Computation of Income from CAPITAL GAINS As Amended by Finance Act, 2023

Description

CONTENTS
Chapter 1 : Introduction 1
Justification of Capital Gains Tax…………………………………………………………………..1
Background of introduction of Capital Gains-tax…………………………………………..1
Abolition of capital gains-tax…………………………………………………………………………2
Prof. Nicholos Kaldor’s recommendation………………………………………………………2
Residential status for the purpose of taxation of Capital gain………………………..4
Capital gains are chargeable on accrual basis…………………………………………………4
Mercantile method of accounting has to be followed…………………………………….4
Capital gain is part of income though under separate head…………………………..5
One deeming section cannot be extended by importing another deeming section…………………………………………………………………………………………………….5
Capital gains in case of erstwhile State Ruler…………………………………………………5
Chapter 2 : Essential conditions for taxation of profits under the
head ‘Capital Gains’ 10
(1) There must be a capital asset which is owned by the assessee as
defined in section 2(14)……………………………………………………………………….10
(2) The capital asset must have been transferred by the assessee during
the previous year………………………………………………………………………………..11
(3) There must be profits and gains as a result of such transfer, which
will be known as capital gain……………………………………………………………..11
(4) Such capital gain should not be exempt under section 54, 54B,
54D, 54EC, 54EE, 54F, 54G, 54GA or 54GB………………………………………….11
Chapter 3 : “Capital asset” means 12
Existence of a capital asset on the date of transfer in the hands of
transferor is essential …………………………………………………………………………..14
Property of any kind is a capital asset………………………………………………………….14
Property also means the right, title or interest in it………………………………………15
Not treated as capital asset…………………………………………………………………………..15
Assets can never be personal effects and treated as a capital asset
[Exception]……………………………………………………………………………………………16
Chapter 4 : Transfer in relation to a capital asset 31
(i) Sale……………………………………………………………………………………………………..32
(ii) Exchange…………………………………………………………………………………………….33
(iii) Relinquishment of the assets………………………………………………………………35
(iv) Extinguishment of any rights in an asset…………………………………………….35
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(v) Compulsory acquisition as asset under any law
[Section 2(47)(iii)]………………………………………………………………………………..36
(vi) Personal effects converted into stock-in-trade
[Section 2(47)(iv)]………………………………………………………………………………..36
(vii) Maturity or redemption of a Zero Coupon Bond
[Section 2(47)(iva)]………………………………………………………………………………37
(viii) Allowing possession of immovable properties under part
performance of a contract [Section 2(47)(v)]……………………………………….37
(ix) Any transaction which has the effect of transferring an
immovable property (Membership of housing society,
company, etc.) [Section 2(47)(vi)]………………………………………………………..38
(x) Transfer when complete and effective………………………………………………..39
Chapter 5 : Scope of deemed transfer for taxing capital gains 47
Rule laid down by section 53A of Transfer of Property Act, 1882…………………48
Difference between English Law and Section 53A of Transfer of
Property Act, 1882 Regarding Doctrine of Part Performance………………..48
Capital gains are not taxed until the property is actually transferred in
accordance with the agreement…………………………………………………………….50
Chapter 6 : Period of holding 61
Holding Period as Asset to be considered [Holding need not be as
capital asset]…………………………………………………………………………………………69
Calculation of period of holding…………………………………………………………………..69
Previous owner means the last previous owner…………………………………………..70
Period of holding of Conversion of Stock-in-Trade into Capital Asset
shall be reckoned from the date of conversion or treatment…………………70
Holding by the Firm and Partner…………………………………………………………………70
Chapter 7 : Chargeability of capital gains [Section 45] 76
Basis of charge (Section 45)…………………………………………………………………………..76
(i) There should be a capital assets [Section 2(14)]……………………………………76
Property of any kind is wide term and includes all………………………………………76
(ii) The capital asset is transferred by the assessee [Section 2(47)]……………76
Year of chargeability of gains……………………………………………………………………….77
Capital gain or Business income…………………………………………………………………..77
Chapter 8 : Any profits or gains arising from transfer of a
capital asset [Section 45(1)] 86
When section 45(1) is attracted…………………………………………………………………….86
Year of taxability………………………………………………………………………………………….87
Full value of consideration…………………………………………………………………………..87
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Chapter 9 : Capital gains when insurance is received
[Section 45(1A)] 94
When section 45(1A) is attracted………………………………………………………………….95
When section 45(1A) is not applicable………………………………………………………….95
Nature of transaction……………………………………………………………………………………96
Period of holding…………………………………………………………………………………………96
Capital Gains assessable in the hands of………………………………………………………96
Year of taxability – in the year of receipt of claim…………………………………………96
Full value of consideration for the purpose of section 48……………………………..96
Chapter 10 : Taxation of proceeds of high premium unit linked
insurance policy (ULIP) [Section 45(1B)] 101
Rule to compute capital gains on sum received from ULIPs not
exempt under section 10(10D)…………………………………………………………….103
Chapter 11 : Capital gains on conversion of capital assets into
stock-in-trade [Section 45(2)] 105
Background………………………………………………………………………………………………..105
Relevant provisions……………………………………………………………………………………106
Nature of transaction …………………………………………………………………………………106
Year of transfer…………………………………………………………………………………………..106
Capital Gains assessable in the hands of…………………………………………………….106
Year in which chargeable……………………………………………………………………………106
Capital Gain shall be computed in the year when such converted
asset is sold…………………………………………………………………………………………106
lndexation of cost of acquisition & improvement shall be done
till the year of conversion……………………………………………………………………106
There must be a capital asset………………………………………………………………………107
Fair Market Value of the inventory…………………………………………………………….108
Cost of acquisition………………………………………………………………………………………108
Period of holding of such capital asset……………………………………………………….108
Treated as business income………………………………………………………………………..108
Business income also to be calculated in the year of sale…………………………….108
Essential conditions……………………………………………………………………………………108
Computation of capital gain……………………………………………………………………….109
Chapter 12 : Chargeability of capital gain on transfer of
security by depository [Section 45(2A)] 115
Definitions as per section 2(1) of the Depositories Act, 1996……………………….115
Year of taxability – In the year of transfer……………………………………………………116
Essential conditions……………………………………………………………………………………116
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Rate of Tax………………………………………………………………………………………………….116
Nature of transaction (Particulars of transfer)…………………………………………….117
Capital Gains assessable in the hands of…………………………………………………….117
Year of taxability – in the year of transfer……………………………………………………117
Full value of consideration for the purpose of Section 48……………………………117
Computation of capital gain……………………………………………………………………….117
Transfer of Securities in a Demat form [Section 45(2A)]……………………………..118
Chapter 13 : Capital gain on transfer of capital asset by a partner,
member to a firm or association of persons or body of
individuals, as capital contribution [Section 45(3)] 122
Background………………………………………………………………………………………………..122
Nature of transaction (i.e., Particulars of transfer)………………………………………123
Year of taxability………………………………………………………………………………………..123
Capital Gains assessable in the hands of…………………………………………………….123
Full value of consideration for the purpose of Section 48……………………………123
Provisions in Brief : Capital Contribution by Partner [Section 45(3)]………….123
Essential conditions……………………………………………………………………………………124
Section 45(3) vs Section 50C ……………………………………………………………………….124
Computation of Capital gains tax under Section 45(3)………………………………..124
Chapter 14 : Capital gain on transfer of capital assets by a
firm/AOP/BOI to partner/member on its reconstitution
[Section 45(4)] 130
Understanding of provisions of section 45(4)……………………………………………..131
Pre-conditions for applicability …………………………………………………………………132
Section 45(4) overrides section 45(1) ………………………………………………………….133
Understanding of provisions of section 9B…………………………………………………135
Pre-conditions for applicability of section 9B……………………………………………..136
Year of transfer…………………………………………………………………………………………..141
Year of taxation of income …………………………………………………………………………141
Manner of computation of income …………………………………………………………….141
Computation on account of section 48(iii) ………………………………………………….142
Understanding the provisions with example:…………………………………………….143
Computation of Capital Gains Tax under Section 45(4)………………………………143
Rate of tax ………………………………………………………………………………………………….144
CBDT Guidelines under sections 9B and 45(4)……………………………………………144
Distribution of stock-in-trade to partners on dissolution……………………………146
Computation of capital gain……………………………………………………………………….146
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Capital gain on partnership firm dissolution……………………………………………..146
Section 45(4) is not applicable…………………………………………………………………….147
Chapter 15 : Capital gain on transfer by way of compulsory
acquisition of an asset by Government [Section 45(5)] 162
Nature of transaction (i.e., Particulars of transfer)………………………………………163
Capital Gains assessable in the hands of…………………………………………………….163
Year in which chargeable……………………………………………………………………………163
When is section 45(5) applicable?……………………………………………………………….164
Computation of capital gain……………………………………………………………………….164
Initial Compensation …………………………………………………………………………………164
Taxability of enhanced compensation [Section 45(5)(b)]…………………………….165
Cost of acquisition and cost of improvement for enhanced
compensation [Explanation to section 45(5)(b)]…………………………………..165
Tax treatment of compensation received under interim order of a Court,
Tribunal or other authority [Proviso to Section 45(5)(b)]…………………….165
Compensation received by legal heirs………………………………………………………..165
Reduction of compensation………………………………………………………………………..166
Treatment of interest awarded under the Land Acquisition Act, 1894………..166
Interest on enhanced compensation is revenue receipt………………………………167
CBDT has clarified the taxability of compensation on compulsory
acquisition of Agriculture & Non-Agriculture land……………………………167
Chapter 16 : Special provisions for computation of capital
gains in case of Joint Development Agreement
[Section 45(5A)] 178
Legislative intent for introduction of Section 45(5A)…………………………………..178
Specified agreement (Joint Development Agreement) [Explanation (ii) to
Section 45(5A)]……………………………………………………………………………………180
Salient features of definition of Specified Agreement…………………………………180
Taxability of Joint Development Agreement from the point of view of
Land Owner……………………………………………………………………………………….181
Land owners liable to capital gains only when the builder completes the
construction and gets the completion certificate…………………………………181
Cost of acquisition of the share in the project being Land or Building
or both [Section 49(7)]…………………………………………………………………………181
Cost of construction of the land owner’s portion that the owner buys
after construction of the complete structure………………………………………..182
Taxability of Joint Development Agreement from the point of
view of Builder Developer………………………………………………………………….182
Provisions of Section 45(5A) shall not apply………………………………………………183
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Case of conversion of land held by land owner as capital asset to
Stock-in-trade before entering in to JDA…………………………………………….183
Computation of Capital Gain……………………………………………………………………..184
Consequences if land owner transfers his share before issue of
completion certificate………………………………………………………………………….184
Liability to Deduct TDS on monetary consideration (payment
under joint development agreement) [Section 194-IC]………………………..186
GST Applicability to Joint Development Agreement………………………………….187
Chapter 17 : Re-purchase of units under section 80CCB
[Section 45(6)] 201
Nature of transaction (i.e., Particulars of transfer)………………………………………201
Capital Gains assessable in the hands of…………………………………………………….201
Computation of capital gain……………………………………………………………………….202
Year of taxability………………………………………………………………………………………..202
Full value of consideration for the purpose of Section 48……………………………202
Chapter 18 : Computation of various types of capital gains 203
Types of capital asset………………………………………………………………………………….203
[1] Long-term capital asset [Section 2(29A)]…………………………………………….203
Reduction of holding period for computation of capital gains for
immovable property [Third proviso to section 2(42A)]……………………….203
Conversion of leasehold rights into freehold rights—Gain would be
long-term capital gain…………………………………………………………………………203
[2] Short-Term Capital Asset [Section 2(42A)]…………………………………………..204
Property constructed on a land purchased earlier………………………………………204
Rebate of tax under Section 87A…………………………………………………………………204
Deduction under sections 80C to 80U…………………………………………………………204
Chapter 19 : Short-term capital gains in certain cases
[Section 111A] 206
Meaning of short-term capital gain and long-term capital gain………………….206
Short-Term Capital Asset……………………………………………………………………………206
Difference between long-term and short-term capital gains……………………….206
Short-term capital asset [Section 2(42A)]…………………………………………………….207
Applicability of Section 111A……………………………………………………………………..210
Short-Term Capital Gains covered under Section 111A……………………………..210
Short-Term Capital Gains not covered under Section 111A………………………..211
Tax on Short-Term Capital Gain…………………………………………………………………211
Adjustment of Short-Term Capital Gain (STCG) against Basic
exemption limit…………………………………………………………………………………..212
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Deduction under Chapter VIA [i.e., sections 80C to 80U]…………………………..212
Computation of Short-Term Capital Gains ………………………………………………..213
Computation of Short-term capital gains
(Section 48 for non-depreciable assets)……………………………………………….213
Chapter 20 : Tax on long-term capital gains [Section 112] 216
Difference between Section 112 and Section 112A of
Income Tax Act, 1961………………………………………………………………………….218
Section 112 Exceptions:………………………………………………………………………………219
Adjustment of Long-Term Capital Gain against basic exemption limit………219
Computation of long-term capital gains……………………………………………………..220
Tax on long-term capital gain…………………………………………………………………….222
Tax on long-term capital gain @ 10% in certain special cases…………………….222
Chapter 21 : Long-term capital gains on transfer of
Zero Coupon Bonds 224
Meaning of Zero Coupon Bond………………………………………………………………….224
List of Zero Coupon Bonds as notified by the Central Government
for the purpose of section 2(48) of the Act…………………………………………..225
Maturity or redemption of a Zero Coupon Bond to be regarded as
transfer [Section 2(47)(iva)]…………………………………………………………………227
Tax Treatment of Zero Coupon Bonds……………………………………………………….227
Tax treatment in the hands of company issuing such bonds
[Section 36(l)(iiia)]………………………………………………………………………………227
Taxation as Capital Gains/Business Income in the hands of Investors……….227
Transfer of zero coupon bonds taxable as capital gains in the hands of
investor………………………………………………………………………………………………228
TDS not applicable on Maturity/Redemption……………………………………………228
CBDT amends Income Tax Rules to facilitate issuance of Zero Coupon
Bonds by Infrastructure Debt Fund…………………………………………………….228
Chapter 22 : Tax on long-term capital gains in certain cases
[Section 112A] 229
Eligible assessee………………………………………………………………………………………….231
Applicability of Section 112A……………………………………………………………………..231
Benefit of Deduction under Chapter VIA & Rebate under section 87A
shall be allowed………………………………………………………………………………….232
Threshold limit of long-term capital gain exemption………………………………….232
Set-off long-term capital loss from long-term capital gain………………………….232
Concept of Grandfathering…………………………………………………………………………232
Rate of tax under Section 112A…………………………………………………………………..232
(xvi) CONTENTS
How tax is computed under Sections 112A and 112…………………………………..233
Cost of acquisitions in respect of the long-term capital asset
acquired by the assessee before 01.02.2018………………………………………….233
Computation under Section 112A………………………………………………………………235
Chapter 23 : Capital gains tax on sale of Bonus Shares 236
What is bonus share……………………………………………………………………………………236
Bonus Shares – Period of Holding………………………………………………………………236
Cost of Acquisition of Bonus shares [Section 55(2)]…………………………………….236
Provisions of section 56(2)(vii)(c) are not applicable to bonus shares …………237
Expenses incurred for issue of bonus shares are to be allowed
as revenue expenditure………………………………………………………………………238
Chapter 24 : Bonus stripping transactions [Section 94(8)] 239
Concept of Bonus Stripping……………………………………………………………………….239
Provision of Bonus Stripping under section 94(8)……………………………………….239
Conditions for applicability to attract the provisions of section 94(8)…………242
Income-tax implications on Bonus Stripping………………………………………………243
Benefits of Indexed cost of Acquisition available……………………………………….243
Chapter 25 : Capital gains tax on sale of Right Shares 247
Cost of acquisition of such Right Share………………………………………………………247
Right Entitlement……………………………………………………………………………………….247
Tax treatment …………………………………………………………………………………………….248
Chapter 26 : Capital gains taxation of Mutual Funds 249
Factors determining the tax status of Mutual Funds…………………………………..249
Liquid Funds………………………………………………………………………………………………250
Hybrid Funds…………………………………………………………………………………………….250
Calculation of Capital Gains under Mutual Fund………………………………………250
Capital Gains Tax Rates on Mutual Funds from Assessment Year
2021-22………………………………………………………………………………………………..250
Chapter 27 : Capital gains on Self-generated Capital Asset
[Section 55(2)(a)] 253
(i) Goodwill of business (Not of profession)………………………………………………253
(ii) Loom hours………………………………………………………………………………………….255
(iii) Route permits or Stage carriage permits……………………………………………..256
(iv) Surrender of Tenancy right…………………………………………………………………256
(v) Trademark or brand name associated with business……………………………259
(vi) Right to manufacture, produce or process any article, or thing for a
consideration………………………………………………………………………………………259
(xvii) CONTENTS
(vii) Right to carry on any business…………………………………………………………….259
Computation of capital gain in the case of SELF-GENERATED ASSETS……260
Chapter 28 : Capital gains from transfer of unlisted shares 262
Exception wherein this is not Applicable……………………………………………………262
Unlisted shares of a company to be short-term capital asset if held
for not more than 24 months [Third proviso to section 2(42A)]…………..262
CBDT clarifies that income/loss arising from transfer of unlisted
shares to be considered under head “Capital Gain”
irrespective of holding period, with certain exceptions………………………264
Taxability of surplus on sale of shares and securities…………………………………265
Chapter 29 : Capital Gains on distribution of Assets by
Companies in its Liquidation [Section 46] 269
No capital gain to company on distribution of assets to shareholder on
liquidation [Section 46(1)]…………………………………………………………………..269
Company – Distribution of assets by a Company at the time of
liquidation would not be regarded as transfer [Section 46(1)]…………….269
Capital gains on distribution of assets by companies in its liquidation………269
Applicability of section 46(1)………………………………………………………………………270
Tax treatment in the hands of the company……………………………………………….270
Tax treatment in the hands of the shareholders………………………………………….271
Shareholders liable to capital gains tax on receiving of money and
asset on the liquidation of the company [Section 46(2)]………………………272
Determination of capital gain under section 46(2)………………………………………272
Period of holding [Section 2(42A)]……………………………………………………………..272
Cost of acquisition of the assets [Section 55(2)(b)(iii)]…………………………………272
Computation of capital gain……………………………………………………………………….272
Chapter 30 : Capital gains on purchase by a company of
its own shares or other specified securities (buy-back)
[Section 46A] 279
Objectives of Buy-back of Shares………………………………………………………………..279
Buy-back of shares by companies and its treatment under
Income-tax Act, 1961…………………………………………………………………………..280
Ways of distributable Reserves benefits for its members……………………………284
Tax on buy-back of shares in case of listed companies……………………………….285
Rules with respect to buy-back of shares [Rule 40BBl…………………………………287
Clarification of tax issues arising out of the provision to allow buy-back of
shares by the companies……………………………………………………………………..291
(xviii) CONTENTS
Chapter 31 : Transactions not treated as transfer[Section 47] 293
[I] Capital gain on distribution of assets in kind by companies to its
shareholders at the time of liquidation [Section 46(1)]………………………..293
[2] Any distribution of capital assets on the total or partial partition
of a Hindu Undivided Family (HUF) [Section 47(i)]……………………………293
[3] Any transfer of a capital asset under a Gift or will or an
irrevocable trust [Section 47(iii)]…………………………………………………………294
[4] Transfer of capital asset by holding company to its
subsidiary company [Section 47(iv)]…………………………………………………..295
[5] Transfer of capital assets by 100% subsidiary company to its
Indian holding company [Section 47(v)]……………………………………………..298
[6] Transfer of capital asset in a scheme of amalgamation
[Section 47(vi)]……………………………………………………………………………………299
[7] Transfer of capital asset in a scheme of amalgamation of
two foreign companies [Section 47(via)]……………………………………………..300
[8] Transfer in a scheme of amalgamation between a banking
company [Section 47(viaa)]…………………………………………………………………301
[9] Transfer of capital asset being a share of a foreign company in
the scheme of amalgamation not to be regarded as transfer
subject to certain conditions being satisfied [Section 47(viab)]……………302
[10] Transfer in a demerger of a capital asset by the demerged company
to resulting company (in a scheme of demerger) [Section 47(vib)]………302
[11] Transfer of shares in Indian company in scheme of demerger
between two foreign companies [Section 47(vic)]……………………………….303
[12] In a business reorganization by predecessor co-operative bank to the
successor co-operative bank or to the converted banking company
[Section 47(vica)]…………………………………………………………………………………304
[13] Being shares by shareholder of a predecessor co-operative bank or
to the converted banking company in a business reorganization
[Section 47(vicb)]………………………………………………………………………………..304
[14] Transfer of capital asset being a share of a foreign company in the
scheme of demerger not to be regarded as transfer subject to certain
conditions being satisfied [Section 47(vicc)] (with effect from
assessment year 2016-17)…………………………………………………………………….305
[15] Transfer/allotment of shares by the resulting company to the
shareholders of the demerged company in a scheme of demerger
[Section 47(vid)]………………………………………………………………………………….306
[16] Allotment of shares in Amalgamated Company in lieu of shares
held in amalgamating company [Section 47(vii)]………………………………..306
[17] Transfer of capital asset of foreign currency convertible bonds or
(xix) CONTENTS
GDR by a non-resident to another non-resident [Section 47(viia)] ……..310
[18] Transfer of Rupee Dominated Bonds outside India by a
non-resident to another non-resident [Section 47(viiaa]……………………..310
[I9] Transactions by a non-resident on a recognized stock exchange
located in any International Financial Services Centre where
consideration is paid or payable in foreign currency
[Section 47(viiab)]……………………………………………………………………………….311
[20] Any transfer, in a relocation, of a capital asset by the original
fund to the resulting fund [Section 47(viiac)]………………………………………314
[21] Allotment of shares of the resultant fund to the shareholders
of the original fund as a result of relocation [Section 47(viiad)]…………..314
[22] Transfer of capital asset by Indian Infra Finance Co. to an I
nstitution established for financing infrastructure and
development [Section 47(viiae)]………………………………………………………….318
[23] Transfer of capital asset under a plan approved by Central
Government [Section 47(viiaf)]………………………………………………….. 318
[24] Exemption from tax to transfer of Government Security by
one non-resident to another [Section 47(viib)]…………………………………….319
[25] Any transfer of Sovereign Gold Bond issued by the Reserve Bank of
India (RBI) under the Sovereign Gold Bond Scheme, 2013 by way of
redemption, by an assessee being an individual [Section 47(viic)] ……..320
[26] Conversion of Gold to Electronic Gold Receipt and vice versa
[Section 47(viid)]…………………………………………………………………………………320
Cost of acquisition of the asset [Section 49(10]……………………………………………320
[27] Transfer of agricultural land in India before 01.03.1970
[Section 47(viii)]………………………………………………………………………………….320
[28] Any transfer of a capital asset being any work of art, manuscript,
painting, etc. to Government/University/National Museum, etc.
[Section 47(ix)]…………………………………………………………………………………….321
[29] Conversion of bonds or debentures into shares [Section 47(x)]……………321
[30] Conversion of Foreign Currency Exchangeable Bonds
[Section 47(xa)]……………………………………………………………………………………322
[31] Any transfer by way of conversion of preference share of a
company into its equity share [Section 47(xb)]……………………………………323
[32] Transfer by way of exchange of membership of a recognized
stock exchange for shares of a company [Section 47(xi)]……………………..324
[33] Transfer of land by sick industrial company which is managed
by its workers’ co-operative [Section 47(xii)]………………………………………324
[34] Transfer of capital assets in the case of conversion of firm into
company [Section 47(xiii)]…………………………………………………………………..325
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[35] Transfer of a capital asset, being a membership right held by a
member of recognized stock exchange in India [Section 47(xiiia)]………328
[36] On Conversion of a private limited or Unlisted Public Company
into Limited Liability Partnership (LLP) [Section 47(xiiib)]…………………329
[37] Transfer of a capital asset in the case of conversion of a sole
proprietary concern into a company [Section 47(xiv)]…………………………335
[38] Transfer involved in a scheme of lending of any securities
[Section 47(xv)]…………………………………………………………………………………..336
Conditions to be satisfied before the benefit of the section…………………………337
[39] Reverse mortgage transactions by senior citizens – i.e., individuals
aged 60 years or more [Section 47(xvi)]………………………………………………337
[40] Any transfer of a capital asset, being share of a special purpose
vehicle to a business trust in exchange of units allotted by that
trust to the transferor not to be treated as transfer
[Section 47(xvii)]…………………………………………………………………………………339
[41] Any transfer by a unit holder of a capital asset, being a unit or
units, held by him in the consolidating scheme of a mutual fund
[Section 47(xviii)]………………………………………………………………………………..340
[42] Any transfer by a unit holder of a capital asset, being a unit
or units held by him in the consolidating scheme of mutual fund
[Section 47(xix)]…………………………………………………………………………………..341
[43] Exempt transfer of interest in a joint venture held by a PSU in
exchange for shares of a foreign company [Section 47(xx)]…………………342
[44] Family settlement………………………………………………………………………………..342
[45] Transfer of Sick Unit to Employees’ Co-operative……………………………….344
Chapter 32 : Withdrawal of exemption in certain cases
[Section 47A] 345
Transfer of capital asset between holding and subsidiary
company – Withdrawal of exemption in case of fully Holding
and Subsidiary Company [Section 47A(1)]…………………………………………346
Stock Exchange [Section 47A(2)]…………………………………………………………………346
Non-compliance of any specified condition by successor company
[Section 47A(3)]…………………………………………………………………………………..346
Withdrawal of exemption availed under Section 47(xiiib) on
non-fulfillment of conditions – Deemed Profits [Section 47A(4)]…………347
Consequences of withdrawal of exemption………………………………………………..347
Withdrawal of exemption availed under Section 47(xiiib) on
non-fulfillment of conditions – Deemed Profits [Section 47A(4)]…………347
Consequences of withdrawal of exemption………………………………………………..347
(xxi) CONTENTS
Re-computation of income in the case of transferor company if
exemption withdrawn by section 47A-Section 155(7B)……………………….348
Chapter 33 : Mode of computation of capital gains [Section 48] 351
Method of Computing Capital Gain [Section 48]………………………………………..354
[I] Computation of capital gain in case of non-residents [First proviso
to section 48]……………………………………………………………………………………..355
[2] Indexed Cost of Acquisition and Improvement -Indexation
[Second proviso to section 48]…………………………………………………………..356
[3] Long-term capital gains arising from transfer of an equity share,
or a unit of an equity oriented fund or a unit of a business
trust as referred to in Section 112A [Third Proviso to Section 48]……..357
[4] Appreciation of rupee shall be ignored for the purposes of
computation of full value of consideration [Fourth Proviso
to Section 48]…………………………………………………………………………………….358
[5] Fifth Proviso to Section 48—Shares, etc. transferred under ESOP ……….358
[6] Sixth Proviso to Section 48-Securities Transaction Tax (STT)……………….359
Chapter 34 : Expenditure incurred wholly and exclusively in
connection with transfer of capital asset [Section 48 (i)] 364
Wholly and exclusively………………………………………………………………………………364
Word ‘connection’ in section 48(i) ……………………………………………………………..365
Deduction of expenditure…………………………………………………………………………..365
In case of sale of a house property……………………………………………………………..365
(i) Brokerage or Commission paid for securing a purchaser……………………..365
(ii) Cost of Stamp Papers or Registration Fees borne by the
Vender (Seller)………………………………………………………………………………….365
(iii) Travelling Expenses in connection with transfer (Sale)………………………365
(iv) Litigation Expenses for claiming Enhancement in Compensation………366
(v) Where property has been inherited, expenditure incurred with respect
to procedures associated with the will and inheritance, obtaining
succession certificate, costs of executor, may also be allowed……………366
(vi) Advertisement cost incurred by the seller to get buyer………………………366
In case of sale of jewellery………………………………………………………………………….366
Expenditure allowed under other heads of income…………………………………….366
Compensation paid to related parties to get them vacate the land
transferred cannot be allowed as deduction under section 48(i)
in computing capital gains………………………………………………………………….366
Chapter 35 : Cost of acquisition of the asset and the cost of any
improvement thereto [Section 48(ii)] 379
Cost of Acquisition…………………………………………………………………………………….379
(xxii) CONTENTS
Cost of Improvement………………………………………………………………………………….379
Mode of computation [Section 48]………………………………………………………………379
Chapter 36 : Special provisions in the case of a non-resident Indian
(NRI) [First and Section proviso to section 48] 386
Mode of Computation for non-resident (First Proviso to section 48
and Rule 115A)……………………………………………………………………………………387
Capital gain in the case of transfer of shares/debentures by non-residents
[First Proviso to section 48 and rule 115A]………………………………………….387
Chapter 37 : Cost Inflation Index [Explanation (v) to Section 48] 390
Background………………………………………………………………………………………………..390
Indexed cost of acquisition…………………………………………………………………………391
How to do indexation…………………………………………………………………………………391
Cost of Inflation Index………………………………………………………………………………..391
Shifting base year from 1981 to 2001 for computation of capital gains
[Section 55(2)(b)]…………………………………………………………………………………391
Cost Inflation Index Applicable from Financial Year 2020-21
(Assessment Year 2021-22) with Base Year 2001-02…………………………….392
Cost of acquisition – Property inherited indexed cost to be
determined as on 01.04.1981……………………………………………………………….396
Gifted property : Indexation……………………………………………………………………….396
In case of transfer by gift, will, trust, etc., indexed cost to be
determined with reference to holding by previous owner………………….396
Indexed cost of gifted assets has to be determined with reference
to previous owner………………………………………………………………………………396
Family arrangement is analogous to partition attracting Section 49
[Family arrangement (Settlement)]……………………………………………………..397
Indexed cost of acquisition of house inherited from father – Sale of house
inherited from father – Cost of acquisition of house to the
assessee has to be deemed to be the cost for which the
previous owner had acquired it …………………………………………………………397
Chapter 38 : Cost with reference to certain modes of
acquisition [Section 49] 398
Cost of Acquisition (COA)………………………………………………………………………….398
[1] Cost of Acquisition of Asset to the Previous Owner to calculate
Capital Gain (Deemed cost of acquisition) [Section 49]……………………..399
Cost of acquisition on notional basis…………………………………………………………..400
Deemed cost of acquisition…………………………………………………………………………403
Computation of indexed cost of acquisition……………………………………………….405
(xxiii) CONTENTS
Computation of Indexed Cost of Acquisition and Improvement can be
divided into 5 cases:……………………………………………………………………………405
[2] Cost of Acquisition of Shares of Amalgamated company
[Section 49(2)]……………………………………………………………………………………411
[3] Cost of acquisition in the case of Sharesi Debentures acquired on
Conversion of Bonds or Debentures or Debentures Stock or
Deposit Certificate [Section 49(2A)]…………………………………………………..412
Employee Stock Option Plan (ESOP) [Sec. 49(2AA)]…………………………………..413
[4] Cost of acquisition of specified security or sweat equity shares
referred to in section 17(2)(vi) (i.e., Employee Stock Option
Plan (ESOP) [Section 49(2AA)]………………………………………………………….413
Directs Revenue to accept cost of ESOP shares as per Section 49(2AA),
if tax residency certificate (TRC) found in order…………………………………413
[5] Cost of the partnership rights of a partner on conversion of a
company into LLP {i.e., Transfer of right of a partner in Limited
Liability Partnership (LLP) consequent to conversion referred to in
section 47(xiiib)} [Section 49(2AAA)]………………………………………………..414
[6] ESOP/Sweat Equity Shares [Section 49(2AB)]…………………………………..414
[7] Global Depository Receipts-Cost of acquisition of shares
[Section 49(2ABB), w.e.f. 01.04.2016]…………………………………………………414
[8] Cost of acquisition of unit of a business trust acquired
inconsideration of transfer of asset referred to in
section 47(xvii) [Section 49(2AC)]……………………………………………………..415
[9] Cost of acquisition of the units of the consolidated scheme
acquired in lieu of units held in a consolidating scheme
[Section 49(2AD)]………………………………………………………………………………415
[10] Cost of acquisition of equity share on conversion of preference
share into equity share [Section 49(2AE)]………………………………………….415
[11] Cost of acquisition of the units in the consolidated plan of
mutual fund scheme [Section 49(2AF)]……………………………………………..415
[12] Cost of acquisition of a unit or units in the segregated portfolio
[Section 49(2AG)]………………………………………………………………………………416
[13] Cost of the acquisition of the original units held by the unit holder in
the main portfolio [Section 49(2AH)]………………………………………………..416
[14] Cost of the acquisition of any transfer of a Capital asset being shares
referred to in section 47(XX) [Section 49(2AI)]…………………………………..416
[15] Cost of acquisition of shares of resulting company (Demerger)
[Section 49(2C)]…………………………………………………………………………………416
[16] Cost of acquisition of the original shares of the demerged company
[Cost of the acquisition of demerged company’s shares after
demerger] [Section 49(2D)]……………………………………………………………….417
(xxiv) CONTENTS
[17] Business reorganization of Co-operative Bank [Section 49(2E)]…………417
[18] Cost of Acquisition to Transferee Company where section 47A is
applicable [Section 49(3)]…………………………………………………………………..417
[19] Cost of acquisition of the property received/acquired in a manner
given under section 56(2)(vii)/(viia) i.e., without consideration or
for inadequate consideration [Section 49(4)]……………………………………..417
[20] Cost of assets acquired on liquidation of a company………………………..418
[21] Cost of acquisition in case where capital gain arises from the
transfer of an asset declared under the Income Declaration Scheme,
2016 [Section 49(5)]……………………………………………………………………………418
[22] Cost of acquisition in case where reconstituted plot or land,
received under land pooling scheme [Section 49(6)]…………………………419
[23] Cost of acquisition of the share in the project being land or
building or both in a joint development agreement referred in
section 45(5A) [Section 49(7)]…………………………………………………………….419
[24] Cost of acquisition of capital assets for entities where tax on
accreted income paid [Section 49(8)]…………………………………………………419
[25] Conversion of Stock-in-Trade into Capital Asset-Cost of
acquisition on subsequent sale of capital asset [Section 49(9)]…………..420
[26] Cost of the Electronic Gold Receipt…………………………………………………..420
Chapter 39 : Capital gain on Depreciable Assets
[Section 50] 423
Special provision for computation of capital gains in case of
depreciable assets……………………………………………………………………………….423
Conditions for claiming depreciation…………………………………………………………424
Computation of Capital Gains in case of depreciable assets……………………….425
Section 50 comes into picture……………………………………………………………………..425
Calculation of capital gains in case of depreciable capital asset………………….426
[1] Where part of the block of depreciable assets is transferred, i.e., the
block does not cease to exist [Section 50(1)]………………………………………426
[2] When entire block of depreciable assets is transferred, i.e., the block
ceases to exist [Section 50(2)]…………………………………………………………….427
Rule for Computation of short term capital gains and written down value
under section 50 where depreciation on goodwill has been obtained
[Rule 8AC]………………………………………………………………………………………….428
Chapter 40 : Special provision for cost of acquisition in case of
depreciable asset [section 50A] 434
Cost of acquisition in case of depreciable assets on which depreciation
allowed at SLM rates – Section 50A…………………………………………………….434
Power generation undertakings [Section 50A]……………………………………………435
(xxv) CONTENTS
Chapter 41 : Special provision for computation of capital gains in
case of Market Linked Debenture [section 50AA] 436
Special provision for computation of capital gains in case of
Market Linked Debenture. …………………………………………………………………436
Chapter 42 : Capital gain in case of Slump Sale [section 50B] 437
Background………………………………………………………………………………………………..437
“Slump Sale” meaning [Section 2(42C)]……………………………………………………..439
Slump Exchange is held to be taxable…………………………………………………………440
(i) Taxpayer owns an Undertaking…………………………………………………………..440
(ii) He transfers the undertaking by way of Sale……………………………………….440
All types of transfers are covered within the scope of slump-sale………………440
(iii) Transfer takes place for a lump sum consideration…………………………….440
Special Provision………………………………………………………………………………………..440
Who is eligible……………………………………………………………………………………………441
Nature of transaction………………………………………………………………………………….441
Taxability of capital gains arises in the year of transfer of the
undertaking………………………………………………………………………………………..441
Nature of capital gains : Short-term or long-term……………………………………….441
Cost of Acquisition and Cost of Improvement……………………………………………441
Computation of “Net Worth”…………………………………………………………………….441
Indexation not available on cost of acquisition, i.e., net worth……………………442
Period of Holding………………………………………………………………………………………442
Computation of capital gains……………………………………………………………………..442
Revaluation of assets shall not be considered……………………………………………..442
Chartered Accountant’s report certifying the computation of
Net Worth to be enclosed [Section 50B(3) & Rule 6H]…………………………443
Chapter 43 : Valuation of consideration in case of land or
building or both [Section 50C] 454
Background………………………………………………………………………………………………..454
With effect from Assessment Year 2021-22 – No adjustment if variation
between stamp duty value & sale consideration does not exceed 110%
[Third proviso to section 50C]…………………………………………………………….456
From Assessment Years 2019-20 to 2020-21 – No adjustment if variation
between stamp duty value & sale consideration does not
exceed 105% [Third proviso to section 50C]………………………………………..456
Basic Ingredients of Provisions of section 50C……………………………………………457
Value to be adopted for Capital Gains………………………………………………………..458
Meaning of Stamp Duty Value (Circle Rate)………………………………………………459
(xxvi) CONTENTS
Year of Taxability……………………………………………………………………………………….459
Computation of capital gain……………………………………………………………………….459
Applicability of section 50C to section 45(2), 45(3), 45(4), 45(5)…………………..459
Coverage of section 50C is very wide…………………………………………………………459
Applicability of Section 50C/43CA viz-a-viz Section 56(2)(vii)(b) as
amended by Finance Act, 2013……………………………………………………………460
Reference to Valuation Officer……………………………………………………………………460
Section 50C also applicable to documents not registered……………………………460
Section 50C would not apply on compulsory acquisition of land by
NHAI as stamp duty is not payable on such transfer………………………….460
Sale of property held with commercial intent taxable as
business income, Section 50C inapplicable………………………………………….461
Chapter 44 : Special provisions for full value of consideration
for transfer of assets other than capital assets in certain
cases [Section 43CA] 479
Background………………………………………………………………………………………………..479
Other electronic modes [Rule 6ABBA]……………………………………………………….481
Sale value of consideration [Proviso to Section 43CA(1)]……………………………481
Stamp duty value can be up to 120% of the consideration if the transfer
of “residential unit” is made between 12.1 1.2020 and 30.06.2021
[Second proviso to Section 43CA]……………………………………………………….482
Explanation in section 43CA clarifies that for the purposes of this
section, “residential unit” means………………………………………………………..482
Tax auditor’s duty if 2nd proviso to section 43CA(1)/4th proviso
to section 56(2)(x) applies……………………………………………………………………483
Applicability of Section 43CA…………………………………………………………………….483
Preference to Valuation Officer (Provisions of Section 50C(2) and
(3) made applicable to section 43CA) [Section 43CA(2)]……………………..484
Where valuation can be referred to the Valuation Officer
[Section 50C(2)]…………………………………………………………………………………..484
Consequences where the value is determined by the valuation officer………484
Stamp Duty value on the date of agreement to be deemed
consideration [Section 43CA(3)]………………………………………………………….485
Chapter 45 : Special provisions for full value of consideration
for transfer of unlisted/unquoted shares [Section 50CA] 489
Section 50CA shall not apply to any consideration received or accruing
as a result of transfer by such class of persons and subject to such
conditions as may be prescribed…………………………………………………………489
Valuation of unquoted shares…………………………………………………………………….489
(xxvii) CONTENTS
FMV of unquoted equity shares…………………………………………………………………489
Quoted Share……………………………………………………………………………………………..491
Chapter 46 : Fair market value deemed to be full value of
consideration in certain cases [Section 50D] 492
Background………………………………………………………………………………………………..492
“Fair Market Value (FMV)”………………………………………………………………………..493
Conditions for applicability of provision of section 50D…………………………….493
Where the consideration is not ascertainable or cannot be determined –
Section 50D…………………………………………………………………………………………494
Example of case where consideration cannot be determined and
section 50D would apply ……………………………………………………………………494
Chapter 47 : Advance money received [Section 51] 497
Background………………………………………………………………………………………………..497
Consequential amendment in section 51 to avoid double taxation……………..497
Applicability of section 51………………………………………………………………………….498
Advance money received and forfeited shall be treated as “Income from
Other Sources” under section 56(2)(ix)……………………………………………….498
Reasons for Introduction of Section 56(2)(ix) : Change in Tax Treatment of
Amount Forfeited……………………………………………………………………………….499
Chapter 48 : Consideration for transfer in cases of
understatement [Section 52] 503
Consideration for transfer in cases of understatement ………………………………503
Chapter 49 : Exemption of capital gains from a residential house
[Section 53] 504
Exemption of capital gains from a residential house…………………………………..504
Chapter 50 :Capital gains exempt from income-tax 505
[1] Capital gain arising on conversion of an Indian branch of foreign bank
into a subsidiary Indian company : [Section 115JG]……………………………505
Quantum of Exemption………………………………………………………………………………506
Essential Conditions…………………………………………………………………………………..506
[2] Compensation under section 96 of RECTLARR Act, 2013—Exemption
from income-tax, stamp duty and fees………………………………………………..507
[3] Non-Resident’s Capital assets situate abroad would not be taxable………509
Chapter 51 : Exemption in respect of long-term or short-term capital
gain arising on transfer of units of unit scheme, 1964 (US 64)
(transferred on or after 01-04-2002) [Section 10(33)] 510
Quantum of Exemption………………………………………………………………………………510
Essential conditions……………………………………………………………………………………510
(xxviii) CONTENTS
Chapter 52 : Exemption in respect of capital gain on
compensation received on compulsory acquisition of
urban agricultural land situated within specified
urban limit [Section 10(37)] 512
Quantum of exemption………………………………………………………………………………513
Essential conditions:…………………………………………………………………………………..513
Taxability of interest received by assessee on enhanced compensation
awarded by Court, pursuant to compulsory acquisition of
assessee’s agricultural land by Government……………………………………….514
Interest on late receipt of compensation from Compulsory Acquisition is
taxable………………………………………………………………………………………………..515
Chapter 53 : Tax incentive for the development of capital of
Andhra Pradesh [Section 10(37A)] 524
Background………………………………………………………………………………………………..524
Essential conditions……………………………………………………………………………………525
Chapter 54 :Exemption in respect of long-term capital gain arising
from the transfer of a long-term capital asset, being an
equity share in a company or a unit of an equity share in a
company or a unit of an equity oriented fund or a unit of a
business trust [Section 10(38)] 527
“Equity Oriented Fund” means—………………………………………………………………529
Conditions precedent for exemption………………………………………………………….529
Eligible..530
Section 112A – Applicability……………………………………………………………………….530
Transactions of acquisition of equity shares to be not eligible for exemption
under section 10(38)……………………………………………………………………………531
CBDT notifies transactions for which the condition of chargeability to STT for
claiming exemption under Section 10(38) of the Income Tax Act, 1961
shall not apply…………………………………………………………………………………….531
Chapter 55 : Exemption for capital gain arises from the
transfer of a Residential House Property [Section 54] 543
Who can claim exemption………………………………………………………………………….545
Which original asset is qualified for exemption………………………………………….545
Which new asset should be purchased or acquired…………………………………….545
Time limit for acquiring the new assets………………………………………………………545
Chapter 56 : Relief of tax on capital gains in certain cases
[Section 54A] 572
Relief of tax on capital gains in certain cases………………………………………………572
Section 54A omitted by the Finance (No. 2) Act, 1971, with effect from
(xxix) CONTENTS
01.04.1972…………………………………………………………………………………………….572
Exemption from capital gain arises from the transfer of urban
agricultural land used for agricultural purpose [Section 54B] 574
Who can claim exemption………………………………………………………………………….575
Nature of the Asset…………………………………………………………………………………….575
Which original asset is qualified for exemption………………………………………….575
Which new asset should be purchased……………………………………………………….575
Essential conditions……………………………………………………………………………………576
Consequences if new agricultural land is transferred within 3 years………….576
Capital Gains Account Scheme, 1988 of deposit in respect of exemption
under section 54B ………………………………………………………………………………576
Consequent if, the deposit amount is not utilized………………………………………577
Chapter 58 : Capital gain on transfer of jewellery held for personal
use not to be charged in certain cases [Section 54C] 590
Section 54C was omitted by the Finance Act, 1976, with effect from
01.04.1976 ……………………………………………………………………………. 590
Chapter 59 : Exemption from capital gain arises from the
compulsory acquisition of land and building used for
industry [Section 54D] 591
Who can claim exemption………………………………………………………………………….592
Which original asset is qualified for exemption………………………………………….592
Which new asset should be purchased……………………………………………………….592
Essential conditions……………………………………………………………………………………593
Amount of exemption available…………………………………………………………………593
Consequences if new land or building is transferred within 3 years…………..593
Scheme of deposit in Capital Gains Accounts Scheme, 1988 in respect
of exemption under section 54D…………………………………………………………594
Consequence if the amount is not utilized …………………………………………………594
Chapter 60 : Capital gain on transfer of capital assets not to be
charged in certain cases [Section 54E] 596
Capital gain on transfer of capital assets not to be charged in
certain cases………………………………………………………………………………………..596
Chapter 61 : Exemption from capital gain arises from the transfer
of long-term capital assets not to be charged in the case of
investment in specified securities [Section 54EA] 600
Exemption under section 54EA—Sale of flats received from developer for
transfer of land and invested the amount in specified securities…………601
Investment in specified securities – Exemption – Time limit……………………….601
(xxx) CONTENTS
Chapter 62 : Exemption from capital gain arises from the
transfer of a long-term capital assets not to be charged in
certain cases [Section 54EB] 602
Difference between Section 54EA and Section 54EB as far as
capital gains tax exemptions are concerned………………………………………..603
Chapter 63 : Capital gain arises from the transfer of a long-term
capital asset being land or building or both not to be
charged on investment in certain bonds
(Financial Assets) [Section 54EC] 605
Who can claim exemption?…………………………………………………………………………607
Nature of the Asset…………………………………………………………………………………….608
Which original asset is qualified for exemption?………………………………………..608
Which new asset should be purchased (acquired)?…………………………………….608
Essential conditions……………………………………………………………………………………609
Holding period of new asset………………………………………………………………………609
Consequences if the asset is transferred within 5 years – Withdrawal
of Section 54EC exemption if bonds issued on or after 01.04.201 8
transferred or redeemed within 5 years
[Proviso to section 54EC(2)]………………………………………………………………..609
Amount of exemption available under section 54EC………………………………….610
Period for investment is to be made in asset
(i.e., Time limit for Investment)…………………………………………………………..610
Chapter 64 : Capital gain arises from the transfer of certain
listed securities or unit, not to be charged in
certain cases [Section 54ED] 615
Exemption available up to assessment year 2006-07…………………………………..615
Chapter 65 : Capital gain arises from the transfer of a long-term
capital asset not to be charged on investment in units of a
specified fund [Section 54EE] 617
Essential Conditions…………………………………………………………………………………..618
Quantum of deduction……………………………………………………………………………….618
Revocation of exemption……………………………………………………………………………618
Chapter 66 : Exemption from Capital gain arises from the transfer of
a long-term capital asset other than a house property
[Section 54F] 620
Who can claim exemption?…………………………………………………………………………622
Which original asset is qualified for exemption?………………………………………..622
Which new asset should be acquired for exemption…………………………………..622
(xxxi) CONTENTS
Deduction is eligible only in respect of one residential house…………………….623
Time limit for purchase or construction of new house……………………………….623
Essential conditions……………………………………………………………………………………623
Understanding the term ‘Net Consideration’ …………………………………………….624
Amount of exemption available…………………………………………………………………624
Consequences of transferring the residential house purchased
before 3 years……………………………………………………………………………………..624
Capital Gains Account Scheme, 1988 of deposit in respect of exemption
under section 54F………………………………………………………………………………..625
Deposit in Savings Bank Account – Not eligible for exemption…………………..625
Consequences if the deposit amount is not fully utilized for the purchase or
the construction of a residential house ………………………………………………625
Chapter 67 : Exemption from capital gain arises from the
transfer of assets in the case of shifting of industrial
undertaking from urban area [Section 54G] 659
Who can claim exemption?…………………………………………………………………………660
Which original asset is qualified for exemption?………………………………………..660
Holding Period of Original Assets……………………………………………………………..661
Amount considered to have been invested in new asset…………………………….661
Essential conditions……………………………………………………………………………………661
Amount of exemption available under section 54G……………………………………662
Consequences of if the new asset transferred within 3 years………………………662
Capital gains Account Scheme, 1988 of deposit in respect of
exemption under section 54G……………………………………………………………..662
Consequences if the deposited amount is not fully utilized……………………….662
Chapter 68 : Exemption from capital gain arises from the
transfer of assets in the case of shifting of industrial
undertaking from urban area to any special
economic zone (SEZ) [Section 54GA] 670
Who can claim exemption?…………………………………………………………………………672
Which original asset is qualified for exemption?………………………………………..672
Transfer of capital asset………………………………………………………………………………672
Which new asset should be purchased?……………………………………………………..673
Essential conditions……………………………………………………………………………………673
Quantum of exemption available……………………………………………………………….673
Consequences if the new asset is transferred within 3 years………………………674
Scheme of deposit in respect of exemption under section 54GA…………………674
(xxxii) CONTENTS
Chapter 69 : Exemption from capital gain arises from the
transfer of residential property not to be charged in
certain cases (house or plot of land) [Section 54GB] 675
Who can claim exemption?…………………………………………………………………………678
Assets to be acquired for exemption (i.e. Investment to be made)………………678
Essential conditions……………………………………………………………………………………679
Period during which exemption available………………………………………………….679
Time limit for acquiring the new assets………………………………………………………680
Amount of exemption available under section 54GB………………………………….680
Capital Gain Deposit Account Scheme, 1988………………………………………………681
Withdrawal of exemption if equity shares in company or new asset
acquired by company is sold or transferred within a period of
5 years (or 3 years for computer and software) from date of
acquisition………………………………………………………………………………………….681
Chapter 70 : Extension of time acquiring new asset or
depositing or investing amount of capital gain
[Section 54H] 682
Background………………………………………………………………………………………………..682
Chapter 71 : Cost of any improvement for the purposes of
sections 48 and 49 [Section 55(l)(b)] 684
General meaning………………………………………………………………………………………..684
Cost of improvement………………………………………………………………………………….685
Cost of improvement of capital asset if acquired before 01.04.2001
(expenditure incurred before 01.04.2001- not considered)…………………..686
Expenses allowable under other heads of income are to be ignored
(Double deduction not permitted) ……………………………………………………..686
Cost of improvement of various assets [Section 55(l)(b)] ……………………………686
Indexed cost of improvement…………………………………………………………………….687
Indexed cost of improvement…………………………………………………………………….687
Expenses incurred have been held to be cost of improvement……………………687
Chapter 72 : Cost of acquisition for the purpose of
sections 48 and 49 [Section 55(2)] 694
Cost of Acquisition under section 55(2)………………………………………………………697
Cost of acquisition being the Fair Market Value (FMV) as on 01.04.2001
[Section 55(2)]……………………………………………………………………………………..697
Cost of acquisition of an asset acquired before 01.04.2001………………………….697
Cost of acquisition for assets acquired on or before 01.04.2001
[Section 55(2)(b)(i)l……………………………………………………………………………..698
(xxxiii) CONTENTS
Cost of acquisition being the Fair Market Value (FMV) as on 01.04.2001
[Section 55(2)]……………………………………………………………………………………..698
Cost of acquisition [Section 55(2)]………………………………………………………………698
Notional cost of acquisition………………………………………………………………………..699
[1] Cost of acquisition of goodwill of a business or a trade mark or a
brand name associated with a business [Section 55(2)(a)]…………………..699
Intangible Assets [Section 55(2)(a)]…………………………………………………………….701
[2] Cost of acquisition of Right Shares [Section 55(2)(aa)]…………………………..702
Cost of acquisition for the purpose of calculating Tax payable
under section 11 2A [Section 55(2)(ac)]……………………………………………….703
Computation of cost of acquisition – Fair Market Value of the
Asset as on 01.04.2001 [Proviso to Explanation (b)(ii) of
Section 55(2)(ac)]…………………………………………………………………………………703
Cost of acquisition of Original Shares [Section 55(2)(b)]……………………………..704
Other assets [Section 55(2)(b)]…………………………………………………………………….704
Cost of acquisition of Right Shares [Section 55(2) read with
section 55(2)(b)]…………………………………………………………………………………..705
Chapter 73 : Cost of acquisition to the previous owner where
the cost for which the previous owner acquired the
property cannot be ascertained [Section 55(3)] 715
Cost of Acquisition of Asset to the Previous Owner to calculate Capital Gain
[Section 49(1)]……………………………………………………………………………………..715
Period of holding of previous owner………………………………………………………….716
Chapter 74 : Reference to valuation officer [Section 55A] 719
Valuation Officer [Section 2(r)]…………………………………………………………………..720
Appointment of Valuation Officers [Section 12A]………………………………………720
Circumstances when reference can be made to Valuation Officer………………720
Conditions for reference to Valuation Officers [Rule 111AA]……………………..720
Appearance by registered valuer in certain matters [Section 287A]……………721
Determination of Fair Market Value (FMV)……………………………………………….721
Procedure to be followed by the Valuation Officer…………………………………….721
Reference to Departmental Valuation Officer for capital gains purpose……..722
Requirement to refer the case……………………………………………………………………..722
Adopting value determined by DVO based on CPWD rates………………………722
Chapter 75 : Tax on income from units purchased in foreign
currency or capital gains arising from their transfer
[Section 115AB] 726
Tax on income from units purchased in foreign currency or
capital gains arising from their transfer………………………………………………726
(xxxiv) CONTENTS
Nature of income………………………………………………………………………………………..727
Deduction under sections 80CCC to 80U……………………………………………………727
TDS on long-term capital gains from units referred to in section 115AB
[Section 196B]……………………………………………………………………………………..727
Who is responsible to deduct tax under section 196B…………………………………728
Nature of Payment……………………………………………………………………………………..728
When to Deduct TDS under Section 196B…………………………………………………..728
Rate of TDS under Section 196B………………………………………………………………….728
SEBI to be approving authority for “overseas financial organization” [Finance
Act, 2001 – Circular No. 14/2001, Dated 09.11.2001]……………………………728
Tax incentive to off-shore mutual funds for investment in India
[Finance (No. 2) Act, 1991 – Circular No. 621, Dated 19.12.1991,
As Amended by Circular No. 642, Dated 11.12.1992 and
Circular No. 698, Dated 28.12.1994]…………………………………………………….729
Chapter 76 : Tax on income from bonds or global depository
receipts purchased in foreign currency or capital gains
arising from their transfer [Section 115AC] 730
Global Depository Receipts (GDRs)……………………………………………………………732
Taxability of Global Depository Receipts (GDRs)……………………………………….732
Concessional rate of tax under section 115AC extended to other
notified schemes [Finance Act, 2001 – Circular No. 14/2001,
Dated 09.11.2001]………………………………………………………………………………..734
Tax incentive for investment in bonds or shares of Indian companies
issued abroad [Finance Act, 1992 – Circular No. 636,
Dated 31.08.1992]………………………………………………………………………………..734
No capital gain arises from conversion of foreign currency convertible
bonds into shares ……………………………………………………………………………….735
Chapter 77 : Tax on income of specified fund or investment
division of an offshore banking unit or foreign institutional
investor from securities or capital gains arising from their
transfer [Section 115AD] 737
Taxability of gains earned by Offshore Funds…………………………………………….743
Treatment of the gains accrued up to 31.01.2018 in the case of Flls…………….743
Tax treatment of transfer of share or unit between 01.02.2018 and
31.03.201 8 in the case of Flls……………………………………………………………….743
Tax treatment of transfer made on or after 01.04.2018 in case of Flls…………..743
Foreign Institutional Investors (FII) Taxation……………………………………………..743
No tax will be deducted at source in case of payment of long-term
capital gains by Foreign Institutional Investors (Flls)………………………….743
(xxxv) CONTENTS
Section 115AD of the Income-tax Act, 1961 – Income of Foreign Institutional
Investors from Securities or Capital Gains arising from their Transfer –
Taxability of – Notified Foreign Institutional Investors………………………744
Section 115AD, read with Section 2(14) of the Income-Tax Act, 1961 – Foreign
Institutional Investors – CBDT Clarifies Differential Regime
between Domestic Investors (Including AIF Category III) and FPIs
existed even prior to General Budget 2019 and was not creation
of the Finance (No. 2) Act, 2019…………………………………………………………..744
Section 111A and section 112A, read with section 115AD of the Income-Tax
Act, 1961 – Capital Gains in Certain Cases – Government withdraws
enhanced Surcharge on tax payable on Transfer of Certain Assets……..745
Chapter 78 : Tax on investment income and long-term
capital gains [Section 115E] 749
Reduction in the rate of long-term capital gains tax in the case of nonresidents
[Finance Act, 1997 – Circular No. 763, Dated, 18.02.1998]…….749
Modification of the provisions relating to certain incomes of
non-residents [Finance Act, 1985 – Circular No. 421,
Dated, 12.06.1985]……………………………………………………………………………….749
Original shares having been purchased in foreign exchange, bonus
shares are also foreign exchange assets under section 115E………………..750
Benefit of concessional rate of tax would not be available on short-term
capital gains arising from sale of shares……………………………………………..750
Chapter 79 : Long-term capital gain on transfer of foreign
exchange assets by a non-residential Indian (NRI) not to be
charged in certain cases [Section 115F] 753
Eligible assessee………………………………………………………………………………………….754
Essential conditions……………………………………………………………………………………754
Quantum of exemption………………………………………………………………………………755
Consequences if the new asset is transferred within 3 years………………………756
Option to avail or not to avail the benefit of section 115F with
assessee [Section 115-1]……………………………………………………………………….756
Chapter 80 : Capital gain accounts scheme, 1988 758
Background………………………………………………………………………………………………..758
Who can deposit in Capital Gains Account Scheme?………………………………….758
Who can accept deposit?…………………………………………………………………………….759
Time limit to deposit the amount……………………………………………………………….760
Types of account under Capital Gains Accounts Scheme……………………………761
Transfer from Deposit Account-B to Deposit Account-A – Approval of
Assessing Officer is not mandatory ……………………………………………………762
(xxxvi) CONTENTS
Nomination………………………………………………………………………………………………..762
Withdrawals from Deposit Accounts …………………………………………………………763
No creation of any charge…………………………………………………………………………..763
Closure of Deposit Account………………………………………………………………………..763
Consequences if the deposit amount is not fully utilised……………………………763
In case an individual dies before the expiry of the two/three years……………764
Chapter 81 : Securities transaction tax (STT) 768
When is Securities Transaction Tax (STT) levied………………………………………..768
Features of Securities Transaction Tax………………………………………………………..769
Securities Transaction Tax Rate………………………………………………………………….769
Value for calculating the Securities Transaction Tax…………………………………..770
Securities on which Securities Transaction Tax (STT) is applicable…………….771
Long-term capital gain tax – exempted under section 10(38)………………………772
Short-term capital gain – taxable under sections 111A and 115AD…………….773
Securities liable to short-term capital gains………………………………………………..773
Where total income consists of short-term capital gains and other income……….773
The most common Futures contract traded in India are Nifty Futures……….774
Chapter 82 : Self-off and carry forward of capital loss
[Sections 70, 71 & 74] 776
[I] Set-off of Capital Losses – Inter-source adjustment – under the
same head of income [Section 70]……………………………………………………..776
[2] Set-off of Capital Losses – Inter-head adjustment – one head against
income from another head [Section 71]……………………………………………..776
[3] Carry forward of Capital Losses………………………………………………………….776
Chapter 83 : Tax deducted at source (TDS) 780
[1] Tax Deducted at Source on Sale of Immovable Properties
[Section 194-IA]…………………………………………………………………………………..780
(2) TDS on payment under joint development agreement………………………….784
[3] TDS on Payment of compensation on acquisition of Immovable
Property [Section 194-LA]…………………………………………………………………..785
Chapter 84 : Rate of capital gains tax 788
Basics of capital gains tax in brief……………………………………………………………….791
Chapter 85 : Income held as business income and not
capital gains 794
Sale of land to be treated as business income if it was held as
stock-in-trade in books of account………………………………………………………795
(xxxvii) CONTENTS
Conversion of agricultural land into residential plots and sale of
residential plots – Consideration over fair market value to be
assessed as business income – No question of law………………………………795
Chapter 86 : Important forms 796
FORM NO. 3CEA……………………………………………………………………………………….796
FORM No. 5B……………………………………………………………………………………………..798
FORM No.10 IH…………………………………………………………………………………………802
FORM No. 16B……………………………………………………………………………………………806
FORM No. 26 QB………………………………………………………………………………………..807
FORM A……………………………………………………………………………………………………..809
FORM B……………………………………………………………………………………………………..811
FORM C……………………………………………………………………………………………………..813
FORM D……………………………………………………………………………………………………..815
FORM E……………………………………………………………………………………………………..817
FORM F……………………………………………………………………………………………………..818
FORM G……………………………………………………………………………………………………..820
FORM H…………………………………………………………………………………………………….821

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