'Capital Gains' is the fourth head of income.
The basis of charge is the profits or gains arising from the transfer of a capital asset in the previous year. It is taxable under the head 'Capital Gains'.
Thus, the essential elements of capital gains are:
(A) Capital Asset,
(B) Transfer of Capital Asset,
(C) Computation of Capital Gain.
(A) Capital Asset
(a) Property of any kind held by an assessee, whether connected with his business, profession or not.
(b) Any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992.
Capital asset may be movable or immovable, tangible or intangible, fixed or floating.
Capital asset includes land, building, plant, machinery, investments, goodwill, leasehold rights, jewellery, shares, a manufacturing licence, etc.
The term capital asset does not include the following:
(i) Commercial goods.
Any stock-in-trade [other than the securities mentioned in (b)], consumable stores or raw materials held for the purposes of his business or profession.
(ii) Movable assets for personal use.
Movable assets (including wearing clothes and furniture) held forpersonal use by the assessee or any member of his family dependent on him. Thus, a car or any other vehicle, refrigerator, televishis family dependent electrical appliances are included in this.
The following assets will not be treated as personal effect and liable to tax:
(a) archaeological collections,
(b) drawings,
(c) paintings,
(d) sculptures,
(e) any work 1 of art,
(f) jewellery for personal use.
Jewellery includes:
(A) Ornaments made of gold, silver, platinum or any other precious metal, whether or not worked or sewn into any wearing apparel.
(B) Precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel.
(iii) Agricultural land.
Agricultural land in India, provided it is not situated:
(a) within the limits of any municipality or a cantonment board, having a population of 10,000 or more; or
(b) within the area measured aerially specified below,
(1) Not being more than two Kilometres from the local limits and which has population of more than ten thousand but not exceeding one lakh; or
(2) Not being more than six kilometres from the local limits and which has population of more than one lakh but not exceeding ten lakh; or
(3) Not being more than eight kilometres from the local limits and which has population of more than ten lakh.
(iv) Gold Bonds.
62% Gold Bonds, 1977 or 7% Gold Bonds, 1980 or National Defence Gold Bonds, 1980 issued by the Central Government
(v) Gold Deposit Bonds. Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 or deposit certificate issued under the Gold Monetisation Scheme, 2015 notified by the Central Government.
Some self-generated assets are treated as capital assets:
(1) Self-generated goodwill of a business. However, self-generated goodwill of a profession is not treated as ated as capital asset.
(2) Self-generated tenancy rights, stage carriage permits and loom hours.
(3) Right to manufacture, produce or process any article or thing.
(i) Short-term Capital Asset, and
(ii) Long-term Capital Asset.
Short-term Capital Asset means a capital asset held by an assessee for not more than 36 months immediately preceding the date of its transfer.Capital gains arising from the transfer of short-term capital asset is called Short-term Capital Gain.
Exceptions.
(1) In the case of a financial asset being (a) a security (other than a unit) listed in a recognised stock exchange in India, or (b) a unit of the Unit Trust of India, or (c) a unit of an equity oriented fund, or (d) zero coupon bond, short-term capital asset will mean a security or unit or zero coupon bond held by the assessee for not more than 12 months instead of 36 months as in case of other assets.
(2) Assets used for business or profession, on which depreciation is allowed on the basis of WDV, are treated always as short-term capital assets.
Long-term Capital Asset means a capital asset (other than a listed security or unit of U.T.I. or unit of equity oriented fund or zero coupon bond) held by an assessee for more than 36 months immediately preceding the date of transfer.
Capital gain arising from the Gain. transfer of long-term capital asset is called Long-term Capital gain.
In the case of listed securities or units of U.T.I. or units of equity oriented fund or zero coupon bond held by the assessee, long-term capital asset will mean such assets held by the assessee for more than 12 months.
"Transfer' in relation to a capital asset includes:
(i) the sale, exchange or relinquishment of the asset; or
(ii) the extinguishment of any rights therein; or
(iii) its compulsory acquisition under any law; or
(iv) where the asset is converted by the owner into stock-in-trade of a business carried on by him; or
(v) the maturity or redemption of a zero coupon bond; or
(vi) conversion of a business into a limited company; or
Certain transactions not regarded as transfer.
The following transactions are not regarded as transfer for the purpose of capital gains tax:
(i) Any distribution of capital assets on the total or partial partition of a Hindu undivided family.
(ii) Any transfer of a capital asset under a gift or Will or an irrevocable trust. Exception. If shares or debentures or warrants, allotted by a company directly or indirectly to its employees under the Employees' Stock Option Plan or Scheme of the company are transferred under a gift or irrevocable trust, it will be deemed to be a transfer.
(iii) Any transfer of a capital asset by a company to its subsidiary company, if:
(a) the parent company holds the whole of the share capital of the subsidiary company, and
(b) the subsidiary company is an Indian Company.
( iv) Any 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; and
(b) the holding company is an Indian company.
Any transfer of a capital asset as per clause (iii) or (iv) above shall be treated as transfer if the transfer is made as Stock-in-trade.
(V) Any transfer, in a scheme of a amalgamation, of a capital asset by the amalgamating company to the amalgamated company if the amalgamated company is an Indian company.
(1) Calculation of short term capital gains.
(2) Calculation of Long Term Capital Gains.
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