Question 1. What Incomes Are Charged To Tax Under The Head “capital Gains”?
Any earnings or benefit springing up from transfer of a capital asset throughout the 12 months is charged to tax below the top “Capital Gains”.
Question 2. What Is The Meaning Of Capital Asset?
Capital asset is described to encompass:
a) Any type of assets held by using an assesse, whether or not or no longer connected with enterprise or profession of the assesse.
B) Any securities held by a FII which has invested in such securities in accordance with the rules made under the SEBI Act, 1992.
However, the following objects are excluded from the definition of "capital asset":
Any stock-in-alternate, consumable stores, or raw substances held via a person for the motive of his business or profession.
E.G., Motor car for a motor car provider or gold for a jewelry service provider, are their inventory-in-exchange and, for this reason, they're now not capital assets for them.
Personal consequences of someone, that is to say, movable property which includes sporting apparels (*) and furniture held for private use, by using a person or for use via any member of his family dependent on him.
(*) However, jewellery, archeological collections, drawings, paintings, sculptures, or any paintings of art aren't treated as personal consequences and, for this reason, are protected inside the definition of capital assets.
Agricultural Land in India, no longer being a land situated:
Within jurisdiction of municipality, notified area committee, town place committee, cantonment board and which has a population of no longer less than 10,000;
Within range of following distance measured aerially from the local limits of any municipality or cantonment board:
no longer being extra than 2 KMs, if populace of such place is greater than 10,000 however now not exceeding 1 lakh;
not being more than 6 KMs , if populace of such area is more than 1 lakh however now not exceeding 10 lakhs; or
not being extra than eight KMs , if populace of such location is more than 10 lakhs.
Population is to be taken into consideration in line with the figures of remaining previous census of which applicable figures were posted earlier than the primary day of the yr.
6½% Gold Bonds, 1977 or 7% Gold Bonds, 1980 or National Defence Gold Bonds, 1980 issued by the Central Government.
Special Bearer Bonds, 1991, issued through the Central Government Gold Deposit Bonds issued beneath Gold Deposit Scheme, 1999.
Deposit certificates issued underneath the Gold Monetisation Scheme, 2015.
Following factors should be kept in thoughts :
The belongings being capital asset may also or won't be connected with the business or career of the taxpayer. E.G. Bus used to hold passenger by someone engaged within the enterprise of passenger transport may be his Capital asset.
Any securities held via a Foreign Institutional Investor which has invested in such securities according with the guidelines made below the Securities and Exchange Board of India Act, 1992 will usually be handled as capital asset, consequently, such securities can't be dealt with as stock-in-alternate.
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Question 3. What Is The Meaning Of The Term ‘long-term Capital Asset’?
Any capital asset held by way of a person for a duration of more than 36 months right away preceding the date of its transfer might be treated as long-time period capital asset.
However, in respect of positive property like stocks (equity or choice) which are listed in a regarded inventory trade in India, devices of fairness oriented mutual price range, listed securities like debentures and Government securities, Units of UTI and Zero Coupon Bonds, the duration of conserving to be considered is 365 days rather than 36 months.
In case of unlisted shares in a agency, the duration of preserving to be taken into consideration is 24 months instead of 36 months.
With impact from Assessment Year 2018-19, the duration of conserving of immovable belongings (being land or constructing or each), will be taken into consideration to be 24 months rather than 36 months.
Question 4. What Is Long-term Capital Gain And Short-time period Capital Gain?
Gain bobbing up on switch of lengthy-term capital asset is named as long-time period capital gain and advantage arising on switch of quick-time period capital asset is called as brief-time period capital gain. However, there are a few exceptions to this rule, like gain on depreciable asset is continually taxed as brief-time period capital gain.
Question 5. Why Capital Gains Are Classified As Short-time period And Long-term?
The taxability of capital benefit relies upon on the nature of benefit, i.E. Whether or not quick-time period or long-term. Hence to decide the taxability, capital profits are classified into short-term capital advantage and lengthy-time period capital gain. In other words, the tax rates for long-term capital benefit and quick-term capital advantage are exclusive. Similarly, computation provisions are specific for lengthy-term capital gains and brief-term capital profits.
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Question 6. Is The Benefit Of Indexation Available While Computing Capital Gain Arising On Transfer Of Short-time period Capital Asset?
Indexation is a system through which the value of acquisition/improvement of a capital asset is adjusted in opposition to inflationary upward thrust within the cost of asset . The benefit of indexation is available best in case of long-time period capital belongings and isn't always to be had in case of quick-time period capital belongings.
Question 7. In Respect Of Capital Asset Acquired Before 1st April, 2001 Is There Any Special Method To Compute Cost Of Acquisition?
Generally, price of acquisition of a capital asset is the cost incurred in obtaining the capital asset. It includes the acquisition attention plus any expenditure incurred completely for acquiring the capital asset. However, in respect of capital asset acquired earlier than 1st April, 2001, the fee of acquisition can be better of the actual fee of acquisition of the asset or truthful market price of the asset as on 1st April, 2001. This option isn't always available within the case of a depreciable asset.
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Question eight. If Any Undisclosed Income [in The Form Of Investment In Capital Asset] Is Declared Under Income Declaration Scheme, 2016, Then What Should Be The Cost Of Acquisition Of Such Capital Asset?
The honest market fee of the asset as on 1st June, 2016 [which has been taken into account for the purpose of said declaration Scheme, 2016] will be deemed as value of acquisition of the asset. [This provision is applicable w.E.F. 1-4-2017]
Question nine. As Per The Income-tax Law, Gain Arising On Transfer Of Capital Asset Is Charged To Tax Under The Head “capital Gains”. What Constitutes ‘transfer’ As Per Income-tax Law?
Generally, transfer manner sale, however, for the purpose of Income-tax Law "Transfer”, when it comes to a capital asset, includes:
Sale, trade or relinquishment of the asset;
Extinguishment of any rights on the subject of a capital asset;
Compulsory acquisition of an asset;
Conversion of capital asset into inventory-in-trade;
Maturity or redemption of a zero coupon bond;
Allowing ownership of immovable houses to the consumer in element overall performance of the contract;
Any transaction which has the effect of shifting an (or allowing the enjoyment of) immovable property; or
Disposing of or parting with an asset or any interest therein or creating any hobby in any asset in any manner in anyway
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Question 10. What Are The Provisions Relating To Computation Of Capital Gain In Case Of Transfer Of Asset By Way Of Gift, Will, Etc.?
Capital advantage arises if a person transfers a capital asset. Segment 47 excludes various transactions from the definition of 'switch'. Thus, transactions covered under phase 47 aren't deemed as 'switch' and, subsequently, these transactions will no longer provide upward push to any capital advantage. Transfer of capital asset by way of manner of gift, will, and many others., are few fundamental transactions included in section 47. Thus, if someone presents his capital asset to every other individual, then no capital benefit will rise up inside the arms of the individual making the present (*).
If the character receiving the capital asset by way of manner of gift, will, and so forth. In the end transfers such asset, capital benefit will rise up in his fingers. Special provisions are designed to compute capital profits inside the fingers of the man or woman receiving the asset via manner of gift, will, etc. In such a case, the fee of acquisition of the capital asset may be the cost of acquisition to the preceding owner and the length of protecting of the capital asset could be computed from the date of acquisition of the capital asset through the previous owner.
(*) As regards the taxability of gift within the hands of man or woman receiving the gift, separate provisions are designed beneath phase 56.
Question eleven. I Have Sold A House Which Had Been Purchased By Me 5 Years Ago. Am I Required To Pay Any Tax On The Profit Earned By Me On Account Of Such Sale?
House sold by you is a long-term capital asset. Any gain springing up on transfer of capital asset is charged to tax below the pinnacle “Capital Gains”. Income-tax Law has prescribed the method of computing capital benefit springing up on account of sale of capital assets. Thus, to check the taxability in your case, you have to compute capital benefit by way of following the guidelines laid down on this regard, and if the end result is advantage, then the identical may be at risk of tax.
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Question 12. Are Any Capital Gains Exempt Under Section 10?
Section 10 offers listing of incomes which are exempt from tax Amongst those the essential exemptions relating to capital profits are listed beneath:
Section 10(33) : Long-term or short-time period capital benefit springing up on transfer of devices of Unit Scheme, 1964 (US sixty four) (transferred on or after 1-4-2002).
Section 10(37) : An man or woman or Hindu Undivided Family (HUF) can declare exemption in admire of capital benefit springing up on switch of agricultural land located in an urban region through manner of obligatory acquisition. This exemption is available if the land become utilized by the taxpayer (or through his dad and mom in the case of an person) for agricultural purpose for a duration of 2 years at once preceding the date of its transfer .
Section 10(37A) : An character or Hindu Undivided Family (HUF) can declare exemption in admire of capital gain bobbing up on switch of land or constructing or each beneath Land Pooling Scheme under the Andhra Pradesh Capital City Land Pooling Scheme (Formulation and Implementation) Rules, 2015. This exemption is to be had if individual or HUF changed into proprietor of such land as on 02-06-2014. [Inserted by the Finance Act 2017 w.E.F. 01-04-2015].
Section 10(38) : Long-term capital benefit springing up on switch of fairness stocks or devices of fairness oriented mutual fund (*) or a unit of a enterprise accept as true with aside from a unit allotted by way of the accept as true with in alternate of stocks of a special purpose automobile as stated in section forty seven(xvii), may be exempt from tax,
if the following conditions are satisfied:
The asset transferred need to be fairness stocks of a company or devices of an equity oriented mutual fund or a unit of a business believe aside from a unit allotted by way of the accept as true with in trade of shares of a unique reason vehicle as referred to in phase forty seven.
The transaction must be liable to securities transaction tax (STT) on the time of switch.
Such asset need to be a long-term capital asset.
Transfer need to take location on or after October 1, 2004.
Note: Any long-term capital gain arising from a transaction undertaken in diagnosed stock exchange placed in an International Financial Service Center will be exempt from tax. Such exemption is to be had if such transaction is undertaken in foreign present day and even if no STT is paid on such transaction.
Long time period capital advantage exemption on transfer of fairness share obtained or on after 01-10-2004 shall be available most effective if the purchase of proportion is chargeable to STT. However, the exemption shall retain in true cases wherein the STT couldn't have been paid like acquisition of percentage in IPO, FPO, bonus or proper trouble by a listed business enterprise, acquisition via non-resident according with FDI policy, etc. [Inserted by Finance Act 2017]
(*) Equity orientated mutual fund approach a mutual fund unique beneath segment 10(23D) and 65% of its investible budget, out of total proceeds of such fund are invested in equity shares of domestic groups.
Taxation Interview Questions
Question thirteen. At What Rates Capital Gains Are Charged To Tax?
For provisions in this regard take a look at tutorials on “Tax on Short-Term Capital Gains and Tax on Long-Term Capital Gains”.
Question 14. Are There Any Bonds In Which I Can Invest My Capital Gains To Claim Tax Relief?
Yes, as per segment 54EC you may claim tax alleviation with the aid of investing the long-term capital gains inside the bonds issued through the National Highway Authority of India or by means of the Rural Electrification Corporation Limited. The funding must be made inside a length of 6 months from the date of transfer of capital asset and bonds need to not be redeemed earlier than 3 years. This gain can not be availed in admire of short-term capital benefit. Maximum quantity which qualifies for investment might be Rs. 50,00,000. Thus, deduction underneath segment 54EC cannot be claimed for more than Rs. 50,00,000.
Question 15. What Is The Meaning Of Stamp Duty Value And What Is Its Relevance While Computing Capital Gain In Case Of Transfer Of Capital Asset, Being Land Or Building Or Both?
Stamp duty fee manner the value followed or assessed or assessable by using any authority of a State Government for the cause of charge of stamp responsibility.
As per segment 50C, while computing capital advantage bobbing up on switch of land or building or both, if the actual sale attention of such land and/or constructing is much less than the stamp obligation cost, then the stamp responsibility price may be taken as full fee of consideration, i.E., as deemed selling fee and capital gain may be computed accordingly.
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