxxx
Net capital gain xxxx xxxx

Indexed cost of acquisition :

CII of the year in which the asset is being transferred

Cost of acquisition X __________________________________________
CII of the year in which the asset was acquired or CII of
2001-02(whichever is lower)

Indexed cost of improvement:

CII of the year in which the asset is being transferred

Cost of improvement X _____________________________________________
CII of the year in which the expenses of improving the
Asset were incurred
Section 54 and 54B exemptions

Particulars Section 54 Section 54B

Eligible Assessee Individual
Assets sold Residential house (LTCA)
Assets in which capital *one residential house situated in
gains has to be invested India
Time Limit for Purchase one year before or 2
purchase/construction years after sale or construct
within 3 years after sale
Amount of exemption Cost of new residential house or
capital gain whichever is less
Individual
Urban agriculture land
Land to be used for agriculture
purposes
Purchase within a period of 2
years after the date of sale
Cost of new agriculture land or
capital gain whichever is less

*If the capital gains does not exceed 2 crores, the assessee can purchase or construct 2 residential
properties for assessment year 2020-21. This option is available only once in lifetime of the assessee.

Solved illustrations:

1.R owns many properties in Bangalore. He sold some of them during the PY 2018-19. The details are
furnished below. Compute capital gains

a)Jewellery costing Rs.1,20,000 ( acquired in October 2015) was sold for 1,40,000 in August 2018

b)Let out property for residential purpose:- It was inherited by him in 1964. Sale price on 31.10.2018 was
Rs.20 lakhs. Fair market value (FMV) on 1.4.2001 was Rs.5 lakhs. Cost of improvement made in 2009-10
was Rs.1.45 lakhs. Expenses on sale Rs.30000.

c)Household furniture costing Rs.20,000 purchased in the year 2002 was sold in March 2019 for
Rs.25000

d)Sale of maruti car, purchased in March 2011 for Rs.90,000 was sold on 5.12.2018 for Rs.40,000. WDV
as on 1.4.2018 was Rs.26000

e)Self cultivated land in urban area sold for Rs.12.50 lakhs on 4.1.2019 and its cost in 2002-03 was
Rs.3.60 lakhs. He purchased a new piece of land for his own cultivation for Rs.2.60 lakhs in June 2019.

Particulars Rs Rs Rs
STCG:
Jewellery( (October 2015 to August 2018)
Sale 1,40,000
Less:Cost 1,20,000 20,000
Maruti car
Sale 40,000
Less: WDV as on 1.4.18 26,000 14,000
Total STCG (A) 34,000
LTCG
Residential house: Sale value 20,00,000
Less: ICOA or FMV whichever is higher 14,00.000
5,00,000 x 280/100
Less: ICOI: 1,45,000 x 280/148 2,74,324
Less: Expenses of sale 30,000 17,04,324 2,95,676
Self cultivated land: Sale value 12,50,000
Less: ICOA 3.60 x 280/105 9,60,000
2,90,000
Less: Exempted U/s 54B ( amount invested in new 2,60,000 30,000
agriculture land)
Total LTCG (B) 3,25,676
Total capital gain (A + B): 34000 + 325676 = 359676
2) A acquired a plot of agriculture land on 15.6.2003 for ` 18,50,000, which was sold for ` 65,00,000 in
December 2017. The expenses of transfer were ` 1,00,000. Compute capital gains if Rs.10 lakhs of the
sale proceeds is invested in purchase of new agriculture land in the month in February 2020

Sale value 65,00,000

Less: Expenses 1,00,000

Less: ICOA 18.50 x 272/109 46,16,514

LTCG 17,83,486

Exemption of Rs.10 lakhs or 17.83 lakhs whichever is less, is not available because the amount is
invested after 2 years. Exemption is available only if the amount is invested within 2 years from the date
of sale. Hence the entire amount of 17.83 lakhs is liable for tax

3) Sunil has a house property acquired on 7/07/1995 for ` 3,00,000. He incurred improvement
expenditure on such property ` 70,000 on 16/08/2000 and ` 50,000 on 17/07/2010. Market value of such
property as on 1/04/2001 is ` 4,50,000. On 16/08/2013, such property is compulsorily acquired by the
Government and compensation decided at ` 11,50,000. 20% of the compensation received on 31/03/2019
and balance on 2/04/2019

Computation of capital gains of Mr.Sunil for AY 2019-20

Particulars Rs Rs
Sale consideration 11,50,000
Less: Expenses of transfer Nil
Net sale consideration 11,50,000
Less: ICOA 450000 x 220/110 9,90,000
Less: ICOI 50,000 x 220/167 65,868 10,55,868
LTCG 94,132

Notes

The initial compensation of 11,50,000 decided by the government shall be treated as sale consideration
Cost of acquisition is the original cost of acquisition ie 3,00,000 or FMV as on 1.4.2001 ie 4,50,000
whichever is higher
Cost of improvement incurred before 1.4.2001 is to be completely ignored
Though the property was compulsorily acquired by the government in the PY 2013-14, but the
compensation was received in the PY 2018-19. Therefore the amount shall be taxable in the PY 2018-19.
However the indexation benefit shall be available in the PY 2013-14

4)Mr. Mitra furnishes the following particulars for the previous year 2018-19:

(1) He sold his residential house on December 15, 2018 for ` 7,70,000. He purchased the house on
March 2, 1998 at a cost of ` 75,000 (Fair market value on April 1, 2001 was ` 1,50,000).

(2) He sold the shares of AB Co. Ltd. on February 12, 2019 for ` 18,700 (purchased on March 21, 2018
for `15,300).

Compute his income from capital gain /loss for the A.Y. 2019-20.
Computation of capital gains of Mr.Mithra for AY 2019-20

Particulars Amount Particulars Amount

House: Shares:
Sale proceeds/net sale 7,70,000 Sale consideration/net sale 18,700
consideration consideration
Less: ICOA: 1.50 x 280/100 4,20,000 Less: ICOA 15,300
LTCG 3,50,000 STCG 3,400

5)Mr. Dhanush sold a residential building at Cochin for ` 65 lakhs in December 2019. The stamp valuation
authority determined the value at ` 80 lakhs which was not contested by Mr.Dhanush. The property was
acquired in April, 2004 for ` 6 lakhs. He acquired a residential flat at Ranchi for ` 35 lakhs and an other
residential house at Cuttack for ` 25 lakhs before March, 2020. Compute the capital gain of Mr. Dhanush
for the assessment year 2020-21.

Computation of capital gains of Mr.Dhanush for AY 2020-21

Particulars Amount
Net sale consideration ( Being higher of actual consideration and value determined 80,00,000
by stamp valuation authority)
Less: ICOA 6,00,000 x 289/113 15,34 513
Long term capital gain 64,65,487
Less: Exemption U/s 54 ( Available for both the purchase of flat and house) 60,00,000
Taxable long term capital gain 4,65,487

The Central Government has notified the following Cost Inflation Indexes:-

Sl. No. Financial Cost Inflation Index 10 2010-11 167

Year
11 2011-12 184
(1) (2) (3)
12 2012-13 200
1 2001-02 100
13 2013-14 220
2 2002-03 105
14 2014-15 240
3 2003-04 109
15 2015-16 254
4 2004-05 113
16 2016-17 264
5 2005-06 117
17 2017-18 272
6 2006-07 122
18 2018-19 280
7 2007-08 129
19 2019-20 289
8 2008-09 137

9 2009-10 148
6)Mr. Kumar (a non resident) purchased equity shares (listed) of Shyamal Ltd. in December 1995 for Rs.
28,100. These shares are sold (outside recognised stock exchange) in April, 2018 for Rs. 5,00,000. He
does not have any other taxable income in India. What will be his tax liability.

In this situation, Mr. Kumar has following two options:

Particulars Option 1 (Avail Option 2 (Do not

indexation) avail indexation)

Full value of consideration 5,00,000 5,00,000

Less: Indexed cost of acquisition (Rs. 78,680 ——-

28,100 × 280/100)

Less: Cost of acquisition ——– 28,100

Taxable Gain 4,21,320 4,71,900

Tax @ 20% on Rs. 4,21,320 84,264 ——–

Tax @ 10% on Rs. 4,71,900 ——- 47,190

From the above computation, it is clear that Mr. Kumar should exercise option 2, since in this situation the
tax liability (excluding cess as applicable) comes to Rs. 47,190 which is less than tax liability (excluding
cess as applicable) under option 1 i.e. Rs. 84,264.

7)Mr. Kumar (a non-resident) purchased a piece of land in December, 2005 for Rs. 28,100 and sold the
same, in April, 2018 for Rs. 5,00,000. Can he claim the option of not availing of the indexation and paying
tax @ 10% on the capital gain?

In this situation, the asset transferred is land and hence the options discussed in preceding illustration are
not available and the gain will be computed after availing of the indexation and the resulting gain will be
charged to tax @ 20% (plus surcharge and cess as applicable). The computation in this case will be as
follows :

Particulars (Rs.)

Full value of consideration 5,00,000

Less: Indexed cost of acquisition (Rs. 28,100 ×280/117) 67,247

Less: Indexed cost of improvement Nil__

Long term capital gain 4,32,753

Tax @ 20% on Rs. 4,32,753 86,551

Add: Health & education cess @ 4% 3,462

Net tax payable 90,013

Adjustment of LTCG against the basic exemption limit
Basic exemption limit means the level of income up to which a person is not required to pay any tax. The
basic exemption limit applicable in case of an individual for the financial year 2019-20 is as follows :
 For resident individual of the age of 80 years or above, the exemption limit is Rs. 5,00,000.
 For resident individual of the age of 60 years or above but below 80 years, the exemption limit is
Rs. 3,00,000.
 For resident individual of the age of below 60 years, the exemption limit is Rs. 2,50,000.
 For non-resident individual, irrespective of the age of the individual, the exemption limit is Rs.
2,50,000.

8)Mr. Kapoor (age 67 years and non-resident) is a retired person. He purchased a piece of land (at Delhi)
in December, 2012 and sold the same in April, 2019. Taxable long-term capital gain on such sale
amounted to Rs. 1,84,000. Apart from gain on sale of land, he is not having any other income. What will
be his tax liability for the year 2019-20?

For non-resident individual of any age, the basic exemption limit is Rs. 2,50,000. Further, a non-resident
individual cannot adjust the basic exemption limit against LTCG. Hence, in this case the exemption limit
of Rs. 2,50,000 cannot be adjusted against LTCG. In other words, Mr. Kapoor cannot adjust the LTCG on
sale of land against the basic exemption limit. Thus, LTCG of Rs. 1,84,000 will be charged to tax @ 20%
(plus health & education cess @ 4%). Thus, the tax liability will come to Rs. 38,272.

9)Mr. Gagan (age 67 years and non-resident) is a retired person earning a monthly pension of Rs. 5,000
from Indian employer. He purchased a piece of land in Delhi in December, 2011 and sold the same in
April, 2019. Taxable LTCG amounted to Rs. 2,20,000. Apart from pension income and gain on sale of
land he is not having any other income. What will be his tax liability for the year 2019-20?

For non-resident individual, irrespective of the age, the basic exemption limit is Rs. 2,50,000. Further, a
non-resident individual cannot adjust the basic exemption limit against LTCG covered under section 112.
In other words, Mr. Gagan can adjust the pension income against the basic exemption limit but the
remaining exemption limit cannot be adjusted against LTCG on sale of land.
The basic exemption limit in this case is Rs. 2,50,000, and the same will be adjusted against pension
income of Rs. 60,000. The balance limit of Rs. 1,90,000 (i.e., Rs. 2,50,000 less Rs. 60,000) cannot be
adjusted against LTCG. Hence, in this case Mr. Gagan has to pay tax @ 20% (plus health & education
cess @ 4%) on LTCG of Rs. 2,20,000. Thus, the tax liability will come to Rs. 45,760.
No deduction under sections 80C to 80U is allowed from long-term capital gains.