Taxation of Capital Gains

Capital Gains?

In relation to Taxation of Capital Gains, any profits or gains arising from the transfer of a capital asset in the previous year shall be chargeable to income tax under the head "Capital Gains".

It shall be deemed to be the income of the previous year in which the transfer took place.

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What is 'Capital Asset' in relation Taxation of Capital Gains?

As per section 2(14) of the Indian Income Tax Act, the term "Capital Asset" means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include -

  1. Any stock-in-trade, consumable stores or raw materials held for the purposes of business or profession;

  2. Personal effects, i.e., movable property (including wearing apparel and furniture, but excluding Jewellery) held for personal use by the assessee or any member of his family dependant on him; But excludes:-

    1. Jewellery means,

      Ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparel;

      Precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel.

    2. Archaeological Collections

    3. Drawings

    4. Paintings

    5. Sculptures or

    6. Any work of arts

  3. Agricultural land in India other than the following lands specified here:

    1. In any area which is comprised within the jurisdiction of a municipality (by whatever name known) or a cantonment board and which has a population of not less than 10,000 according to the last preceding census; or

    2. Land situated in any area around the above referred bodies upto a distance of 8 kilometers from the local limits of any municipality or cantonment board referred to in item (a) above, as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf.

  4. the following bonds issued by the Central Government,

    1. 6 ½ per cent Gold Bonds, 1977,

    2. 7 per cent Gold Bonds,1980,

    3. National Defence Gold Bonds, 1980, and

    4. Special Bearer Bonds, 1991,

  5. Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 notified by the Central Government.


Short Term Capital Asset?

Short term capital asset in relation to Taxation of Capital Gains means: -

Type of Capital Asset Period of Holding
  1. Shares held in a company

  2. Security listed in a Recognised Stock Exchange

  3. Units in Unit Trust of India

  4. Unit in a Mutual Fund specified under section 10(23D)

  5. Zero Coupon Bonds

Held by an assessee for not more than twelve months immediately preceding the date of its transfer.

Industrial Undertaking (Section 50B)

Held by an assessee for not more than thirty-six months immediately preceding the date of its transfer.

Any other Asset

Held by an assessee for not more than thirty-six months immediately preceding the date of its transfer.

Long Term Capital Asset?

A simple definition for Long-term capital asset in relation to Taxation of Capital Gains is "A capital asset, which is not a Short-Term Capital Asset".


What is "Transfer" in relation to Taxation of Capital Gains?

Transactions regarded as Transfer

As per section 2(47) transfer, in relation to a capital asset, includes -

  1. the sale, exchange or relinquishment of the asset; or

  2. the extinguishments of any rights therein; or

  3. the compulsory acquisition thereof under any law; or

  4. conversion or treatment of any asset by the owner into, or treatment as, stock-in-trade of a business carried on by him; or

  5. the maturity or redemption of a zero coupon bond; or

  6. any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in Section 53-A of the Transfer of Property Act, 1882; or

  7. any transaction, whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property

Also, a gift or creation of an irrevocable trust of a capital asset being shares, debentures or warrants allotted by a company directly or indirectly to its employees,

  1. under any Employees' Stock Option Plan, or

  2. Scheme of the company offered to such employees in accordance with the guidelines issued by the Central Government in this behalf,

is treated as "transfer" as per the proviso to section 47(iii) of Income Tax Act, India.




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