Series of FAQs on Capital Gains

Q. What are the provisions relating to computation of capital gain in case of transfer of asset by way of gift, will, etc.?

Capital gain arises if a person transfers a capital asset.?section 47 ?excludes various transactions from the definition of 'transfer'. Thus, transactions covered under?section 47 ?are not deemed as 'transfer' and, hence, these transactions will not give rise to any capital gain.?Transfer of capital asset by way of gift, will, etc., are few major transactions covered in?section 47 . Thus, if a person gifts his capital asset to any other person, then no capital gain will arise in the hands of the person making the gift (*).

If the person receiving the capital asset by way of gift, will, etc. subsequently transfers such asset, capital gain will arise in his hands. Special provisions are designed to compute capital gains in the hands of the person receiving the asset by way of gift, will, etc. In such a case, the cost of acquisition of the capital asset will be the cost of acquisition to the previous owner and the period of holding of the capital asset will be computed from the date of acquisition of the capital asset by the previous owner.

(*) As regards the taxability of gift in the hands of person receiving the gift, separate provisions are designed under?section 56 .

Q. 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 arising on transfer of capital asset is charged to tax under the head “Capital Gains”. Income-tax Law has prescribed the method of computing capital gain arising on account of sale of capital assets. Thus, to check the taxability in your case, you have to compute capital gain by following the rules laid down in this regard, and if the result is gain, then the same will be liable to tax.

?Q. Are any capital gains exempt under section 10?

Section 10 ?provides list of incomes which are exempt from tax amongst those the major exemptions relating to capital gain are as follows:

Section 10(33) : Long-term or short-term capital gain arising on transfer of units of Unit Scheme, 1964 (US 64) referred to in Schedule I to the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002) and where the transfer of such asset takes place on or after 1-4-2002.

Section 10(37) ?: An individual or Hindu Undivided Family (HUF) can claim exemption in respect of capital gain arising from the transfer of agricultural land situated in an urban area by way of compulsory acquisition under any law or a consideration for such transfer is determined or approved by the Central Government or the Reserve Bank of India. This exemption is available if the land was used by the taxpayer (or by his parents in the case of an individual) for agricultural purposes for a period of 2 years immediately preceding the date of its transfer. Such income has arisen from the compensation or consideration for such transfer received by an assessee on or after the 1st?day of April, 2004.

Section 10(37A) : An individual or Hindu Undivided Family (HUF) can claim exemption in respect of capital gain arising from the transfer of land or building or both under Land Pooling Scheme 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. This exemption is available if an individual or HUF was owner of such land or building as on 02-06-2014.?

Section 10(38) : Long-term capital gain arising from the transfer of equity shares or units of an equity oriented mutual fund or units of a business trust other than a unit allotted by the trust in exchange of shares of a special purpose vehicle as referred to in?section 47(xvii) , will be exempt from tax, if the following conditions are satisfied (not applicable from A.Y 2019-20):

• The asset transferred should be equity shares of a company or units of an equity oriented mutual fund or units of a business trust other than a units allotted by the trust in exchange of shares of a special purpose vehicle as referred to in?section 47(xvii) .
• ?Securities transaction tax (STT) is paid at the time of transfer.
• Such asset should be a long-term capital asset.
• Transfer should take place on or after the date on which Chapter VII of the Finance (No. 2) Act, 2004 comes into force.

Note: Any long-term capital gain arising from a transaction undertaken in recognized stock exchange located in an International Financial Services Center shall be exempt from tax and such exemption is available if consideration for such transaction is paid or payable in foreign currency, even if no STT is paid on such transaction.?

Long term capital gain arising on the transfer of equity shares of a company is exempt from tax if the transaction of acquisition, other than the acquisition notified by the Central Government in this behalf, of such equity share is entered into on or after the 1st?day of October, 2004 and such transaction is not chargeable to securities transaction tax under Chapter VII of the Finance (No. 2) Act, 2004 (23 of 2004) [Inserted by Finance Act 2017]

From A.Y 2019-20, Long term capital gain arising from transfer of equity shares/units of an equity oriented mutual fund/ units of a business trust on or after April 1, 2018 will not be exempt under?section 10(38) ?as this section has been withdrawn by Finance Act, 2018. Tax on such long term capital gain will be computed in accordance with the provisions of?Section 112A .

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Q. At what rates capital gains are charged to tax?

For provisions in this regard check tutorials on “Tax on Short-Term Capital Gains and Tax on Long-Term Capital Gains”.