Income under capital gain

Basis of charge section 45

Following conditions must be satisfied for taxing income under capital gains:

  1. There must be capital assets.
  2. Capital assets must be transferred by assessee.
  3. Such transfer takes place during previous year
  4. Any profit or gain must arise as a result of such transfer
  5. Such gain should not be exempt from tax under section (54) [54(B)] [54(D)] [54(E)] [54(C)], etc.

Capital asset:

Capital asset is defined to include properly of any kind, whether movable or immovable, fixed or circulating, tangible or intangible, whether connected with business or not. However, following assets are excluded:

  • Any stocking trade or raw material held for business or profession.
  • Personal effects of assessee i.e. movable property held for personal use, for use by any of family members. However, followings are to be treated as personal effects of assessee. Following are capital assets:
  1. Jewelry
  2. Archaeological collection
  3. Drawings and paintings
  4. Sculptures
  5. Any work of art
  6. Bullions

Rural agricultural land in India

I.e. agricultural land in India provided it is not situated in

  1. Any area within jurisdiction of municipal corporation
  2. Any notified area.

6.5% Gold bonds, 1977; 7% gold bonds, 1980; special bearer bonds, 1991

Gold deposit bond, issued under gold deposit scheme 1999.

Meaning of short/long term Capital assets.

  • If any capital assets is held by assessee for not more than 36 months, immediately before its date of transfer, it’s treated as S.T.C.A otherwise will be L.T.C.A. However, following if held by assessee for not more than 12 months immediately before its date of transfer, its S.T.C.A
  • Shares and securities – if they are listed in recognized stock exchange – units of equity oriented mutual funds and bonds. In case of unlisted shares of company, it is held for less than or for 24 months immediately before its date of transfer, it is S.T.C.A (with effect from assessment year)
  • Depreciable assets are always S.T.C.A. irrespective of period of holding.

State giving reasons whether following is S.T.C.A. or L.T.C.A.

  1. Mr. A has transferred his residence house property on 1-6-16. It was purchased on 1-4-14. As asset is held for less than 36 months, it is S.T.C.A.
  2. Mr. B has transferred unlisted debentures of PBC limited on 1-7-16. It was purchased on 1-4-14. As it is held for less than 36 months, it is S.T.C.A.
  3. Mr. has transferred on 1-6-16. It was purchased on 1-4-13. It is held for less than 36 months it is S.T.C.A.
  4. Mr. has transferred his laptop (for business purpose) on 1-8-16. It was purchased on 1-10-11. It is business asset which is depreciable asset. Depreciable assets are always treated as S.T.C.A. irrespective of period of holding.
  5. Mr. transferred his agricultural land in a village in Gujarat on 1-8-16. It was purchased on 1-10-10. It’s rural agricultural land so it is not capital asset.

 

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