INCOME FROM CAPITAL GAINS

1. CHARGEABILITY U/S. 45

Profits or gains arising from the transfer of a capital asset is chargeable to tax in the year in which transfer takes place under the head “Capital Gains”.

Definitions

Transfer: Section 2(47)

Transfer in relation to a capital asset includes sale, exchange, or relinquishment of the asset or extinguishment of any rights therein or the compulsory acquisition thereof under any law or conversion of the asset by the owner in stock-in-trade of a business carried on by him or the maturity or redemption of a zero coupon bond, any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in Section 53A of the Transfer of Property Act, 1882 (4 of 1882) or any transaction which has the effect of transferring, or enabling the enjoyment of, any immovable property.

Explanation 2 to the section clarifies the following:—

"transfer" includes disposing of or parting with the asset or creating any interest in any asset directly or indirectly (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights is being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India.

Capital Asset: Section 2(14)

As per Clause 14 of Section 2 -

"capital asset" means-

property of any kind held by an assessee, whether or not connected with his business or profession;
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,
any unit linked insurance policy to which exemption under clause (10D) of section 10 does not apply on account of the applicability of the fourth and fifth proviso thereof

but does not include-

any stock-in-trade [other than the securities referred to in sub-clause (b)
Personal effects of the assessee;
Agricultural land in a rural area
6 ½% Gold Bonds, 1977 or 7% Gold Bonds, 1980 or National Defence Bonds, 1980 issued by the Central Government;
Special Bearer
Gold Deposit Bonds issued under Gold Deposit Scheme 1999 and deposit certificates issued under the Gold Monetisation Scheme, 2015.

Explanation 1 — "property" includes any rights in or in relation to an Indian company, including rights of management or control or any other rights whatsoever.

Explanation 2 —

the expression “Foreign Institutional Investor” shall have the meaning assigned to it in clause (a) of the Explanation to Section 115AD.
the expression “securities” shall have the meaning assigned to it in clause (h) of Section 2 of the Securities Contracts (Regulation) Act, 1956.

Short-term capital asset: Section 2(42A): means a capital asset held by an assessee for not more than thirty six months immediately preceding the date of its transfer. However, with effect from the 1st day of April, 2015, in the following cases, an asset, held for not more than twelve months, is treated as short-term capital asset—

A security (other than a unit) listed in a recognised stock exchange in India.
Units of Unit Trust of India.
Units of an equity oriented fund.
Quoted or unquoted zero coupon bonds.

Additionally, the following assets would be treated as short term capital assets if they were held for a period of 24 months or less immediately preceding the date of its transfer:

Share of company (not being a share listed in a recognized stock exchange in India) [Finance Act, 2016 w.e.f AY 2017-18].
Immovable property being land or building or both [Finance Act, 2017, w.e.f. AY 2018-19].

Finance Act, 2017, w.e.f. AY 2018-19, has inserted a new sub- clause in Explanation 1 to Section 2(42A) stating that the period for which the preference shares were held shall be included for computing period of holding of resulting equity share, on conversion of said preference shares, for the purpose of determining whether equity shares are short term capital asset or long term capital asset.

Finance Act, 2018, w.e.f. AY 2019-20, has inserted a new sub- clause (ba) in Explanation 1(i) to Section 2(42A) stating that in case, inventory is converted into capital asset, the period of holding shall be computed from the date of conversion of such inventory.

*Sr.* *No.*	*Explanation*	*Particulars*	*Period of holding*
1	2(42A)(i)(a)	Shares held in a company in liquidation	Excludes period subsequent to the date on which company goes into liquidation
2	2(42A)(i)(b)	When capital asset becomes property of the assessee in circumstances mentioned in Section 49(1)	Includes period for which capital asset was held by previous owner
3	2(42A)(i)(ba)	Conversion or treatment of inventory as capital asset as referred to U/s. 2(via)	Excludes period prior to such conversion or treatment
4	2(42A)(i)(c)	Shares acquired by shareholder in a scheme of amalgamation of shares held by him in consideration of shares in amalgamated company provided the amalgamated company is an Indian company and the shareholder itself is not the amalgamated company as referred to u/s. 47(vii)	Includes period for which shares were held in amalgamating company
5	2(42A)(i)(d)	Right shares or securities	Begins from the date of allotment of such right shares or securities
6	2(42A)(i)(e)	Right to subscribe to any shares or securities which has been renounced in favour of another	Begins from the date of offer of such right to the person
7	2(42A)(i)(f)	Bonus shares or securities	Begins from the date of allotment of such shares or securities
8	2(42A)(i)(g)	Shares in an Indian company acquired as a consideration of a demerger	Includes period of holding of shares of demerged company
9	2(42A)(i)(h)	Trading and clearing rights of a recognized stock exchange in India acquired by pursuant to demutualisation or corporatisation of the exchange	Includes period for which the person was member of the exchange immediately prior to such demutualisation or corporatisation
10	2(42A)(i)(ha)	Equity shares acquired as a result of circumstances in (i)(h) as referred to u/s 47(xiii)	Includes period for which the person was member of the exchange immediately prior to such demutualisation or corporatisation
11	2(42A)(i)(hb)	Sweat equity shares or security transferred free of cost or at concessional rate by employer to employee	Begins from the date of allotment of such shares or securities
12	2(42A)(i)(hc)	Units of a business trust acquired in exchange of share of a special purpose vehicle as referred to u/s. 47(xvii)	Includes period for which shares were held
13	2(42A)(i)(hd)	Units in consolidating scheme of mutual fund as referred to u/s. 47(xviii)	Includes period for which units were held in consolidating scheme of mutual funds
14	2(42A)(i)(he)	Shares acquired on redemption of GDR by non- resident assessee as referred to u/s. 115AC(1)(b)	Begins from the date on which such request for redemption was made
15	2(42A)(i)(hf)	Convertible preference shares	Begins from date preference shares held were by the assessee
16	2(42A)(i)(hg)	Units in consolidating plan of mutual fund scheme as referred to u/s. 47(xix)	Includes period for which units were held in consolidating plan of mutual funds scheme
17	2(42A)(i)(hh)	Units segregated portfolio referred to in sub-section (2AG) of section 49	Includes period for which original units in the main portfolio were held by the assessee

Long-term capital asset : Section 2(29A): Means a capital asset which is not a short-term capital asset.

2. YEAR OF CHARGEABILITY TO TAX

Capital gains are generally charged to tax in the year in which ‘transfer’ takes place. Exceptions —

Section 45(1A) — Insurance Claim — In the year of receipt.
Section 45(2) — Conversion of capital asset into stock-in- trade — In the year of actual sale of the stock in trade.
Section 45(5) — Compulsory acquisition — When consideration or part thereof is first received. Compensation received in pursuance of an interim order of a court is chargeable to tax in the previous year in which the final order of such court is made.
Section 45(5A) — Special provisions for computation of capital gains in case of joint development agreement (Inserted by Finance Act 2017, w.e.f. AY 2018-19).

In case of an assessee being individual or HUF who transfers a capital asset under a specified agreement1, the capital gains shall be chargeable to income-tax as income of the previous year in which the certificate of completion for the whole or part of the project is issued by the competent authority.

For the purposes of section 48, full value of consideration shall be stamp duty value, on the date of issue of the said certificate, of the individual’s/ HUF’S share in the project, as increased by the consideration received in cash, if any, as result of transfer of said capital asset.

Specified Agreement means registered agreement in which a person owning land or building or both, agrees to allow another person to develop a real estate project on such land or building or both, in consideration of a share, being land or building or both in such project, whether with or without payment of part of the consideration in cash.

The above section 45(5A) shall not apply where the assessee transfers his share in the project on or before the date of issue of said certificate of completion, and the capital gains shall be deemed to be the income of the previous year in which such transfer takes place and full value of consideration shall be determined as per the general provision of the Act.

Amendments brought by Finance Act, 2021 in section 45

Section 45(1B) - Finance Act, 2021 has inserted new sub-section (1B) to state that where any person receives at any time during any previous year any amount under a unit linked insurance policy, to which exemption under clause (10D) of section 10 does not apply on account of the applicability of the fourth and fifth proviso thereof, including the amount allocated by way of bonus on such policy, then, any profits or gains arising from receipt of such amount by such person shall be chargeable to income-tax under the head “Capital gains” and shall be deemed to be the income n of the previous year in which such amount was received
Section 45(4) - provisions for tax treatment relating to reconstitution of partnership firm / AOP / BOI have been revamped to provide that profits/gains arising on reconstitution of the firm / AOP / BOI will be taxed as capital gains in the hands of firm/AOP/BOI. The profits/ gains will be calculated in the manner provided under the said sub-section.

Exempt Capital Gains under section 10

10(4D) : Capital gains arising on transfer of a capital asset, being bonds, GDRs, rupee denominated bonds, derivatives or such other notified securities by Category-III Alternative Investment Fund (AIF) located in International Financial Services Centre provided various conditions attached to it are fulfilled

10(23FE) : Long-term capital gain arising to a wholly owned subsidiary of the Abu Dhabi Investment Authority (ADIA), sovereign wealth fund of foreign country and specified foreign pension funds from investment made by them in India in debt or share capital or unit of Infrastructure Investment Trusts (InVITs), Infrastructure entities or Category-I or Category-II Alternative Investment Funds (AIFs) which make 100% of their investment in Infrastructure entities

10(33) : Transfer of Unit Scheme 1964 on or after April 1, 2002.

10(36) : Long-term capital gain arising from transfer of long-term capital asset being eligible equity share purchased after 1st March, 2003 but before 1st March 2004.

10(37) : Compulsory acquisition of Urban Agriculture Land where consideration is received after March 31, 2004.

10(37A) : Exemption to Capital Gains from transfer of land under land pooling scheme [Inserted by Finance Act, 2017 w.r.e.f. 1-4-2015]

Any income chargeable under the head "Capital gains" in respect of transfer of a specified capital asset2 arising to an assessee, being an individual or a H.U.F., who was the owner of such specified capital asset as on the 2nd day of June, 2014 and transfers that specified capital asset under the Land Pooling Scheme (herein referred to as "the scheme") covered under the Andhra Pradesh Capital City Land Pooling Scheme (Formulation and Implementation) Rules, 2015 made under the provisions of the Andhra Pradesh Capital Region Development Authority Act, 2014 (Andhra Pradesh Act 11 of 2014) and the rules, regulations and Schemes made under the said Act.

For the purposes of this clause, "specified capital asset" means,—
1. the land or building or both owned by the assessee as on the 2nd day of June, 2014 and which has been transferred under the scheme; or
2. the land pooling ownership certificate issued under the scheme to the assessee in respect of land or building or both referred to in clause (a); or
3. the reconstituted plot or land, as the case may be, received by the assessee in lieu of land or building or both referred to in clause (a) in accordance with the scheme, if such plot or land, as the case may be, so received is transferred within two years from the end of the financial year in which the possession of such plot or land was handed over to him.]

10(38) : Due to insertion of new Section 112A as per Finance Act, 2018 w.e.f. 1-4-2018, exemption on long term Capital Gains arising on transfer of equity share and unit of an equity oriented fund or a unit of a business trust not allowed

3. COMPUTATION OF CAPITAL GAINS (SECTION 48)

The method of computation depends on the nature of capital asset transferred. It is as follows:—

*Short-term Capital Gains*	*Long-term Capital Gains*
A. Find out Full Value of Consideration	A. Find out Full Value of Consideration
B. Deduct:	B. Deduct:
(i) Expenditure incurred wholly and exclusively in connection with such Transfer	(i) Expenditure incurred wholly and exclusively in connection with such Transfer
(ii) Cost of Acquisition	(ii) Indexed Cost of Acquisition (see exceptions mentioned below)
(iii) Cost of Improvement	(iii) Indexed Cost of Improvement
(iv) Exemption provided by Sections 54B, 54D & 54G, 54GA	(iv) Exemption provided by Sections 54, 54B, 54D, 54EC, 54ED, 54F & 54G, 54GA, 54GB
C. (A-B) is short-term Capital Gains	C. (A-B) is a long-term Capital Gains

Exceptions:

It shall be noted that indexation is not allowed in the following cases:

Transferor:
Any Person
In case of Bonds and Debentures other than:
Capital Indexed Bonds issued by G.O.I.
Sovereign Gold Bond issued by the RBI under the Sovereign Gold Bond Scheme, 2015.
Depreciable assets (other than an asset used by a power generating unit eligible for depreciation on Straight line basis).
Undertaking/division transferred by way of slump sale as covered by Section 50B.
Resident Individual
Global Depository Receipts (GDR) purchased in foreign currency as given in Section 115ACA.
Non-Resident:
For transfer of long term capital asset by non- resident in the following cases:
Shares in or debentures of an Indian Company acquired by utilizing convertible foreign exchange as mentioned in first proviso to Section 48.
Global Depository Receipts (GDR) purchased in foreign currency as given in Section 115AC.
While computing Capital Gains arising to a non-resident assessee on redemption of rupee denominated bond of an Indian company held4 by him, the gain arising on account of appreciation of rupee against a foreign currency shall be ignored for the purpose of computation of full value of consideration.
4. With a view to provide relief to non-resident secondary holders in respect of gains arising on account of appreciation of rupee against foreign currency, the word “subscribed” has been substituted by “held” by Finance Act, 2017 (w.e.f. A.Y. 2018-19).
Offshore fund:
Units purchased in foreign currency as given in Section 115AB.
Foreign Institutional Investors (FIIs):
Securities as given in Section 115AD.

Also see summary of Sections 111A and 112A of this chapter.

4. FULL VALUE OF CONSIDERATION

(i) For transfer of land or building or both: Section 50C

Higher of the following:—

Full value of the consideration received or accruing
Value adopted or assessed or assessable by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer.

However, if value adopted or assessed or assessable by the stamp valuation authority does not exceed 110% of the consideration received or accruing as a result of the transfer, the consideration so received or accruing as a result of the transfer shall be deemed to be the full value of the consideration as per Section 48 (as inserted by Finance Act, 2018 w.e.f. A.Y. 2019-20 and further amended by Finance Act, 2020)

(ii) For transfer of share other than quoted share : Section 50CA (Inserted by Finance Act, 2017, w.e.f. AY 2018-19)

Higher of the following:—

Full value of the consideration received or accruing
Fair Market Value in such manner as may be prescribed

(iii) Fair market value shall be deemed to be full value of consideration : Section 50D

Where the consideration received or accruing as a result of transfer of capital asset is not ascertainable or cannot be determined, then, the fair market value of the said asset on the date of transfer shall be deemed to be the full value of the consideration.

Finance Act, 2019 has inserted a proviso to state that provisions of this section shall not apply to certain prescribed class of persons.

5. INDEXED COST OF ACQUISITION =

Cost of acquisition X Cost inflation index for the financial year in which the asset is transferred
------------------------------------------------------------------------------------
Cost inflation index for the first financial year in which the asset was held by the assessee or the year beginning on 1-4-2001, whichever is later or the year of improvement of the asset

Earlier base year was 1981 which has now been shifted to 2001. i.e. As per Finance Act, 2017 (w.e.f. AY 18-19) Section 55 has been amended so as to provide that the cost of acquisition of an asset acquired before 1-4-2001 (earlier 1-4-1981) shall be allowed to be taken as fair market value as on 1st April, 2001 (earlier 1-4-1981) and the cost of improvement shall include only those capital expenses which are incurred after 1-4-2001 (earlier 1-4-1981).

As per Amendment brought by Finance Act, 2020 in case of land or building, the fair market value as on 1-4-2001 shall not exceed the stamp duty value as on 1-4-2001, wherever available. This amendment will be applicable from AY 2021-22 onwards.

Cost inflation index chart considering 2001-02 as base year

Financial Year	Cost Inflation Index	Financial Year	Cost Inflation Index	Financial Year	Cost Inflation Index	Financial Year	Cost Inflation Index
2001-02	100	2007-08	129	2012-13	200	2017-18	272
2002-03	105	2008-09	137	2013-14	220	2018-19	280
2003-04	109	2009-10	148	2014-15	240	2019-20	289
2004-05	113	2010-11	167	2015-16	254	2020-21	301
2005-06	117	2011-12	184	2016-17	264	2021-22	317
2006-07	122

6. SECTION 111A: TAX ON SHORT TERM CAPITAL GAIN IN CERTAIN CASES

Short term capital gains arising on transfer of equity share in a company where on sale of such shares STT is payable or a unit of an equity oriented fund or (w.e.f. 1st day of April, 2015) unit of a business trust shall be eligible for tax at the rate of 15% provided it satisfies the other conditions specified under the said section.

The above provision shall not apply if the units of the business trust were acquired by an assessee in consideration of transfer of a share of a special purpose vehicle to a business trust in exchange of units allotted by that trust to the transferor as referred to in clause (xvii) of section 47.

7. SECTION 112A: TAX ON LONG TERM CAPITAL GAIN IN CERTAIN CASES

Long term capital gains arising on—
1. transfer of equity shares or a unit of an equity oriented fund or unit of a business trust (w.e.f. 1st day of April, 2018) and
2. STT is paid —
  1. on acquisition and transfer of equity share (however the Central Government may by notification specify nature of acquisitions where STT is not paid); or
  2. on transfer of unit of an equity oriented fund or unit of a business trust is chargeable to tax at the rate of 10% on long term capital gain exceeding Rs. 1,00,000/-.
The cost of acquisition [see Section 55A(2)(ac)] for the purposes of computing capital gains acquired by the assessee before the 1st day of February, 2018, shall be deemed to be the higher of—
1. the actual cost of acquisition of such asset; and
2. the lower of —
  1. the fair market value of such asset #; and
  2. the full value of consideration received or accruing as a result of the transfer of the capital asset.
  #Fair Market Value means
  1. Highest Price of Equity Shares on 31-1-2018 or
  2. Net Asset Value of an equity oriented fund or unit of a business trust on 31-1-2018.
The cost of acquisition for the purposes of computing capital gains acquired by the assessee on or after the 1st day of February, 2018 shall be computed without indexation.
Vide Finance Act, 2021, the profits or gains arising from maturity of Unit Linked Insurance Policy to which exemption under clause (10D) of section 10 does not apply on account of the applicability of the fourth and fifth proviso thereof, are covered under the purview of provisions of section 112A.

8. COMPUTATION OF LONG TERM CAPITAL GAINS ON SHARES BOTH EQUITY AND PREFERENCE, LISTED OR UNLISTED AND DEBENTURES

*Sr.* *No.*	*Capital Assets*	*If it is not covered by STT*
		*Long-term*
		*Without indexation*	*With indexation*
A	Listed securities other than those covered by Section 112A w.e.f. A.Y. 2019-20	10%	20%
B	Unit of a Mutual Fund specified under clause (23D) of Section 10 transferred during the period beginning on the 1st day of April, 2014 and ending on the 10th day of July, 2014	10%	20%
C	(w.e.f. the 1st day of April, 2015) Units not covered above	NA	20%
D	Unlisted equity shares (other than in the case of non-resident Indians or foreign companies)	NA	20%
E	Listed Preference shares	10%	20%
F	Unlisted Preference shares	NA	20%
G	Zero Coupon Bonds	10%	NA
H	Unlisted Debenture	NA	20%

9. CERTAIN TRANSACTIONS NOT REGARDED AS TRANSFER (SECTION 47)

*Section*	*Transfer of a capital asset*
47(i)	On total or partial partition of HUF
47(iii)	Under gift or will or an irrevocable trust (not applicable to gift of shares, etc. by company to employees under ESOP)
47(iv)	By holding co. to subsidiary co. on fulfilment of certain conditions
47(v)	By wholly owned subsidiary co. to holding co. which is Indian company
47(vi)	In scheme of amalgamation by amalgamating co. to amalgamated co.
47(via)	Transfer of shares in Indian company in scheme of amalgamation between two foreign cos. on fulfilment of certain conditions
47(viaa)	In a scheme of amalgamation between a banking co. and a banking institution
47(viab)	being a share of a foreign company, which derives, directly or indirectly, its value substantially from the share or shares of an Indian company, held by the amalgamating foreign company to the amalgamated foreign company (w.e.f. 1st April, 2016) on fulfilment of certain conditions
47(vib)	In a demerger by demerged company to resulting company.
47(vic)	Being shares in Indian company in scheme of demerger between two foreign cos. on fulfilment of certain conditions
47(vica)	In a business reorganisation by predecessor co-operative bank to the successor co-operative bank
47(vicb)	Being shares by shareholder of a predecessor co-operative bank in a business reorganisation
47(vicc)	Being a share of a foreign company, which derives, directly or indirectly, its value substantially from the share or shares of an Indian company, held by the demerged foreign company to the resulting foreign company (w.e.f. 1st April, 2016) on fulfilment of certain condition
47(vid)	Transfer or issue of shares by resulting company to the shareholders of demerged co. in a scheme of demerger
47(vii)	Being shares by share holder of amalgamating company in a scheme of amalgamation on fulfilment of certain conditions
47(viia)	Bonds or shares referred to in Section 115AC(1), made outside India by a non-resident to another non-resident
47(viiaa) [Inserted by Finance Act, 2017 w.e.f. A.Y. 2018-19]	Any transfer, made outside India, of a capital asset being rupee denominated bond of an Indian Company issued outside India, by a non-resident to another non-resident.
47(viiab)	any transfer of a capital asset, being - bond or Global Depository Receipt referred to in sub-section (1) of Section 115AC; or rupee denominated bond of an Indian company; or derivative, made by a non-resident on a recognised stock exchange located in any International Financial Services Centre and where the consideration for such transaction is paid or payable in foreign currency
47(viib)	Being a Government Security carrying a periodic payment of interest, made outside India through an intermediary dealing in settlement of securities, by a non-resident to another non-resident (w.e.f. the 1st day of April, 2015)
47(ix)	Being works of art, archaeological, scientific or art collection to Government/University/National Museum, etc.
47(x)	Being conversion of bonds or debentures or debenture-stock or deposit certificate into shares or debentures
47(xa)	Conversion of bonds referred to in Section 115AC(1)(a) into shares or debentures
47(xb) [Inserted by Finance Act, 2017 w.e.f. A.Y. 2018-19]	Conversion of preference shares of a company into equity shares of that company
47(xii)	Being land of a sick industrial company
47(xiii)	On succession of the firm by a company or on demutualisation or corporatisation of a recognised stock exchange on fulfilment of certain conditions
47(xiiia)	Membership right by a member of recognised stock exchange in a scheme of demutualisation or corporatization
47(xiiib)	On conversion of a company into limited liability partnership on fulfilment of certain conditions
47(xiv)	On succession of a sole proprietary by a company on fulfilment of certain conditions
47(xv)	In a scheme for lending any securities under an agreement subject to guidelines issued by SEBI
47(xvi)	In a transaction of reverse mortgage as notified by Central Government
47(xvii)	Being share of a special purpose vehicle to a business trust in exchange of units allotted by that trust to the transferor (w.e.f. the 1st day of April, 2015)
47(xviii)	Being a unit or units, held by him in the consolidating scheme of a mutual fund, made in consideration of the allotment to him of a capital asset, being a unit or units, in the consolidated scheme of the mutual fund (w.e.f. 1st April, 2016)
47(xix)	Any transfer by a unit holder of a capital asset, being a unit or units, held by him in the consolidating plan of a mutual fund scheme, made in consideration of the allotment to him of a capital asset, being a unit or units, in the consolidated plan of that scheme of the mutual fund

10. COST OF ACQUISITION IN CERTAIN CASES (SECTION 49)

*Section*		*Cost of acquisition*
49(1)	Distribution of assets on total or partial partition of HUF Gift or will Succession, inheritance or devolution Distribution of assets on liquidation of company Transfer to a revocable or an irrevocable trust Transfer as mentioned in clauses (iv), (v), (vi), (via), (viaa), (vic)*, (vica), (vicb), (xiii), (xiiib), (xiv) of Section 47	Cost to the previous owner
49(2)	Transfer of shares received by existing shareholder in the scheme of amalgamation referred to in Section 47(vii)	Cost of such shares shall be cost of shares of amalgamating co.
49(2A)	On conversion of bonds or debentures, etc. or bonds referred to in Section 115AC(1)(a) into shares	Cost of shares is proportionate to the cost of the portion of bonds, debentures, etc. converted
49(2AA)	Transfer of specified security or sweat equity shares referred to in Section 17(2)(vi)	Cost of such security shall be fair market value
49(2AAA)	Transfer of right of a partner in LLP consequent to conversion referred to in Section 47(xiiib)	Cost of the right shall be cost of shares in company before conversion
49(2AB)	Transfer of specified security or sweat equity shares	Cost would be fair market value while calculating fringe benefits under Section 115WC(1)(ba)
49(2AC)	Transfer of a unit of a business trust, which became the property of the assessee in consideration of a transfer share of a special purpose vehicle to a business trust in exchange of units allotted by that trust to the transferor as referred to in clause (xvii) of Section 47.	Cost of acquisition of such unit shall be deemed to be the cost of acquisition to him of the share of the special purpose vehicle
49(2AD)	Transfer of unit or units in a consolidated scheme of a mutual fund which became the property of the assessee in consideration of a transfer referred to in clause (xviii) of Section 47	Cost of acquisition of the unit or units shall be deemed to be the cost of acquisition to him of the unit or units in the consolidating scheme of the mutual fund
49(2AE) [Inserted by Finance Act, 2017 w.e.f. A.Y. 2018- 19]	Equity share of a company which became property of the assessee upon conversion of preference share	Cost of acquisition shall be deemed to be that part of the cost of preference share in relation to which such asset is acquired by the assessee.
49(2AF)	a unit or units in a consolidated plan of a mutual fund scheme, became the property of the assessee in consideration of a transfer referred to in clause (xix) of Section 47	Cost of acquisition shall be deemed to be the cost of acquisition to him of the unit or units in the consolidating plan of the scheme of the mutual fund
49(2AG)	unit or units in the segregated portfolio	Cost of acquisition in the case of the Main portfolio and the Segregated portfolio shall be the proportionate cost as determined on the date of segregation The actual provision is : “amount which bears to the cost of acquisition of a unit or units held by the assessee in the total portfolio, the same proportion as the net asset value of the asset transferred to the segregated portfolio bears to the net asset value of the total portfolio immediately before the segregation of portfolios”.
49(2AH)	Original units held by the unit holder on segregation of portfolio	The cost of the acquisition of the original units held by the unit holder in the main portfolio shall be deemed to have been reduced by the amount as so arrived at under sub-section (2AG).
49(2C)	Where shares of resulting company acquired in a scheme of demerger are transferred	Cost of such shares would be proportionate to the value of assets transferred to resulting co. in demerger
49(2D)	Cost of acquisition of original shares in demerged company shall be cost after reducing the amount arrived in clause (2C) above
49(2E)	The provisions of sections (2), (2C) and (2D) of section 49 shall apply accordingly to business reorganization of a co-operative bank also.
49(4)	Where the capital gain arises from the transfer of a property, the value of which has been subject to income-tax u/s. 56(2)(vii), (viia) or (x)	Cost of acquisition of such property shall be deemed to be the value which has been taken into account for the purposes of the said clause (vii) or clause (viia) or clause (x)
49(5)	Where the capital gain arises from the transfer of an asset declared under the Income Declaration Scheme, 2016, and the tax, surcharge and penalty have been paid in accordance with the provisions of the Scheme on the fair market value of the asset as on the date of commencement of the Scheme	The cost of acquisition of the asset shall be deemed to be the fair market value of the asset which has been taken into account for the purposes of the said Scheme
49(6)	Where the capital gain arises from the transfer of a specified capital asset referred to in clause (c) of the Explanation to clause (37A) of section 10, which has been transferred after the expiry of two years from the end of the financial year in which the possession of such asset was handed over to the assessee	The cost of acquisition of such specified capital asset shall be deemed to be its stamp duty value as on the last day of the second financial year after the end of the financial year in which the possession of the said specified capital asset was handed over to the assessee
49(7)	Where the capital gain arises from the transfer of a capital asset, being share in the project, in the form of land or building or both, referred to in sub-section (5A) of section 45, not being the capital asset referred to in the proviso to the said sub-section	The cost of acquisition of such asset, shall be the amount which is deemed as full value of consideration in that sub-section
49(8)	Where the capital gain arises from the transfer of an asset, being the asset held by a trust or an institution in respect of which accreted income has been computed and the tax has been paid thereon in accordance with the provisions of Chapter XII-EB	The cost of acquisition of such asset shall be deemed to be the fair market value of the asset which has been taken into account for computation of accreted income as on the specified date referred to in sub-section (2) of section 115TD
49(9)	Where the capital gain arises from transfer of capital asset, which originally were held as inventory (Inserted by Finance Act, 2018 w.e.f. A.Y. 2019-20)	The cost of acquisition of such asset shall be deemed to be the fair market value of inventory as on the date on which stock-in-trade is converted into capital asset

11. SECTION 50: SPECIAL PROVISION FOR COMPUTATION OF CAPITAL GAINS IN CASE OF DEPRECIABLE ASSETS

Opening W.D.V. of the Block of Assets

Less: Full value of consideration received or accruing as a result of transfer or transfers of asset falling within the concerned block of assets during the relevant previous year

Less: Expenditure incurred wholly and exclusively in connection with such transfer or transfers. This deduction would not be available in a case where the entire block ceases to exist as such, for the reason that all the assets in that block are transferred during the year.

Add: Actual cost of any asset falling within the concerned block of assets acquired during the relevant previous year.

Closing WDV/short-term capital gains/short-term capital loss

Where the resultant figure is negative, the same is chargeable as deemed short-term capital gains u/s. 50.

In case it is positive and the entire block ceases to exist as such, the resultant figure indicates deemed short-term capital loss (refer CBDT Circular No. 469 dated 23-9-1986 — reported in 162 ITR (Stat) 21, 30).

If the resultant figure is positive and the block continues to exist, the assessee will be entitled to claim depreciation on the resultant figure.

Vide Finance Act, 2021, the definition of ‘block of asset’ in section 2(11) has been amended to the effect that it will not include goodwill of business or profession

Finance Act 2022 has inserted an Explanation to Section 50 w.e.f 1-4-2021 which clarifies that reduction of the written down value of goodwill from the block of assets shall be deemed to be transfer.

12. SECTION 50B: SPECIAL PROVISION FOR COMPUTATION OF CAPITAL GAINS IN CASE OF SLUMP SALE

As per Section 2(42), slump sale means transfer of one or more undertakings as a result of the sale of lump sum consideration without values being assigned to the individual assets and liabilities.
Where the undertaking is held for more than thirty six months, the gains would be deemed as long term capital gains.
Where the undertaking is held for not more thirty six months, the gains would be deemed as short-term capital gains.
Cost of acquisition in this case would be the “net worth” of the undertaking or division.
“Net worth” means aggregate value of total assets as reduced by the value of liabilities.

New Explanation 3 inserted to section 2(42C) vide Finance Act, 2021, which mentions that for the above purposes, “transfer” shall have the meaning assigned to it under section 2(47).

Further, section 50B is amended to the effect that fair market value of the capital assets as on the date of transfer, calculated in the prescribed manner, shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of such capital asset.

13. SECTION 51: ADVANCE MONEY RECEIVED

W.e.f. 1st day of April, 2015, any sum received as advance or otherwise in course of negotiations for transfer of capital asset and which has been taxed under clause (ix) of Section 56(2), then such sum shall not be deducted in computing the cost of acquisition.

14. SECTION 55A: AS PER SECTION 55A THE AO MAY REFER TO THE VALUATION OFFICER FOR ASCERTAINING THE FAIR MARKET VALUE OF THE ASSET UNDER FOLLOWING CIRCUMSTANCES

Where in view of the AO the value of the asset claimed by the assessee in accordance with the estimate made by a registered valuer, is less than is FMV or w.e.f. 1-7-2012, Section 55A, clause (a) is amended as follows:
Where in view of the AO, the value of the asset claimed by the assessee in accordance with the estimate made by a registered valuer is at variance with its fair market value, or
Where in view of the AO the value of the asset claimed by the assessee is less than the FMV by so much percentage or by so much amount as may be prescribed, or
Having regard to the nature of the asset and other relevant circumstances, it is necessary to do so.

15. CAPITAL GAINS — VARIOUS EXEMPTIONS DETAILS

	*Section*	54	*54B*	*54D*	*54EC*
(a)	Kind of assets transferred	Long-term Capital Assets being House Property used for residential purpose	Land used for agricultural purposes	Land and Building or any right therein used by an industrial undertaking compulsorily acquired under any law	Land or Building or both w.e.f. A.Y. 2019-20
(b)	Eligible Assessee	Individual & HUF	Individual & HUF	All	All
(c)	Condition of period of holding of original Asset	2 years	2 years	2 years	2 years
(d)	Condition of utilisation of consideration	Purchase of one Residential House in India within 2 years after or 1 year prior to date of transfer: or construction of one residential house in India within 3 years from the date of transfer Where capital gain does not exceed Rs. 2 crore, the assessee has the option to purchase/construct two houses. This option is available once in a lifetime of assessee	Purchase of Agricultural Land within 2 years from the date of transfer	Purchase/ construction of land, building, or any right there in within 3 years from the date of transfer by way of compulsory acquisition for the purpose of shifting/ re-establishing/ setting up another industrial undertaking	Investment of whole or any Part of Capital Gains in ‘specified assets’. Refer note 9 below Investment should be made within 6 months from the date of transfer
(e)	Exempt Amount	The amount of gain or, the cost of new asset, whichever is less	Lower of the Capital Gains or the Cost of acquisition of new agricultural land	Lower of the Capital Gain or the Cost of acquisition of new land and building	Refer Note 9
(f)	Other requirements	See notes 1, 2 & 4	Assessee or his parents or HUF must have used the land for agricultural purpose for preceding two years (Also see Note 1)	See notes 1, 2 & 4. Must have been used for business of industrial undertaking for preceding 2 years	See notes 1, 2 & 4 Rebate u/s. 88 or deduction u/s. 80C not to be granted for the same investment. New Asset must be retained for a period of 5 years

16. CAPITAL GAINS — VARIOUS EXEMPTIONS DETAILS

	*Section*	*54EE*	*54F*	*54G*	*54GA*	*54GB*
(a)	Kind of assets transferred	Any Long-term Capital Asset (inserted by Finance Bill, 2016)	Any long term capital asset other than residential house	Land or Building or any right therein or Plant or Machinery in Urban Area used for the business	Land or Building or any right therein or Plant or Machinery in Urban Area used for the business	Long-term capital asset being a residential property (a house or a plot of land)
(b)	Eligible Assessees	Any assessee	Individual & HUF	Industrial undertakings in urban area shifting to an area other than urban area	Industrial undertakings in urban area shifting to any Special Economic Zone	Individual & HUF
(c)	Condition of period of holding of original Asset	1 year for listed Shares, Listed Securities, Units of UTI/ Mutual Fund specified u/s. 10(23D), Zero-coupon bonds, 2 years for unlisted shares and land and building, 3 years for other capital assets	1 year for listed Shares, Listed Securities, Units of UTI/ Mutual Fund specified u/s. 10(23D), Zero-coupon bonds, 2 years for unlisted shares and any immovable property other than residential house, 3 years for other capital assets	No period specified	No period specified	2 Years
(d)	Condition of utilisation of consideration	Investment of whole or any Part of Capital Gain in ‘long term specified assets’ as stipulated in the section. Investment should be made within 6 months from the date of transfer. Also see note 10.	Purchase of one Residential House in India within 2 years after or 1 year prior to date of transfer; or construction of one residential house in India within 3 years from date of transfer	Acquire similar assets and incur expenses on shifting original asset, within 1 year before, or 3 years from the date of transfer	Acquire similar assets and incur expenses on shifting original asset, within 1 year before, or 3 years from the date of transfer	Subscribe to equity shares of an eligible company before due date of return filing The company within 1 year of subscription should utilise the amount for purchase of new asset (refer note 6)
(e)	Exempt Amount	Investment made by an assessee in the long-term specified asset, from capital gains arising from the transfer of one or more original assets, during the financial year in which the original asset or assets are transferred and in the subsequent financial year does not exceed Rs. 50 lakh.	Refer Note 5	The amount of gain or the aggregate cost of new asset, and shifting expenses, whichever is lower	The amount of gain or the aggregate cost of new asset, and shifting expenses, whichever is lower	Refer Note 5
(f)	Other requirements	See Note 1	Must not own more than 1 residential house other than the new asset on the date of transfer of original asset	Must have been shifted to non-urban area. See notes 1 & 2	See notes 1, 2, 3 and 4	Assessee should hold shares for a period of 5 years as well as the company should hold new asset for 5 years. If the new asset purchased by company is computer or computer software, the condition of holding is relaxed to three years by Finance Act, 2019 (Refer Note 7)

17. NOTES

In case New Asset is transferred before 3 years from date of purchase/construction, the Capital Gains exempted earlier will be chargeable to tax in year of transfer of new asset.
In order to avail the exemption, gains are to be reinvested, before the due date of return u/s. 139(1). If the amount is not so reinvested, it is to be deposited on or before that date in account of specified bank/institution and it should be utilised within specified time limit for purchase/ construction of new asset.
U/s. 54F Capital Gains exempted earlier shall be chargeable to tax — if (a) If the assessee purchases within 2 years or constructs within 3 years any residential house other than the one in which reinvestment is made & (b) If the new asset is transferred within a period of 3 years from the date of its purchase/construction.
As per Section 54H, where the transfer is by way of compulsory acquisition, the period available for acquiring the new asset u/ss. 54, 54B, 54D, 54EC and 54F shall be computed from the date of receipt of compensation and not the date of transfer.
If cost of new asset is more than the net consideration of original asset, the whole of the gains is exempt. If cost of specified asset is less than net consideration, proportionate amount of the gains will be exempt i.e. Capital Gains X Cost of New Asset/Net Consideration on sale of asset.
Under Section 54GB—
“Eligible company” means a company which fulfils the following conditions, namely:—
1. it is a company incorporated in India during the period from the 1st day of April of the previous year relevant to the assessment year in which the capital gain arises to the due date of furnishing of return of income under sub-section (1) of Section 139 by the assessee;
2. it is engaged in the business of manufacture of an article or a thing;
3. it is a company in which the assessee has more than 50% share capital or more than 50% voting rights after the subscription in shares by the assessee; and
4. it is a company which qualifies to be a small or medium enterprise under the Micro, Small and Medium Enterprises Act, 2006;
“New asset” means new plant and machinery but does not include—
1. any machinery or plant which, before its installation by the assessee, was used either within or outside India by any other person;
2. Any machinery or plant installed in any office premises or any residential accommodation, including accommodation in the nature of a guest house;
3. Any office appliances including computers or computer software;
4. Any vehicle; or
5. any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head “Profits and Gains of Business or Profession” of any previous year.
U/s. 54GB, if the equity shares of the company or the new asset acquired by the company are sold or otherwise transferred within a period of five years from the date of their acquisition, the amount of capital gains arising from the transfer of the residential property which was not charged to tax, shall be deemed to be the income of the assessee chargeable under the head “Capital gains” of the previous year in which such equity shares or such new asset are sold or otherwise transferred, in addition to taxability of gains, arising on account of transfer of shares or of the new asset, in the hands of the assessee or the company, as the case may be.
The exemption u/s. 54GB is available in case of any transfer of residential property made on or before 31st March, 2019. However, the time period has been extended from 31st March, 2019 to 31st March, 2021 in case the investment is made in an ‘eligible start-up’. (Inserted by Finance Act, 2016 w.e.f. 1-4-2017 [term ‘eligible start-up - as defined in explanation below section 80-IAC(4)].
Exemption u/s. 54EC
Lower of the Capital Gain or the actual amount invested in specified assets.
However the aggregate investment made by assessee in the specified asset, during the financial year in which the original asset/assets are transferred and in the subsequent financial year should not exceed fifty lakh rupees.
In accordance with Finance Act, 2017 (w.e.f. A.Y.18-19) investment in any bond redeemable after three years which has been notified by Central government in this behalf shall be eligible for exemption. Earlier investment only in bonds of NHAI and Rural Electrification Corporation were eligible for exemption
In accordance with Finance Act, 2018 (w.e.f. A.Y.19-20) investment under this section means-
1. any bonds which are issued after 31-3-2007 but before 1-4-2018, redeemable after three years and issued on or after the 1st day of April, 2007 but before 1st day of April, 2018;
2. any bonds which are issued on or after 1-4-2018, redeemable after five years and issued on or after 1-4-2018 by the NHAI or by Rural electrification corporation or any other bond notified in the Official Gazette by the Central Government in this behalf shall be eligible for exemption.
Long term specified asset means unit or units issued before 1-4-2019 of fund notified by Central Government in this behalf.
Clarification relating to Indirect transfer provision :
The Finance Act, 2012 inserted Explanation 5 in Section 9(1)(i) w.e.f. 1st April, 1962 clarifying that an asset or capital asset, being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be situated in India, if the share or interest derives, directly or indirectly, its value substantially from the assets located in India.

Finance Act, 2017 w.r.e.f. 1-4-2015, clarifies that above Explanation shall not apply to any asset or capital asset mentioned therein being investment held by non-resident, directly or indirectly, in a Foreign Institutional Investor, and registered as Category-I or Category-II Foreign Portfolio Investor under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014 made under the Securities and Exchange Board of India Act, 1992.

TAXATION OF MUTUAL FUND

The following table gives a glimpse of holding period classification of mutual funds:

	*Short-term*	*Long-term*
Equity funds	Less than 12 months	12 months and more
Balanced funds	Less than 12 months	12 months and more
Debt funds	Less than 36 months	36 months and more

Taxation on different types of mutual funds

	*Short-term capital gains (STCG) tax*	*Long-term capital gains (LTCG) tax*
Equity mutual funds	15%	10% on LTCG in excess of Rs. 1 lakh
Balanced mutual funds Balanced funds are equity-oriented hybrid funds that invest at least 65% of their assets in equities.	15%	10% on LTCG in excess of Rs. 1 lakh
Debt mutual funds	As per tax slab	20% after indexation

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