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Computation of Capital Gain
COMPUTATION
OF CAPITAL GAINS
Profits
or gains arising from the transfer of a capital asset made in a
previous year is taxable as capital gains under the head "Capital
Gains". The important ingredients for capital gains are, therefore,
existence of a capital asset, transfer
of such capital asset and profits
or gains that arise from such transfer.
CAPITAL ASSET
Capital
asset means property of any kind except
the following :
a) Stock-in-trade, consumable stores or raw-materials held
for the purpose of business or profession.
b) Personal effects like wearing apparel, furniture, motor vehicles
etc., held for personal use of the tax payer or any member of
his family. However, jewellery, even if it is for personal use,
is a capital asset.
c) Agricultural land in India other than the following:
i)
Land situated in any area within the jurisdiction of muni-cipality,
municipal corporation, notified area committee, town area committee,
town committee, or a cantonment board which has a population
of not less than 10,000 according to the figures published before
the first day of the previous year based on the last preceding
census.
ii)
Land situated in any area around the above referred bodies upto
a distance of 8 kilometers from the local limits of such bodies
as notified by the Central Government (Please see Annexure
'A' for the notification).
d) 6 1/2 per cent Gold Bonds, 1977, 7 per cent Gold
Bonds, 1980, National Defence Gold Bonds, 1980 and Special Bearer
Bonds, 1991 issued by the Central Government.
e) Gold deposit bonds issued under the Gold Deposit Scheme
1999 notified by the Central Government.
Though
there is no definition of "property" in the Income-tax
Act, it has been judicially held that a property is a bundle of
rights which the owner can lawfully exercise to the exclusion of
all others and is entitled to use and enjoy as he pleases provided
he does not infringe any law of the State. It can be either corporeal
or incorporeal. Once something is determined as property it becomes
a capital asset unless it figures in the exceptions mentioned above.
Something is determined as property it becomes a capital asset unless
it figures in the exceptions mentioned above.
TRANSFER
Transfer
includes:
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i)
Sale, exchange or relinquishement of a capital asset
A
sale takes place when title in the property is transferred
for a price. The sale need not be voluntary. An involuntary
sale like that by a Court of a property of judgement debtor
at the instance of a decree holder is also transfer of a capital
asset.
An
exchange of capital asset takes place when the title in one
property is passed in consideration of the title in another
property. Relinquishment of a capital asset arises when the
owner surrenders his rights in property in favour of another
person. For example, the transfer of rights to Subscribe the
shares in a company under a 'Right Issue' to a third person.
ii)
Extinguishment of any rights in a capital asset
This
covers every possible transaction which results in destruction,
annihilation extinction, termination, Cessation or cancellation
of all or any bundle of rights in a capital asset. For example,
termination of a lease or and of a
mortgagee interest in a property.
iii)
Compulsory acquisition of the capital asset under any law
Acquisition
of immovable properties under the Land acquisition Act, acquisition
of industrial undertaking under the Industries (Development
and Regulation) Act or preemptive purchase of immovable
properties by the Income-tax Department are some of the
examples of compulsory acquisition of a capital asset.
iv)
Conversion of a capital asset into stock-in-trade
Normally,
there can be no transfer if the ownership in an asset remains
with the same person. However the Income-tax Act provides
an exception for the purpose of capital gains. When a person
converts any capital asset owned by him into stock-in-trade
of a business carried on by him, it is regarded as a transfer.
For example, where an investor in shares starts a business
of dealing in shares and treats his existing investments
as the stock-in-trade of 6 new business, such conversion arises
and is regarded as a transfer.
v)
Part performance of a contract of sale
Normally
transfer of an immovable property worth Rs.100/- or more
is not complete without execution and registration of a conveyance
deed. However, section 53A of the Transfer of Property Act
envisages situations where under a contract for transfer of
an immovable property, the purchaser has paid the price and
has taken possession of the property, but the conveyance is
either not executed or if executed is not registered. In such
cases the transferer is debarred from agitating his title
to the property against the purchaser.
The
act of giving possession of an immovable property in part
performance of a contract is treated as "transfer"
for the purposes of capital gains. This extended meaning of
transfer applies also to cases where possession is already
with the purchaser and he is allowed to retain it in part
performance of the contract.
vi)
Transfer of rights in immovable properties through the medium
of co-operative societies, companies etc.
Usually
flats in multi-storeyed building and other dwelling units
in group housing schemes are registered in the name of a co-operative
society formed by the individual allottees. Sometimes companies
are floated for his purpose and allottees take shares in such
companies. In such cases transfer of rights to use and enjoy
the flat is effected by changing the membership of co-operative
society or by transferring the shares in the company. Possession
and enjoyment of immovable property is also made by what is
commonly known as Tower of Attorney' transfers.
All
these transactions are regarded as transfer.
vii)
Transfer by a person to a firm or other or Body of a person to a
Association of Persons (AOP) Individuals (BOI)
Normally,
firm/AOP/BOI is not considered a distinct legal entity from
its partners or members and so transfer of a capital asset
from the partners to the firm/AOP/BOI is not considered as
'Transfer'. However, under the Capital Gains, it is specifically
provided that if any capital asset is transferred by a partner
to a firm/AOP/BOI by way of capital contribution or otherwise,
the same would be construed as transfer.
viii)
Distribution of capital assets on Dissolution
Normally,
distribution of capital assets on dissolution of a
firm/AOP/BOI is also not considered as transfer for file same
reasons as mentioned in (vii) above. However, folder the capital
gains, this is considered as transfer by the firm/AOP/BOI
and therefore gives rise to capital gains .| the case of
the firm/AOP/BOI.
ix)
Distribution of money or other assets by a Company
on liquidation
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(i)
If a shareholder receives any money or other assets
from a Company in liquidation, the shareholder is liable
to pay capital gains as the same would have been received
in lieu of the shares held by him in the company. However,
if the assets of a company are distributed to the shareholders
on its liquidation, such distribution shall not be regarded
as transfer by the company.
(ii)
Transactions not regarded as Transfer
The
following, though may fall under the above definition
of transfer are to be treated as not transfer for
the purpose of computing Capital Gains:
Distribution
of capital assets on the total or partial , partition
of a Hindu Undivided Family; of
a capital asset under a gift or will or an irrevocable
trust except transfer under a gift or an irrevocable
trust, of shares, debentures or warrants allotted by
a company to its employees under Employees' Stock Option
Plan or Scheme;
iii)
transfer of a capital asset by a company to its subsidiary
company, if:
a) the parent company or its nominees hold the whole
of the share capital of a subsidiary company,
b) the subsidiary company is an Indian company,
c)
the capital asset is not transferred as stock-in-
trade,
d) the subsidiary company does not convert such capital
asset into stock-in-trade for a period of 8 years
from the date of transfer, and
e)
the parent company or its nominees continue to hold
the whole of the share capital of the subsidiary company
for 8 years from the date of transfer.
iv)
transfer of a capital asset by a subsidiary company
to the holding company, if:
a) the whole of the share capital of the subsidiary
company is held by the holding company,
b) the holding company is an Indian Company,
c) the capital asset is not transferred as stock-in-trade,
d) the holding company does not convert such capital
asset into stock-in-trade for a period of 8 years
from the date of transfer, and
e)
the holding company or its nominees continue or hold
the whole of the share capital of the subsidiary company
for 8 years from the date of transfer.
v)
in a scheme of amalgamation, transfer of a capital asset
by the amalgamating company to the amalgamated company
if the amalgamated company is an Indian company.
vi)
transfer of shares of an amalgamating company, if:
a) the transfer is made in consideration
of the allotment of share or shares in the amalgamated
company, and
b) the amalgamated company is an Indian company.
vii)
transfer of shares of an Indian Company by an amalgamating
foreign company to the amalgamated foreign company, if:
a) at least twenty-five per cent of the shareholders
of the amalgamating foreign company continue to
remain shareholders of the amalgamated foreign company
and
b) such transfer does not attract tax on capital
gains in the country, in which the amalgamating
company is incorporated.
viii)
in a demerger :
a) transfer of a capital asset by the demerged company
to the resulting company, if the resulting company
is an Indian company;
b) transfer of share or shares held in an Indian
company by the demerged foreign company to the resulting
foreign company if:
i)
the shareholders holding not less than three-fourths
in value of the shares of the demerged foreign
company continue to remain shareholders of the
resulting foreign company; and
ii)
such transfer does not attract tax on capital
gains in the country, in which the demerged foreign
company is incorporated.
c)
transfer or issue of shares, in consideration of demerger
of the undertaking by,the resulting company to the
shareholders of the demerged company.
ix)
transfer of bonds or Global Depository Receipts, purchased
in foreign currency, by a non-resident to another non-resident
outside India.
x)
transfer of agricultural land in India effected before
first of March,'70.
xi)
transfer of any work of art, archeological, 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
notified by the Central Government in the Official Gazette
to be of national importance or to be of renown throughout
any State or States.
xii)
transfer by way of conversion of bonds or debentures,
debenture stock or deposit certificate in any form,
of a company into shares or debentures of that company.
xiii)
transfer of membership of a recognised stock exchange
made by a person (other than a company) on or before
31.12.1998, to a company in exchange of shares allotted
by that company. However, if the shares of the company
are transferred within 3 years of their acquisition,
the gains not charged to tax by treating their acquisition
as not transfer would be taxed as capital gains in the
year of transfer of the shares.
xiv)
transfer of land of a sick industrial company, made
under a scheme prepared and sanction under section 18
of the Sick Industrial Companies (Special Provisions)
Act, 1985 (1 of 1986) where such sick industrial company
is being managed by its workers' co-operative and such
transfer is made during the period commencing from the
previous year in which the said company has become a
sick industrial company under section 17(1) 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.
Transfer
of a capital asset to a company in the course of corporitisation
of a recognised stock exchange in India as a result of
which an Association of Persons (AOP) or Body of Individuals
(BOI) is succeeded by such company, if:
| a) |
all
the liabilities of the AOP or BOI relating to
the business immediately before the succession
become the assets and liabilities of the company,
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| b) |
corporitisation
is carried out in accordance with a scheme which
is approved by Securities and Exchanges
Board of India (SEBI). |
where
a firm is succeeded by a company in the business carried
on by it as a result of which the firm sells or otherwise
transfers any capital asset or intangible asset to the
company, if:
| a) |
all
the assets and liabilities of the firm relating
to the business immediately before the succession
become the assets and liabilities of the company, |
| b) |
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 succession, |
| c) |
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 |
| d) |
the
aggregate of the shareholding in the company of
the partners of the firm is not less than fifty
percent 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. |
If
the conditions laid down above are not complied with,
then the amount of profits or gains arising from the
above transfer would be deemed to be the profits and
gains of the successor company for the previous year
during which the above conditions are not complied with.
xvii)
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,
if:
| a) |
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. |
| b) |
the shareholding of the sole proprietor in
the company is not less than fifty percent of
the total voting power in the company and his
shareholding continues to so remain as such for
a period of five years from the date of the succession
and |
| c) |
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. |
If
the conditions laid down above are not complied with,
then the amount of profits or gains arising from the
above transfer would be deemed to be the profits and
gains of the successor company for the previous year
during which the above conditions are not complied with.
xviii)
transfer in a scheme of lending of any securities under
an arrangement subject to the guidelines of Securities
and Exchanges Board of India (SEBI).
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PROFITS OR GAINS
The
incidence of tax on Capital Gains depends upon length for which
the capital asset transferred was held the transfer. Ordinarily
a. capital asset held for 36 or less is called a 'short-term capital
asset' and if the period exceeds 36 months, the asset is known as
term capital asset'. However, shares of a Company, the of Unit Trust
of India or any specified Mutual Fund or security listed in any
recognised Stock Exchange are to considered as short term capital
assets if held for 12 or less and long term capital assets if held
for more 12 months.
Transfer
of a short term capital asset gives rise to "Short Term Capital Gains'
(STCG) and transfer of a long capital asset gives rise to 'Long
Term Capital Gains' LTCG). Identifying gains as STCG and LTCG is
a very important step in computing the income under the head Gains
as method of computation of gains and tax on the gains is different
for STCG and LTCG.
SHORT TERM CAPITAL GAINS (STCG)
Short
Term Capital Gains is computed as below :
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Computation of short - term Capital Gains
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1. Find out full value of consideration
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2.Deduct the following :
a. expenditure incurred wholly and exclusively in connection with such transfer
b. cost of acquisition; and
c. cost of improvement
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3. From the resulting sum deduct the exemption provided by sections 54B, 54D, 54G
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4. The balancing amount is short-term capital gain
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LONG TERM CAPITAL GAINS (LTCG)
Long
Term Capital Gains is computed as below :
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Computation of long - term Capital Gains
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1. Find out full value of consideration
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2.Deduct the following :
a. expenditure incurred wholly and exclusively in connection with such transfer
b. indexed cost of acquisition; and
c. indexed cost of improvement
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3. From the resulting sum deduct the exemption provided by sections 54, 54B, 54D, 54EC, 54ED, 54F
and 54G
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4. The balancing amount is long-term capital gain
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Full
value of consideration - indexed cost of acquisition - indexed cost
of improvement-cost of transfer.
Where,
Indexed cost of acquisition =
| Cost
of acquisition x |
CII
of year of transfer |
| CII
of year of acquisition |
Indexed
cost of improvement =
| Cost
of improvement x |
CII
of year of transfer |
| CII
of year of improvement |
If
year of improvement
CII
= Cost Inflation Index
The
LTCG computed as above is taken as income under the head Capital
Gains for the purposes of determining the total income in the manner
described in Chapter-I, subject to the following :SPAN
- Deduction
under Chapter VIA should not be given from LTCG.
- Tax
liability on LTCG to be taken at 20%.
- If
total income other than LTCG is less than zero slab, LTCG over
the zero slab only attracts tax at 20%.
- Rebate
u/s 88 is not to be given for tax on LTCG.
The
following example illustrates the difference between STCG and LTCG.
'A'
an individual sells a residential house on 12.4.2000 for Rs.
25,00,000/-.
The house was purchased by him on-5.7.1997 for Rs. 5,00,000/- and
he had spent Rs. 1,00.000/- on improvement during May 1998. During
the previous year 2000-2001 his income under all other heads (other
than capital gains) was NIL and he made donations of Rs.
1,00,000/-
eligible for 100% deductions u/s 80G and invested Rs. 60,000/- in
NSC.
Since
'A' has held the capital asset for less than 36 months, (5.7.97
to 12.4.2000) it is a short capital asset for him and its transfer
gives rise to short term capital gains.
FULL VALUE OF CONSIDERATION
This
is the amount for which a capital asset is transferred. It may be
in money or money's worth or a combination of both.
Where
the transfer is by way of exchange of one asset for another, fair
market value of the asset received is the full value of consideration.
Where the consideration for the transfer is partly in cash and partly
in kind Fair market value of the kind portion and cash consideration
together constitute full value of consideration.
COST OF ACQUISITION
Cost
of acquisition of an asset is the sum total of amount spent for
acquiring the asset.
Where
the asset was purchased, the cost of acquisition is the price paid.
Where the asset was acquired by way of exchange for another asset,
the cost of .acquisition is the fair market value of that other
asset as on the date of exchange.
Any
expenditure incurred in connection with such; purchase, exchange
or other transaction e.g. brokerage paid, registration charges
and legal expenses also forms I part of cost of acquisition.
Sometimes
advance is received against agreement to transfer a particular asset.
Later on, if the advance is retained by the tax payer or forfeited
for other party's failure to complete the transaction, such advance
is to be deducted from the cost of acquisition.
COST OF ACQUISITION WITH REFERENCE TO
CERTAIN MODES OF ACQUISITION
- 1.
Where the capital asset became the property of the assessee:
| a) |
on
any distribution of assets on the total or partial partition
of a Hindu undivided family; |
| b) |
under
a gift or will |
| c) |
by succession, inheritance or devolution; |
| d) |
on
any distribution of assets on the dissolution of a 'firm,
body of individuals, or other association of
persons, where such dissolution had taken place at
any time before 01.04.1987; |
| e) |
on
any distribution of assets on the liquidation of a company; |
| f) |
under
a transfer to a revocable or an irrevocable trust; |
| g) |
by
transfer in a scheme of amalgamation; |
| h) |
by
an individual member of a Hindu Undivided Family living
his separate property to the assessee HUF anytime after
31.12.1969. |
The
cost of acquisition of the asset shall be the cost for which
the previous owner of the property acquired it, as increased
by the cost of any improvement of the asset incurred or borne
by the previous owner or the assessee, as the case may be, till
the date of acquisition of the asset by the assessee.
If
the previous owner had also acquired the capital asset by any
of the modes above, then the cost to that previous owner who
had acquired it by mode of acquisition other than the above,
should be taken as cost of acquisition.
- Where
shares in an amalgamated Indian company became the property of
the assessee in a scheme of amalgamation the cost of acquisition
of the shares of the amalgamated company shall be the cost of
acquisition of the shares in the amalgamating company.
- Where
a share or debenture in a company, became the property of the
assessee on conversion of bonds on debentures the cost of acquisition
of the asset shall be the part of the cost of debenture, debenture
stock or deposit certificates in relation to which such asset
is acquired by the assessee.
-
Where shares, debentures or warrants are acquired by the assessee
under Employee Stock Option Plan or Scheme and they are taken
as perquisites under section 17(2) the cost of acquisition would
be the valuation done under section 17(2).
- Cost
of Acquisition of shares in the resulting company, in a demerger. Net
book value of the assets transferred in a demerger Net
worth of the demerged company immediately before demerger Cost
of acquisition of shares of the demerged company
The
cost of acquisition of the original shares held by the shareholder
in the demerged company will be reduced by the above amount.
-
Where the capital asset is goodwill of a business or a mark or
brand name associated with a business, fit to manufacture, produce
or process any article or j, tenancy rights, stage carriage permits
or loom hours, cost of acquisition is the purchase price paid
by the and in case no such purchase price is paid it is nil.
- Where
a capital asset, has become the property of the before
1st day of April, 1981, the cost of acquisition e asset
to the assessee or the previous owner (depending the mode of acquisition)
or the fair market value of the on the 1st day of April,
1981, at the option of the |ji|8$essee would be its cost of acquisition.
- Where
the cost for which the previous owner acquired the property
cannot be ascertained the cost of acquisition to ,the previous
owner means the fair market value on the on which the capital
asset became the property of the owner.
- Where
the capital asset became the property of the assessee on the distribution
of the capital assets of a company on its liquidation cost of
acquisition of such asset is the fair market value of the asset
on the date of
-
Where share or a stock of a company became the property of the
assessee on :
| a) |
the
consolidation and division of all or any of the share capital
of the company in to shares of larger amount than its existing
shares; |
| b) |
the
conversion of any shares of the company into stock; |
| c) |
the
reconversion of any stock of the company into shares; |
| d) |
the
sub-division of any of the shares of the company into shares
of smaller amount; or |
| e) |
the
conversion of one kind of shares of the company into another
kind.Cost
of acquisition of the share or stock is as calculated from
the cost of acquisition of the shares or stock from which
it is derived. |
- The
cost of acquisition of rights shares is the amount which is paid
by the subscriber to get them. In case a subscriber purchases
the right shares on renunciation by an existing share holder,
the cost of acquisition would include the amount paid by him to
the person who has renounced the rights in his favour and also
the amount which he pays to the company for subscribing to the
shares. The person who has renounced the rights is liable for
capital gains on the rights renounced by him and the cost of acquisition
of such rights renounced is nil.
- The
cost of acquisition of bonus shares is nil.
- Where
equity share(s) are allotted to a shareholder of a recognised
stock exchange in India under a scheme of corporitisation approved
by SEBI, the cost of acquisition of the original membership of
the exchange is the cost of acquisition of the equity share(s).
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COST
OF IMPROVEMENT
The
cost of improvement means all expenditure of a capital nature incurred
in making additions or alternations to the capital asset. However,
any expenditure which is deductible in computing the income under
the heads Income from House Property, Profits and Gains from Business
or Profession or Income from Other Sources (Interest on Securities)
would not be taken as cost of improvement. Cost of improvement for
goodwill of a business, right to manufacture, produce or process
any article or thing is NIL.
COST OF TRANSFER
This
may include brokerage paid for arranging the deal, legal expenses
incurred for preparing conveyance |and other documents, cost of
inserting advertisements in newspapers for sale of the asset and
commission paid to auctioneer, etc. However, it is necessary that
the expenditure should have been incurred wholly and exclusively
in connection with the transfer. An expenditure incurred primarily
for some other purpose but which has helped in - effecting the transfer
does not qualify for deduction.
Besides
an expenditure which is eligible for deduction in computing income
under any other head of income, cannot be claimed as deduction in
computing capital gains. For example, salary of an employee of a
business cannot be deducted in computing capital gains though the
employee may have helped in facilitating transfer of the capital
asset.
PERIOD OF HOLDING IN CERTAIN CASES
Normally
the period is counted from the date of acquisition to the date of
transfer. However, it has the following exceptions.
|
i)
|
in
the case of a share held in a company on liquidation the period
subsequent to the date on which the company goes into liquidation
would not be considered. |
| ii) |
where
the cost of acquisition is to be taken as the cost to the previous
owner, the period of holding by the previous owner should also
be considered. |
| iii) |
where
the capital asset is the shares of an amalgamated y company
acquired in lieu of the shares of the v amalgamating company,
the period of holding of the shares of the amalgamating company
should also be considered. |
| iv) |
where
the capital asset is the right to subscribe to a rights offer
and it is renounced, the date of offer of the rights should
be taken as the date of acquisition. |
| v) |
where
the capital asset is share(s) in an Indian company which has
become the property of the assessee in consideration of a demerger,
the period for which the share(s) of the demerged company were
held should also be considered. |
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COST INFLATION INDEX
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| FINANCIAL YEAR |
COST
INFLATION INDEX |
| 1981-82 |
100 |
| 1982-83 |
109 |
| 1983-84 |
116 |
|
1984-85 |
125 |
| 1985-86 |
133 |
| 1986-87 |
140 |
| 1987-88 |
150 |
| 1988-89 |
161 |
| 1989-90 |
172 |
| 1990-91 |
182 |
| 1991-92 |
199 |
| 1992-93 |
223 |
| 1993-94 |
244 |
| 1994-95 |
259 |
| 1995-96 |
281 |
| 1996-97 |
305 |
| 1997-98 |
331 |
| 1998-99 |
351 |
| 1999-2000 |
389 |
| 2000-2001 |
406 |
| 2001-2002 |
426 |
| 2002-2003 |
447 |
| 2003-2004 |
463 |
| 2004-2005 |
480 |
LONG-TERM CAPITAL GAINS ON TRANSFER OF LISTED EQUITY SHARES
Capital gains is not chargeable to tax if the following conditions are satisfied -
1. The asset, which is transferred, is a long-term capital asset
being an eligible equity share in a company.
2. Such shares are purchased on or after March 1, 2003 but before March 1, 2004.
3. Such shares are held by the taxpayer for a period of 12 months or more.
If the aforesaid 3 conditions are satisfied, then the long-term capital gain arising on transfer is not chargeable
to tax. Conversely, long-term capital loss arising on transfer cannot be adjusted against any income if the aforesaid
conditions are satisfied.
Eligible quity share for the above purpose means, -
a. any equity share in a company being a constituent of BSE-500 Index of the Stock exchange, Mumbai as on March 1, 2003
and the transactions of purchase and sale of such equity share are entered into on a recognised stock exchange in India; or
b. any equity share in a company allotted through a public issue on or after the March 1, 2003 and listed in a
recognized stock exchange in India before the March 1, 2004 and the transaction of sale of such share is entered into on a
on a recognised stock exchange in India. Generally in case of "public issue" the invitation is for fresh issue of share capital
by a company. It is different from "offer for sale" by an existing shareholder.
LONG-TERM CAPITAL GAIN WHEN TRANSACTION IS COVERED BY THE SECURITIES
TRANSACTION TAX
A new clause (38) has been inserted with effect from the assessment year 2005-06 in section 10.
The following conditions should be satisfied -
1. Taxpayer is an individual, HUF, firm or company or any other taxpayer.
2. The asset which is transferred is long-term capital asset.
3. Such asset is equity share in a company or units of equity oriented mutual fund. For this purpose "equity oriented
fund" means a fund which satisfies the following points -
a. the investible funds are invested by way of equity shares in domestic companies to the extent of more
than 50 percent of the total proceeds of such fund ( the percentage of equity share holding of the fund shall be
computed with reference to the annual average of the monthly averages of the opening and closing figures ); and
b. the fund has been set up under a scheme of a mutual fund specified section 10(23D).
4. The transaction of sale of such equity share or unit is entered into in a recognized stock exchange in India.
5. Such transaction takes place on or after 1.10.2004
6. The transaction is chargeable to securities transaction tax.
TAX ON SHORT-TERM CAPITAL GAIN IN CERTAIN CASES [Sec.111A, applicable from
the assessment year 2005-06]
Section 111A is applicable if the following conditions are satisfied-
1. The taxpayer is an individual, HUF, firm, company or any other taxpayer.
2. During the previous year he has generated short-term capital gain on transfer of equity shares
or units in equity-oriented mutual fund.
3. The transaction of transfer of such securities is entered into on a recognized stock exchange in India on
or after 1.4.2004
4. Such transaction is chargeable to securities transaction tax.
If the above conditions are satisfied, short-term capital gain will be taxable at the rate of 10 per cent
(plus surcharge plus education cess).
Note:
1. No deduction would be available under sections 80CCC to 80U from the above-noted short-term capital gains.
2. Rebate under section 88 is not available from tax on such short-term capital gain.
Exemption limit of Rs. 50,000 in some cases
The proviso to section 111A gives relief, if the following conditions are satisfied -
1. The taxpayer is a resident individual or a resident Hindu Undivided Family. He may be ordinarily resident
or not ordinarily resident.
2. Taxable income minus short-term capital gain is less than the amount of exemption limit, i.e.,
Rs. 50,000 for the assessment year 2005-06.
Relief
If the aforesaid conditions are satisfied, the following shall be deducted from such short-term capital gain.
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Exemption limit - (Net income or taxable income - Such short-term capital gain)
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After deducting the aforesaid amount, the balancing amount of such short-term capital gain is chargeable to tax.
