Capital Gains
TAX
PAYERS GUIDE TO CAPITAL GAINS
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Q1.
What are capital assets?
Ans : Capital assets mean
properties of any kind held by a person whether
or not connected with his business or profession.
Certain properties are, however, excluded from the
definition of capital asset. For details of such
properties Section 2(14) of the I.T.Act may please
be referred to. |
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Q2. What are Long Term and Short
Term capital assets?
Ans : Capital assets are
classified as Long Term or Short Term with reference
to the period of holding of the assets till it is
transferred. The classification is made on the following
basis :-
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Nature of Asset |
Short Term Capital Asset |
Long Term Capital Asset |
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(i) Shares in a company or any other security
listed in a recognised stock exchange in India
or a unit of a Unit Trust of India or a
unit of a mutual fund specified under section
10(23D). |
Held for not more than 12 months. |
Held for more than 12 months. |
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(ii)
Assets other than assets mentioned in (i)
above.
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Held for not more than 36 months. |
Held for more than 36 months. |
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Q3.
How is capital gain computed ?
Ans: Subject to certain exceptions, capital gain
is computed in the following manner :- |
Capital
Gain = ( Full value of consideration received or
accrued on transfer of capital asset) - ( Cost of
acquisition of capital assets + Cost of improvement
of capital assets + Expenditure incurred wholly
and exclusively in connection with the transfer
of capital asset such as stamp duty, registration
charges, legal fees, brokerage etc.)
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respect of long term capital assets, cost of acquisition
and cost of improvement should be worked out as
under:- |
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| Cost
inflation index of the year of improvement The cost
inflation index is notified by the Central Govt.
for every year and it is given on Tax information
page of this site. |
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Q4.
How is capital gains on bonus shares to be computed
?
Ans: The cost of bonus shares is to be taken as
Nil and the net sale proceeds of the bonus shares
is to be treated as the capital gains. The period
of holding of the bonus shares will be counted from
the date of the allotment of bonus issue. |
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Q5.
How is tax on capital gains to be computed ?
Ans: Short term capital gains are taxed in the same
manner as income under other heads. Barring certain
exceptions, long term capital gains are taxed at
the flat rate of 20%. For full details of computation
of tax where the total income includes long term
capital gains, Section 112 of the Income-tax Act
may please be referred. |
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Q6.
What are the exemptions available in respect of
capital gains ?
Ans: Depending upon the nature of the capital asset
and the manner of utilisation of the consideration
received on transfer, various exemptions are available.
For full details, Sections 54, 54B, 54D, 54EA, 54EB,54EC,
54F, 54G and 54H of the Income-tax Act may please
be referred. The provision of 54EA and 54EB has
been withdrawn with effect from 1.4.2000 and new
section 54 EC has been inserted.
Under Section 54EC investments should be made in:
National Highways Authority of India & Rural
Electrification Corporation Limited. |
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Q7.
What is the Cost Inflation Index?
Ans: |
| Financial
Year |
Cost
Inflation Index |
| 2006-2007 |
519 |
| 2005-2006 |
497 |
| 2004-2005 |
480 |
| 2003-2004 |
463 |
| 2002-2003 |
447 |
| 2001-2002 |
426 |
| 2000-2001 |
406 |
| 1999-2000 |
389 |
| 1998-1999 |
351 |
| 1997-1998 |
331 |
| 1996-1997 |
305 |
| 1995-1996 |
281 |
| 1994-1995 |
259 |
| 1993-1994 |
244 |
| 1992-1993 |
223 |
| 1991-1992 |
199 |
| 1990-1991 |
182 |
| 1989-1990 |
172 |
| 1988-1989 |
161 |
| 1987-1988 |
150 |
| 1986-1987 |
140
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| 1985-1986 |
133 |
| 1984-1985 |
125 |
| 1983-1984 |
116 |
| 1982-1983 |
109 |
| 1981-1982 |
100
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