Types of Capital Assets - ICAI Knowledge Gateway of Capital Assets- Contd… • Long Term Capital Asset is that which has been held for more than 36 months immediately preceding the

Types of Capital Assets

There are two types of Capital Assets:

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• Short Term Capital Assets are those

• Which are held by the assessee for not more than 36 months, immediately preceding the date of its transfer.

Section 2(42A)

• In case of a share or any other security listed in recognised stock exchange in India or a unit of Unit Trust of India, or a unit of Mutual Fund or a Zero Coupon Bonds if held for not more than twelve months, the same shall be treated as short term Capital Assets.

Exception- proviso 1 to Section

2(42A)

Types of Capital Assets- Contd…

• Long Term Capital Asset is that which has been held for more than 36 months immediately preceding the date of its transfer.

Section 2(29A)

• In case of a share or any other security listed in recognised stock exchange in India or a unit of Unit Trust of India, or a unit of Mutual Fund or a Zero Coupon Bonds if held for more than twelve months, the same shall be treated as long term Capital Assets.

Exception-proviso 1 to

Section 2(42A)

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How to determine the period of holding in different situations

Situation Period of holding shall be calculated from:

Shares held in company in liquidation The period subsequent to the liquidation shall be excluded while computing the period of Holding u/s. 2(42A) (a).

If the Capital Asset becomes the property of the assessee on distribution of assets on total or partial partition-Section 49(1)(i) or under a will or gift u/s. 49(1)(ii) or by succession or inheritance u/s. 49(1)(iii)(a) or on receipt of the asset on dissolution of firm u/s. 49(1)(iii)(b) or on distribution of the assets of company on liquidation u/s. 49(1)(iii)(c), or under transfer to a trust u/s. 49(1)(iii)(d) etc

The period of holding of the asset by the previous owner shall be included while calculating short term or long term Capital Gains as specified u/s. 2(42A)(b).

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Situation

Period of holding shall be calculated from:

Any transfer of shares of the amalgamating company by its shareholders in consideration of allotment to him the shares of amalgamated company as per section 47(vii) of the Income Tax Act.

The period of holding of the shares of the amalgamated company shall be the period of holding of the shares of amalgamating company provided the amalgamated company is an Indian Company as per section 2(42A)(c).

In case of shares or security applied on right basis

The period of holding shall be calculated from the date of allotment of right issue as per section 2(42A)(d).

Bonus shares The period of allotment of such bonus shares as per section 2(42A)(f).

In case of demerger The period of holding of the shares of demerged company shall be considered u/s. 2(42A)(g)

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Situation Period of holding In case of ESOP The period of holding shall be

reckoned with the date of allotment of such shares u/s. 2(42A)(hb)

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Types of Capital Gains:

Short term capital Assets u/s.2(42A)

Short term Capital Gains u/s.2(42B)

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Capital Gains in case of Shares & Securities – Period of holding

Short Term Capital Asset u/s. 2(42A)

Shares, Securities, Units of UTI, Units of

Mutual Fund u/s.10(23D), Zero Coupon

Bonds as per 1st Proviso to

Section 2(42A)

If it is held for not more than

12 months immediately

preceding the date of transfer.

Tax rate at 15% u/s.111A, provided Security

Transaction Tax is charged

u/s.111A(1)(b)

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Capital Gain on transfer of Bonus Shares

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Situation 1 Special Provisions Cost of Acquisition of Bonus Shares allotted before 01.04.1981

Fair market Value as on 01.04.1981 is taken as the cost of acquisition.

Cost of Acquisition of Bonus shares allotted on or after 01.04.1981

Cost of acquisition of such Bonus shares which are allotted on or after 01.04.1981 shall be zero.

Period of Holding of Bonus shares

u/s. 2(42A)(f) the preiod of holding of Bonus shares shall be determined from the date of it’s allotment and not from the date of acquisition of original shares.

Types of Capital Gains:

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Long Term Capital Asset u/s.2(29A)

Long Term Capital gains u/s.2(29B)

Capital Gains in case of Shares & Securities – Period of holding

Long Term Capital Asset u/s.

2(29A)

Shares, Securities, Units of UTI, Units of

Mutual Fund u/s.10(23D), Zero Coupon

Bonds as per 1st Proviso to

Section 2(42A)

If it is held for more than 12

months immediately

preceding the date of transfer.

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Computation of Short Term Capital Gains under section 48

Full value of consideration received or accruing - XXXX Less : Expenses incurred wholly and exclusively in connection With Transfer xxxx Less : Cost of Acquisition of asset xxxx Less : Cost of Improvement ---- xxx

------------- xxx --------------------

xxxxx

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Gross Short Term Capital gain / loss

Computation of Short Term Capital Gains under section 48

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Short Term Capital Gains xxxxxx

Less : Exemption u/s. 54B, 54D, 54G, 54 GA xxxxxx -------------- Taxable Short Term Capital Gain xxxxx

Computation of long Term Capital Gains under section 48

Full value of consideration received or accruing XXXXX Less : Expenses incurred wholly and exclusively in connection With Transfer xxxx Less Indexed Cost of Acquisition of asset (As per Provios 2 to section 48 xxxx Less : Indexed Cost of Improvement xxxx

------------- xxx --------------------

xxxxx

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Gross Long Term Capital gain / loss

Long Term capital Gains calculation u/s. 48

Gross Long Term Capital Gains xxxxxx

Less : Exemption u/s.54, 54B, 54D, 54EC, 54F, 54G, 54GA xxxxx

-----------------

Taxable Long Term Capital Gain xxxxxxx

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The Benefit of indexation is not available in the following cases

Bonds and debentures other than capital indexed bonds held by any person as per 3rd Proviso of section 48.

Shares and debentures of an Indian Company acquired by non resident including a company by utilizing convertible foreign exchange as mentioned in 1st proviso of section 48.

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Depreciable Assets other than used by

power generating unit which is eligible for depreciation on straight line method under section 32(1)(i).

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Undertaking transferred by slump sale as per section 50 B.

Units purchased in foreign currency u/s. 115 AB.

Global depository receipt purchased in

foreign currency u/s. 115 ACA

Securities as per section 115AD.

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How to determine full value of consideration

Meaning of Full value of consideration: Full value of consideration means whole

price without any deductions whatsoever. Full value of consideration means the

consideration received or receivable as a result of transfer u/s. 2(47).

In case the of the transfer if the consideration for the transfer is not determinable the fair market value shall be considered to be the full value of transaction u/s. 50 D which is applicable from Assessment year 2013-2014.

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It makes no difference whether or not the full value of consideration is received or not during the previous year.

Even if the consideration is received in installment in the other previous year , still the Capital Gains shall be chargeable to tax u/s. 45 in the year of transfer.

The assessing officer can substitute the actual consideration for sale consideration in the sale deed if such evidence is available to the assessing officer.(Indrapal Singh Ahuja V/s. CIT (2006) 103 ITD 271(Asr).

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Discuss: The Mill of the Assessee was transferred

in a public auction and the purchaser of the mill has paid the consideration in installments along with the interest whether the interest so received shall be treated as Income from Other Sources or the part of full value of consideration?

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Ans: The amount of interest shall be treated as

the part of full value of consideration and the same shall not be treated as income from other sources.

Cauvery Spg and Wvg Mills Ltd v/s. C.I.T (2011) 200 Taxman 22(Mad)(Mag)

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When the full value of consideration is determined on notional basis:

Situations The amount to be taken as full value

section

Money or other asset received under insurance from the insurer due to damage of destruction of the a Capital Asset

Value of money or fair market value of the asset received from insurer -

Under section 45(1A) Capital Gains shall be charged to tax in the year of receipt .

Conversion of Capital Asset into stock in trade

The Capital Gains arising from the transfer of the Capital Asset into stock in trade shall be charged to tax in the previous year in which the stock in trade is sold or otherwise transferred by the assessee.

For the purpose of computing the Capital Gains the fair market vale of the asset on the date of conversion shall be deemed to be the consideration for the purpose of section 48.

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Situations

The amount to be taken as full value

section

Transfer of Capital Asset by a partner to the firm

Amount recorded in the books of the firm as the value of the Capital Asset.

45(3)

Distribution of Capital Asset by firm to partner on dissolution.

Fair market value of the asset on the date of transfer.

45(4)

Money or other assets received by share holders on liquidation of company

Total money plus market value of assets received on the date of distribution less the amount assessed as deemed dividend u/s. 2(22)(c) of Income Tax Act.

46(2)


Situations The amount to be taken as full value

section

Shares /debentures/warrants allotted by company to the employee and the employee gifts such shares /warrants etc to other person

Market value of the gift

Fourth proviso to section 48.

In case of transfer of land or building and sale consideration declared in the conveyance deed is less than the value adopted for the purpose of stamp duty by stamp valuation authority of State Government.

The value adopted by the stamp valuation authority of the State Government .

50 C

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Situation The amount to be

taken as full value

section

If the consideration is

not ascertainable

The fair market value of

the asset on the date of

transfer .

50D(Applicable from

Assessment year 2013-

2014)

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Cost of Acquisition

Cost of acquisition of the asset is the value for which the asset was acquired by the Assessee. Expenses which are of capital in nature shall form the part of Cost of Acquisition.

Interest on money borrowed to purchase a Capital Asset is a part of actual cost .

CIT V/s Sri Hariram Hotels P Ltd (2010) 188 Taxman 170(Kar).

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Discuss if the following expenses shall form part of cost of acquisition for the purposes of Capital Gains

Ground Rent . Expenses paid on amendment of Articles. Litigation expenses for registration of

Shares. Mortgage Conversion of agricultural land into non

agricultural land. Advocate fees and brokerage.

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What is expenditure on Transfer

Expenditure incurred wholly and exclusively in connection with the transfer of Capital Asset is deductible from the full value of consideration.

Sita Nanda V/s. C.I.T (2001) 119 Taxman 227(Delhi).

Expenditure incurred wholly and exclusively in connection with the transfer as specified under section 48(i) has wider connation than expenses “for the transfer”

( Gopeenath Paul & Sons V/s. CIT (2005) 147 Taxman 629 (Cal)

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Cost of Capital Asset to the previous owner –Section 49(1) inserted by Finance (No.2) Act 1967 w.e.f. 1.4.1967.

Where the Capital Asset became the property of the assessee : On any distribution of asset on the total or partial partition of Hindu

Undivided Family under section 49(1)(i). Under a gift or will u/s. 49(1)(ii). By succession , inheritance or devolution u/s 49(1)(iii)(a). Any distribution of asset on the dissolution of the firm u/s.

49(1)(iii)(b) w.e.f. 1.4.1988. On Distribution of assets on liquidation of Company u/s.

49(1)(iii)(c). Under transfer to revocable or irrevocable trust u/s. 49(1)(iii)(d). If the individual assessee transfers his separate property after

31st December 1969 u/s. 64(2).

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Documents

Types of Capital Assets - ICAI Knowledge Gateway of Capital Assets- Contd… • Long Term Capital Asset is that which has been held for more than 36 months immediately preceding the