What is Capital Gains Tax? Computation of Capital Gains Tax Any profits or gains arising from the transfer of a capital asseteffected in the previous year shall be chargeable to income-tax under the head ‘Capital Gains’. And shall be deemed to be the income of the previous year in which the transfer took place. Capital gain is chargeable to tax on accrual basis. Kinds of Capital Gains “Short-term capital gains” gains arising from the transfer/sale of acapital asset held by an assessee for not more then 36 monthsimmediately preceding the date of its transfer’.
However, in the case of shares in a company and all securities listd on a recognized stock exchange in India. Unites of UTI and Mutual Funds specified u/s 10 (23D), or Zero coupon bond, the period of holding for 36 months has been reduced to 12 months. “Long term Capital Gains” means gains or profit arising from the transfer of a capital asset held by an assesse for more than 36 months or more than 12 monthsas the case may be, immediately preceding the date of transfer. Computation of capital gains
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Short- term capital gains tax calculation Less the following from the full value of considerations (in simple words; “Sale Value of Capital Asset”) 1. Less: expenditure incurred wholly and exclusively in connection with transfer. (includes the brokerage or commission paid, cost of stamp fee and registrations fee, traveling expenses etc. ) 2. Less: the cost of acquisition of the asset (Normally the purchase value of the capital asset) 3. Less: the cost of improvement of the asset, if any.
Less: – Exemption, if allowed, Exemption u/s 54B/54D/54G Equal to ‘Taxable Short-term capital gains” Long-Term Capital Gains Calculation Less the following from the full value of consideration 1. Less: expenditure incurred wholly and exclusively in connection with transfer. (includes the brokerage or commission paid, cost of stamp fee and registrations fee, traveling expenses etc. ) 2. Less: Indexed cost of acquisition of the asset i. e (purchase price * (CII (Cost Inflation Index) f current year / CII for year of purchase), (See: Cost Inflation Index (CII)? ) 3. Less: Indexed cost of improvement of the asset, if any. Less: – Exemption if available Exemption u/s 54/54B/54D/54EA/54EB/54EC/54ED/54F/54FG Equal to “Taxable long-term capital gains” Note: Securities transaction tax is not deductible while computing income under the head “Capital Gains”. Note 2: Deductions from Section 80C to 80U shall not be available in case of long term & short term capital gains both.
Let’s take an example; X purchase a piece of land on 12-1-1982 for Rs. 1,20,000. The land was sold by him on 2-9-2009 for Rs. 8,00,00. Expenses on transfer 2% of the sale price. Compute the capital gain for the A. Y. 2010-11. Solution: Sale Consideration8,00,000/- Less: Expenses on transfer-16,000/- Less: Indexed cost of acquisition – Rs. 1,20,000*632/100; Note: 631 is CII of 2009-10 and 100 is for 1981-82-758400/- Long-term capital gain25600/- See: Next Article At What rates the capital gains will be taxed?