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L4 CLIUUBING

TAX ON ADVANCE TAX

DrMukesh1
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L4 CLIUUBING

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  1. Income under the Head “Capital Gains” BBA-208 ITLP

  2. Contents • Capital Gain • Conditions of Capital Gain • Types of Assets • Types of Gains • Computation of STCG & LTCG • Taxability BBA-208 ITLP

  3. Capital Gain ( Base of Charge) • Any Income derived from a Capital asset movable or immovable is taxable under the head Capital Gains under Income Tax Act 1961. • Profit or gain arising from the transfer of capital assets during previous year is chargeable under the head capital gains if following conditions are fulfilled; • Their should be capital Assets. • Their should be transfer of capital assets. • Transfer should take place in previous year. • Their should be profit or gains. • Such profit or gain should not be exempted from tax under sections 54, 54B, 54D, 54EC, 54F and 54G & 54GA. BBA-208 ITLP

  4. 1. There must be a Capital Asset • Capital assets is defined to mean property of any kind, held by the assesse, whether or not connected with his business or profession. • Property may be tangible or intangible. • Land, buildings, vehicles, goodwill, tenancy rights, leasehold rights, licences, patents, trademarks, etc. are some examples of capital assets • Any securities held by a foreign Institutional Investor which has invested in such securities in accordance with the regulations made under SEBI Act,1992. • Capital Asset does not Include: • Any stock in trade held for purpose of his business or profession. • Personal effects like wearing apparel , furniture etcExcept Jewellery, Drawings, Paintings, Sculptures or any work of art • Rural Agricultural Land in India • Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 BBA-208 ITLP

  5. 2. Capital Assets must be Transferred • The sale, exchange or relinquishment of the asset; • The extinguishment of any rights therein; • The compulsory acquisition of any capital assets by the government • Conversion of capital assets into stock in trade. BBA-208 ITLP

  6. Types of Capital Assets • Short Term Capital Asset • “Short term capital assets” means a capital asset held by the assesseefor not more than 36 months, immediately prior to its date of transfer. • However, the following assets are treated as short term assets if they are held for not more than 12 months/24 months as the case may be, they are: • Equity or preference shares in a company • Securities like debentures, government securities listed in a recognized stock exchange in India. • Units of UTI and • Units of mutual funds. • An asset other than a short-term capital asset is regarded as a “long term capital asset”. BBA-208 ITLP

  7. 2. Long-term Capital Assets [Sec. 2(29A)]: it means a capital asset held by an assessee for more than 36 months immediately preceding the date of its transfer (with some exceptions). Capital gains arising from the transfer of these assets is called Long-term Capital Gains. Source: Mehrotra & Goyal, Income Tax, SahityaBhawan Publication, P. 288 BBA-208 ITLP

  8. BBA-208 ITLP

  9. Types of Capital Gains • There are two types of capital assets: • Short Term Capital Gains: It means gains arising out of capital assets held by an assesse for not more than 36 months immediately prior to its date of transfer. Tax is calculated as per Income Tax Act. • Long Term Capital Gains : Capital Gain arising out of long term capital assets. BBA-208 ITLP

  10. Computation of STCG Full value of Consideration XXX Less: Expenditure incurred wholly and XXX exclusively in connection with such transfer Less : Cost of acquisition XXX Less: Cost of improvement XXX Short Term Capital Gain /Loss XXX BBA-208 ITLP

  11. Set-off of short-term capital loss Set-off of short-term capital loss: it can be set-off against any other short-term capital gain or long-term capital gain. Source: Mehrotra & Goyal, Income Tax, SahityaBhawan Publication, P. 291 BBA-208 ITLP

  12. Computation of LTCG Full value of Consideration XXX Less: Expenditure incurred wholly and XXX exclusively in connection with such transfer Less : Indexed Cost of acquisition XXX Less: Indexed Cost of improvement XXX Long Term Capital Gain XXX Less: Exemption U/S 54, 54EC, 54F, and 54B XXX Net Long Term Capital Gain XXX BBA-208 ITLP

  13. Calculation of Index Cost Source: Mehrotra & Goyal, Income Tax, SahityaBhawan Publication, P. 292 BBA-208 ITLP

  14. Cost Inflation Index BBA-208 ITLP

  15. Set-off of Long-term capital loss • Set-off of long-term capital loss: it can be set-off against only any other long-tern capital gains BBA-208 ITLP

  16. Meaning • Full Value Consideration : It means what the transferor or is entitled to receive as consideration for the sale of property/Asset. This Value may be in cash or in kind i.e. in exchange for an asset. If the consideration is not in money, the value placed by parties to the transaction will have to be taken as the consideration. • Expenses on Transfer: It includes any expenditure incurred, whether directly or indirectly for the purpose of transfer such as stamp duty, registration fees, legal expenses etc. BBA-208 ITLP

  17. Cost of Acquisition : It is the price which the assessee has paid or the amount which the assesse has incurred for acquiring the property/Asset. Interest on loan taken for acquiring capital assets will form part of cost of asset. • In case the sold asset was acquired as a gift, then the cost of acquisition will be the same as the cost of acquisition in the hands of the person who gifted the said asset. Make sure that the holding period starts from the date when the said asset was purchased by the person who gifted it. • In case of any equity shares or units of equity-oriented mutual funds purchased before February 1, 2018, the COA would be computed in the following manner: Step 1: Compute the fair market value of your investment. To compute this value multiply your number of shares or MF units with their respective highest prices as on January 31, 2018. Step 2: Take the actual sale value of your investment. Step 3: Choose the lower value out of the above two. Step 4: Compare  ..  BBA-208 ITLP

  18. Deemed cost of Acquisition : Where capital asset became property in manner like gift , will , inheritance ,etc , then cost to the previous owner will be deemed cost of acquisition. However, indexation benefit shall be available from the year in which the assessee acquired the property. • PY : 2000 – 2001 • PY : 2005- 2006 : • PY : 2019-2020 BBA-208 ITLP

  19. BBA-208 ITLP

  20. BBA-208 ITLP

  21. Property purchased on 1/1/95 for 30,000 and fair market value on 1/4/01 is 1,20,000. • X purchased a house property on 1/1/95 for 30,000 and the property passed on his son on 15/6/2018 the market value on this date is 75,000 and fair market value on 1/4/2001 being 1,20,000. • Property is sold off in 2020 for 5,00,000 • 30,000 • 1,20,000 • COA : 1,20,000 • Indexed CoA : 1,20,000 * CII 2020/ CII 2018 BBA-208 ITLP

  22. Cost of Improvement : • Expenses of a capital nature incurred in making any additions or alterations to the capital asset by the seller. Note that improvements made before April 1, 2001, is never taken into consideration. • NOTE: In certain cases where the capital asset becomes the property of the taxpayer otherwise than by an outright purchase by the taxpayer, the cost of acquisition and cost of improvement incurred by the previous owner would also be included. BBA-208 ITLP

  23. Indexed cost of acquisition = Cost of acquisition * Cost Inflation Index (CII) of the year in which the asset is transferred / Cost inflation index (CII) of the year in which asset was first held by the seller or 2001-02 whichever is later. • Asset ac after 2001 : Year itself 2005 /2019 • Assest before 2001 : 2001 , 1996 /2001/1990 • Deemed Ac : for the year in which the Ass has become the owner 2002/2005 • Indexed cost of improvement = Cost of improvement * Cost inflation index of the year in which the asset is transferred / Cost inflation index of the year in which improvement took place BBA-208 ITLP

  24. Mr. Divesh had purchased a golden ring as on 17/8/2018 for ` 20,000. On 1/05/2019, he has sewn a diamond on it costing ` 25,000. On 1/08/2019, he sold such ring for ` 80,000 and incurred brokerage for arranging customer ` 5,000. Compute capital gain. BBA-208 ITLP

  25. On 23rd December, 2019, Rajat sold 500 grams of gold, the sale consideration of which was ` 13,50,000. He had acquired this gold on 20th August, 2000 for ` 4,00,000. Fair market value of 500 grams of gold on 1st April, 2001 was ` 3,60,000. Find out the amount of capital gain chargeable to tax for the assessment year 2020-21. BBA-208 ITLP

  26. BBA-208 ITLP

  27. Mr. Anand has purchased a house property as on 17/08/2002 for ` 5,00,000. On 1/05/2004, he constructed a new floor on the same house at a cost of ` 2,50,000. On 1/10/2019, he sold such house for ` 18,00,000 and incurred brokerage @ 2% for arranging customer. Compute capital gain BBA-208 ITLP

  28. BBA-208 ITLP

  29. Mrs. Parminder has jewellery, being gifted on 1/04/2005 by her brother Jitendar. Jitendar acquired such asset for ` 60,000 as on 1/07/1995. On 1/07/2002, Jitendar has sewn a diamond worth ` 25,000 in such jewellery. On 1/04/2009, Mrs. Parminder incurred polish expenditure on such jewellery costing ` 5,000. As on 1/04/2019, Mrs. Parminder sold such jewellery for ` 12,00,000. Brokerage @ 1% of sale value was paid by her. The fair market value of the jewellery as on – 1/04/2001 is ` 2,00,000; 1/04/2005 is ` 5,00,000; and 1/04/2019 is ` 7,50,000. Compute capital gain in hands of Mrs. Parminder for the A.Y. 2020-21. BBA-208 ITLP

  30. BBA-208 ITLP

  31. Cases where indexation benefit is not available even on transfer of long term capital asset • • Debenture or Bonds: In case of transfer of bonds and debentures other than capital indexed bonds issued by the Government or Sovereign Gold Bond issued by the RBI under the Sovereign Gold Bond Scheme, 2015 [Sec. 48]. • • Slump Sale: Transfer of an undertaking or division in a slump sale [Sec. 50B]. • • Equity shares and equity oriented fund referred to in sec. 112A • • Certain transactions by a non-resident: In case of a non-resident, capital gain arising on the transfer of shares in or debentures of an Indian company acquired in foreign currency. It will be computed as per First Proviso to sec. 48. • In case of transaction u/s 115AB, 115AC, etc. index benefit is not available. • • Transfer of Global Depository Receipt: Transfer of Global Depository Receipt purchased in foreign currency by a resident individual being employee of an Indian Company [Sec. 115ACA] BBA-208 ITLP

  32. Exempted Capital Gains BBA-208 ITLP

  33. Source: Mehrotra & Goyal, Income Tax, SahityaBhawan Publication, P. 321 BBA-208 ITLP

  34. Source: Mehrotra & Goyal, Income Tax, SahityaBhawan Publication, P. 322 BBA-208 ITLP

  35. Mr. Raja purchased a residential house in April, 2016 and sold the same on 25th April, 2022 for Rs. 8,40,000. Capital gain arising on sale of house amounted to Rs. 1,00,000. Out of the sale proceeds of old house, he purchased another residential house for Rs. 80,000. This house was purchased in May, 2022. What will be the amount of exemption under section 54 which can be claimed by Mr. Raja? • Mr. Kapoor purchased a residential house in April, 2016 and sold the same on 25th April, 2022 for Rs. 8,40,000. Capital gain arising on sale of house amounted to Rs. 1,00,000. Out of the sale proceeds of old house, he purchased another residential house for Rs. 1,20,000. This house was purchased in May, 2022. BBA-208 ITLP

  36. Mr. Rajat sold his old house in April, 2021 for Rs. 25,20,000. Long-term capital gain arising on transfer of old house amounted to Rs. 8,40,000. In December, 2021 he purchased another residential house worth Rs. 10,00,000. The new house was however, sold in April, 2022 for Rs. 12,00,000 . What will be amount of taxable capital gains in the hands of Mr. Rajat for the financial years 2021-22 and 2022-23? BBA-208 ITLP

  37. X transfers a residential house property situated at Delhi on July 10,2021 for 15,00,000 , expenses on transfer 10,000. • This property was purchased on October 6,2004 for 1,87,000. TO avail the benefit of exemption under section 54 , X purchases a residential house property at Noida for 12,00,000 on Dec 20,2021. However , the Noida property is transferred for INR 23,20,000 on Dec 19, 2023.Find out the capital gain chargeable to tax. BBA-208 ITLP

  38. Tax on Short-term capital gains on transfer of equity shares in a company or units of an equity oriented fund or units of a business trust (The AY 2019-20) Where the total income of an assessee includes the short-term capital gains arising from the transfer of equity shares in a company or units of an equity oriented fund or units of a business trust, on such a short-term capital gains tax, will be charged @ 15%+Surcharge, if any + Health and Education Cess @4% on the amount of income tax. In respect of income other than aforesaid short-term capital gains, income tax shall be charged as per the normal provisions of the Act, assuming the other income only to be the total income. * If Securities transaction tax is not applicable , short term gain is taxable like any other income. Source: Mehrotra & Goyal, Income Tax, SahityaBhawan Publication, P. 318-319 BBA-208 ITLP

  39. Other Provisions • Where the total income (excluding aforesaid STCG) of a resident individual or HUF is less than the maximum amount which is not chargeable to income tax then from the total income (including aforesaid STCG) the maximum amount which is not chargeable to income tax shall be deducted and on the balance, tax shall be charged at the aforesaid rate. Where the total income as reduced by such short-term capital gains is below exempted ceiling, then tax on such short-term capital gains shall be – 15% of [Such STCG – (Exempted ceiling – Total income excluding such STCG)] No deduction under section 80C to 80U will be allowed in respect of aforesaid STCG. Source: Mehrotra & Goyal, Income Tax, SahityaBhawan Publication, P. 319 BBA-208 ITLP

  40. Short term capital gain on transfer of shares on which STT is paid ` 1,30,000 • Other income ` 1,66,000 • Calculate tax of Mr. X aged 45 years? BBA-208 ITLP

  41. ss BBA-208 ITLP

  42. Mrs. X (58 years) is a resident individual . For the assessment year 2022-23 , she has the following information : • STCG on shares ( Securities transaction tax is paid) 6,24,000 • STCG on gold : 45000 • Bank Interest : 36000 • Salary Income : 1,62,000 • Compute tax. BBA-208 ITLP

  43. Tax on Long-term Capital Gains (AY 2019-20) The tax on LTCG is to be charged at the following rates: • In case on an individual or HUF who are resident in India: @ 20%. Note: Where the total income (excluding LTCG) of a resident individual or HUF is less than the maximum amount which is not chargeable to income tax then from the total income (including LTCG) the maximum amount which is not chargeable to income tax shall be deducted and on the balance, tax shall be charged @ 20%. Source: Mehrotra & Goyal, Income Tax, SahityaBhawan Publication, P. 319 BBA-208 ITLP

  44. ii. In case of other assessee @ 20%. Tax on LTCG on the transfer of listed securities (excluding units) or zero coupon bonds shall be charged: • @10% of LTCG computed without indexing the cost of acquisition. • @20% of LTCG computed after indexing after indexing the cost of acquisition. Whichever is less. It should be noted that debentures are never indexed. Source: Mehrotra & Goyal, Income Tax, SahityaBhawan Publication, P. 319 BBA-208 ITLP

  45. Mr. X ( 28 years) is a resident individual . For the following assessment year 2022-23 , he has the following incomes : • LTCG : 8,00,000 • Salary ( after standard deduction ) 1,70,000 • Bank Interest : 30,000 • Gross Income : 10,00,000 BBA-208 ITLP

  46. Tax on LTCG from the transfer of an equity share in a company or a unit of equity oriented fund or a unit of business trust (w.e.f. AY 2019-20) Rate of Tax: Up to RS. 1 lakh shall be exempt. • On such LTCG, computed without indexing the cost of acquisition, on exceeding Rs. 1 Lakh @ 10%. • On other income as per other provisions of the act. Surcharge if applicable and Health and Education cess @4%. Note: i. No deduction u/s 80 C to 80U ii. No rebate u/s 87A Where the total income (excluding LTCG) of a resident individual or HUF is less than the maximum amount which is not chargeable to income tax then from the total income (including LTCG) the maximum amount which is not chargeable to income tax shall be deducted and on the balance, tax shall be charged at the aforesaid rate. Source: Mehrotra & Goyal, Income Tax, SahityaBhawan Publication, P. 319 BBA-208 ITLP

  47. Taxability of Capital Gains from different Assets BBA-208 ITLP

  48. Other Income : 11,00,000 • STCG on Equity : 2,00,000 ( STT Paid) • Find tax assuming , he has purchase residential house property for INR 30,00,000. • Deposit in PPF :1,20,000 BBA-208 ITLP

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