Capital Gains

Section 45(1) of the Income Tax Act, 1961 is the foundational provision that defines how and when capital gains are taxed. It establishes that any profits arising from the transfer of a capital asset in a financial year shall be chargeable to tax under the head “Capital Gains”. 1. Key Principles Under Section 45(1) A.  Chargeability Conditions For capital gains to be taxable: There must be […]

1. Legal Definition (Section 2(14)) A capital asset means: Property of any kind held by an assessee (whether connected with business/profession or not) Includes: Real estate (land, buildings) Securities (shares, bonds, mutual funds) Jewelry, art, antiques Vehicles (if not stock-in-trade) Intangible assets (goodwill, patents, copyrights) Exclusions (Not treated as capital assets): Stock-in-trade (business inventory) Personal effects (clothing,

Capital assets are classified into different categories under the Income Tax Act, 1961, each with unique tax implications. Below is a structured breakdown: 1. Classification Based on Nature A. Tangible Capital Assets 1.  Immovable Property Land & buildings (residential/commercial) Tax Treatment: STCG (≤24 months):Slab rate LTCG (>24 months):20% with indexation 2.  Movable Assets Jewelry, gold, precious

1. Definition of ‘Transfer’ [Section 2(47)] A transfer includes: Sale, exchange, or relinquishment Compulsory acquisition under law Conversion into stock-in-trade Maturity/redeem of insurance policies Extinguishment of rights Possession given in part performance of contract Any transaction allowing enjoyment of immovable property Exceptions (Not treated as transfer): ✔ Gifts to specified relatives ✔ Will/inheritance (except subsequent sale) ✔

Under the Income Tax Act, 1961, certain transactions involving capital assets are excluded from the definition of “transfer”, meaning no capital gains tax applies. These exemptions are covered under Sections 46 and 47. 1. Key Exemptions Under Section 47 The following transactions do not qualify as “transfer” and thus do not attract capital gains tax: A. Transactions Related to Companies SECTION TRANSACTION CONDITION

A format to compute the capital gain is given below: Computation of Short-term Capital Gains Full value of consideration —   Less: (a) Expenditure incurred wholly and exclusively in connection with such a transfer, — (b) Cost of acquisition — (c) Cost of improvement — — Gross short-term capital gains — Less: Exemption, if available,

The “Full Value of Consideration” (FVC) is the total amount received or receivable when a capital asset is transferred. It is crucial for calculating capital gains tax under Section 48 of the Income Tax Act, 1961. 1. What is Included in Full Value of Consideration? COMPONENT DESCRIPTION EXAMPLE Sale Price Actual amount received from the buyer ₹50L for a property Advance Received Earnest

Under Section 48 of the Income Tax Act, 1961, certain expenses incurred during the transfer of a capital asset are deductible when computing capital gains. These expenses reduce the taxable capital gain. 1. Allowable Deductions (Section 48) EXPENSE TYPE DESCRIPTION EXAMPLES Brokerage/Commission Fees paid to brokers, agents, or intermediaries Real estate agent fees (1-2% of sale value) Legal Fees

Section 49 specifies how the cost of acquisition of a capital asset is determined when it is acquired through certain non-purchase modes, such as inheritance, gift, will, distribution on liquidation, or transfer under a revocable/irrevocable trust. Key Provisions of Section 49 1. Assets Acquired Without Direct Purchase [Section 49(1)] When a capital asset is acquired in any of

Section 55(2) of the Income Tax Act, 1961, provides crucial rules for determining the cost of acquisition of capital assets when computing capital gains. This provision is essential for calculating taxable gains accurately, especially in scenarios involving gifts, inheritance, or specific types of assets like goodwill, shares, or depreciable property. Below is a detailed breakdown of the