Capital Gains

PARVESH AGHI
HEADS OF INCOME
PROFITS AND
INCOME FROM
GAINS FROM
SALARIES HOUSE
BUSINESS AND
PROPERTY
PROFOSSION

INCOME FROM
CAPITAL
OTHER
GAINS
SOURCES
 Proforma for computation of income under
the head “Short term Capital Gains”
Particulars Amount Amount
Full value of consideration received or accruing as a result of transfer xxxx

Less: Expenditure incurred wholly and exclusively in connection with such transfer (for e.g.,
brokerage on sale) xxxxx

Net Sale Consideration xxxxx

Less: Cost of acquisition (COA) xxxxx
Short-term capital gain (STCG) Xxxxx
Less: Exemption under sections 54B/54D xxxx
Short-term capital gain chargeable to tax xxxx
 Proforma for computation of income under
the head “Long term Capital Gains”
Particulars Amount Amount
Full value of consideration received or accruing as a result of transfer xxxx

Less: Expenditure incurred wholly and exclusively in connection with such transfer (for e.g.,
brokerage on sale) xxxxx xxxxx

Net Sale Consideration

Less: Indexed cost of acquisition xxxxx
Less Indexed cost of improvement xxxxx
Long -term capital gain (LTCG) Xxxxx
Less: Exemption under sections 54/ 54B/54D/54EC/54F xxxx
Long-term capital gain chargeable to tax xxxx
The table below shows you how the capital assets are
classified as short-term or long-term based on the
holding period.
Capital Asset Holding period of the capital asset
Short Term Long Term
Immovable Property such as Less than two years Two years or more
House Property

Movable Property such as Gold Less than three years Three years or more
Jewelry

Listed Shares Less than one year One year or more

Equity-oriented mutual funds Less than one year One year or more

Debt-oriented mutual funds Less than three years Three years or more
Rate of Long-term tax on sale of
Immovable property

As per Section 112 of the Income Tax

Act, LTCG on the sale of immovable
property in India is taxable at 20% with
an indexation benefit.
CAPITAL ASSET

Property of any kind held by an

assessee, whether or not
connected with his business or
profession
However, it does not include
Assets held for
Personal use
Rural Agricultural
Stock-in trade ( excluding Jewelry, Land
Drawing , Painting
etc.)

Specified Gold Bonds

SHORT- TERM AND LONG-TERM
CAPITAL ASSETS

Short-term capital asset A capital asset held by an

means a capital asset held assessee for more than 36
by an assessee for not months immediately
more than 36 months preceding the date of its
immediately preceding the transfer is a long-term
date of its transfer. capital asset.
Exceptions:
A security listed in a Unit of an equity-oriented
recognized stock exchange fund Units of the Unit Trust of
India
(Shares) (Mutual Funds)

will however, be considered

as a long-term capital asset if
the same is held for more
Zero-Coupon Bond
than 12 months immediately
preceding the date of its
transfer.
Exceptions:

Further, an immovable property,

Thus, the period of holding of an
being land or building or both
immovable property, being land or
would be treated as a short-term
building or both, for being treated
capital asset if it was held by an
as a long-term capital asset would
assessee for not more than 24
be “more than 24 months” instead
months immediately preceding the
of “more than 36 months”.
date of its transfer.
Equity Oriented Fund

A fund set up under a scheme of a mutual

fund and a minimum of 65% of the total
proceeds of such fund is invested in the
equity shares of domestic companies listed
on a recognised stock exchange.
SCOPE AND YEAR OF CHARGEABILITY
[SECTION 45]

Any profits or gains arising from the transfer

of a capital asset effected in the previous
year shall be chargeable to Income-tax under
this head in the previous year in which the
transfer took place.
 MODE OF COMPUTATION OF CAPITAL GAINS
[SECTION 48]

The income chargeable under the

head ‘capital gains’ shall be Expenditure incurred wholly and
computed by deducting the exclusively in connection with The cost of acquisition and cost of
following items from the full value such transfer. any improvement thereto.
of the consideration received or
accruing as a result of the transfer (Brokerage etc.)
of the capital asset
Cost Inflation Index

Under section 48, for computation of long-term capital

gains, the cost of acquisition and cost of improvement will
be increased by applying the cost inflation index (CII).

Once the cost inflation index is applied to the cost of

acquisition and cost of improvement, it becomes indexed
cost of acquisition and indexed cost of improvement.
The cost inflation indices for the financial years so far have been notified as under
Financial Year Cost Inflation Index
2001-02 100
2002-03 105
2003-04 109
2004-05 113
2005-06 117
2006-07 122
2007-08 129
2008-09 137
2009-10 148
2010-11 167
2011-12 184
2012-13 200
2013-14 220
2014-15 240
2015-16 254
2016-17 264
2017-18 272
2018-19 280
2019-20 289
2020-21 301
2021-22 317
2022-23 331

2023-24 (Provisional )= 348

Cost of inflation index
For any capital asset purchased
before the base year of the cost
The index of all other years is
The base year is the first year of inflation index, taxpayers can
compared to the base year to see
the cost inflation index and has take the purchase price higher of
the increase in inflation
an index value of 100. the “actual cost or Fair Market
percentage.
Value (FMV) as on the 1st day of
the base year.

Indexation benefit is applied to FMV is based on the valuation

the purchase price so calculated. report of a registered valuer.
Points to Ponder

In case of property received

in the will, CII has to be
Ignore the improvement cost
taken form the year in which
incurred before 1st April
the property is received. The
2001.
actual purchase year of the
property has to be ignored.
Meaning of Fair Market value

Where the capital asset become However, in case of capital asset,

the property of the assessee being land or building or both, the
before 1- 4-2001, cost of fair market value of such asset on
acquisition means the cost of 1-4-2001 shall not exceed the stamp
acquisition of the asset to the duty value, wherever available, of
assessee or the fair market value of such asset as on
the asset on 1-4-2001, at the option
of the assessee. 1-4-2001.
Cost of Acquisition of certain
assets: At a Glance

Where capital assets became the Cost to the previous owner or FMV as
property of the assessee by way of on 1.4.2001, at the option of the
distribution of assets on total or partial assessee.
partition of HUF, under a gift or will, However, in case of capital asset being
by succession, inheritance, distribution land or building, FMV as on 1.4.2001
of assets on liquidation of a company, shall not exceed stamp duty value as on
etc. and the capital asset became the 1.4.2001.
property of the previous owner before
1.4.2001
Cost of Acquisition of certain
assets: At a Glance

Where such capital asset became Cost of the asset to the assessee,
the property of the assessee or FMV as on 1.4.2001, at the
before 1.4.2001 option of the assessee.
However, in case of capital asset
being land or building, FMV as
on 1.4.2001 shall not exceed
stamp duty value as on 1.4.2001.
Case 1

Rahul purchased a flat in FY

2001-02 for Rs. 10,00,000. He In this case, CII for the year 2001-02 and
sells the flat in FY 2017-18. What 2017-18
will be the indexed cost of is 100 and 272 respectively.
acquisition? Hence, the indexed cost of acquisition =
10,00,000 x 272/100 = Rs. 27,20,000
Case2
Shivani purchased a capital asset in FY
1995-1996 for Rs. 2,00,000.
FMV of the capital asset on 1st April
2001 was Rs. 3,20,000.
She sells the asset in FY 2016-17. What
is the indexed cost of acquisition?
Case2

Here, the asset is purchased before the base year.

Hence the cost of acquisition
= Higher of the actual cost or FMV on 1st April 2001.
i.e. cost of acquisition = Rs. 3,20,000.
CII for the year 2001-02 and 2016-17 is 100 and 264 respectively.
Indexed cost of acquisition = 3,20,000 x 264/100 = Rs. 8,44,800
Case 3
FMV of the capital asset
Shivani purchased a on 1st April 2001 was Rs. Stamp duty value was Rs
capital asset in FY 1995- 3,20,000. 3,05,000
1996 for Rs. 2,00,000.

She sells the asset in FY

2016-17. What is the
indexed cost of
acquisition?
Case 3

Here, the asset is purchased before the base year.

Hence the cost of acquisition
= Higher of the actual cost or FMV on 1st April 2001, but shall not
exceed stamp duty value
i.e. cost of acquisition = Rs. 3,05,000.
CII for the year 2001-02 and 2016-17 is 100 and 264 respectively.
Indexed cost of acquisition = 3,05,000 x 264/100 = Rs. 8,05,200
Example

Mrs. Shivangi purchases a She sells her house for Rs.

house on June 6th, 2018, 20,00,000 on March 9th,
for Rs. 7,00,000. She 2023
spends additional Rs.
1,00,000 on its furnishing Transfer expenses Rs
in June 2020. 20,000
Answer
Particulars Amount

Sale Consideration 20,00,000

Less Transfer Expenses

20,000

Less Indexed Cost of Acquisition

8,27,500

Less Indexed Cost of Improvement 1,09,967

Long Term Capital Gain

10,42,533
ASCERTAINMENT OF COST IN SPECIFIED
CIRCUMSTANCES [SECTION 49]

A person becomes the owner of a capital asset not only

by purchase but also by several other methods.

Section 49 gives guidelines as to how to compute the

cost under different circumstances.
Cost to previous owner deemed
as cost of acquisition of asset
In the following cases, the cost of acquisition of the
asset shall be deemed to be cost for which the previous
owner of the property acquired it.

To this cost, the cost of improvement to the asset

incurred by the previous owner or the assessee must be
added
Cost to previous owner deemed
as cost of acquisition of asset

Where the capital

asset became the
property of the
assessee:
Cost to previous owner deemed
as cost of acquisition of asset

On any
distribution of by succession, in
under a gift or will
assets on partition heritance
of a HUF
Example
In the P.Y. 2006-07, a
In P.Y. 2007-08, he had
X & sons, HUF, purchased partition took place when
incurred expenses of Rs
a land for Rs 1,20,000 in Mr. A, a coparcener, is
2,35,000 towards fencing
the P.Y. 2002-03. allotted this plot valued at
of the plot.
Rs 1,50,000.

Mr. A sells this plot of

land for Rs 15,00,000 in You are required to
P.Y. 2021-22 after compute the capital gain
incurring expenses to the for the A.Y.2022-23.
extent of Rs 20,000.
Computation of taxable capital gains for
A.Y.2022-23
Particulars Rs Rs
Sale consideration 15,00,000
Less: Expenses incurred for transfer 20,000
14,80,000
Less: (i) Indexed cost of acquisition (Rs
1,20,000 3,11,803
1,20,000 ´317/122)

(ii) Indexed cost of improvement (Rs

2,35,000 5,77,481 8,89,284
2,35,000 X317/129)

Long term capital gains 5,90,716

Financial year Cost Inflation Index

2002-03 105

2006-07 122

2007-08 129

2021-22 317
NOTE

As per the view expressed by Bombay High Court in CIT v. Manjula

J. Shah 16 Taxman 42, in case the cost of acquisition of the capital
asset in the hands of the assessee is taken to be cost of such asset in
the hands of the previous owner, the indexation benefit would be
available from the year in which the capital asset is acquired by the
previous owner. If this view is considered, the indexed cost of
acquisition would have to be calculated by considering the Cost
Inflation Index of F.Y.2002-03
Example
In the P.Y. 2006-07, a
In P.Y. 2007-08, he had
X & sons, HUF, purchased partition took place when
incurred expenses of Rs
a land for Rs 1,20,000 in Mr. A, a coparcener, is
2,35,000 towards fencing
the P.Y. 2002-03. allotted this plot valued at
of the plot.
Rs 1,50,000.

Mr. A sells this plot of

land for Rs 15,00,000 in You are required to
P.Y. 2022-23 after compute the capital gain
incurring expenses to the for the A.Y.2023-24.
extent of Rs 20,000.
Computation of taxable capital gains for
A.Y.2023-24
Particulars Rs Rs
Sale consideration 15,00,000
Less: Expenses incurred for transfer 20,000
14,80,000
Less: (i) Indexed cost of acquisition (Rs
1,20,000 3,25,573
1,20,000 ´331/122)

(ii) Indexed cost of improvement (Rs

2,35,000 6,02,984 9,28,557
2,35,000 X331/129)

Long term capital gains 5,51,442 .

Financial year Cost Inflation Index

2002-03 105

2006-07 122

2007-08 129

2022-23 331
Example

The fair market value of the

In May 2008, Mr. Kay Subsequently, in January
Mr. Kay purchases a house house property on April 1,
constructed the first floor by 2009, Mr. Kay gifted the
property on April 10, 1992, 2001, was Rs 2,70,000 and
incurring a cost of Rs house to his brother Mr.
for Rs 65,000. Stamp duty value was Rs
2,35,000. Dee.
2,20,000.

CII for
On February 10, 2022, Mr. F.Y.2001-02: 100 Compute the capital gains in
Dee sold the house for Rs 2004-05: 113 the hands of Mr. Dee for
12,00,000. 2008-09: 137 A.Y.2022-23.
2021-22: 317
Computation of taxable capital
gains of Mr. Dee for A.Y.2022-23

Particulars Rs Rs Rs
Sale consideration 12,00,000
Less: Indexed cost of
acquisition 2,20,000 5,09,051

Indexed cost of
10,52,810
improvement 2,35,000 5,43,759
Long-term capital gain 1,47,190
Indexed cost of acquisition = (Rs 2,20,000 × 317/137) = Rs 5,09,051 Indexed
cost of improvement = (Rs 2,35,000 × 317/137) = Rs 5,43,759
Note
For the purpose of capital gains, holding period is considered from the date on which
the house was purchased by Mr. Kay, till the date of sale. However, indexation of cost
of acquisition is considered from the date on which the house was gifted by Mr. Kay
to Mr. Dee, till the date of sale. i.e. from January 2009 (P.Y. 2008-09) to February,
2022 (P.Y. 2021-22).

Since house property was acquired before 1st April, 2001, higher of fair market value
on 1.4.2001 or actual cost of acquisition can be considered as cost of acquisition.
However, fair market value cannot exceed stamp duty value on 1.4.2001.
TRANSACTIONS NOT REGARDED AS TRANSFER [SECTION 47]

Section 47 specifies
Any distribution of
certain transactions which
capital assets on the total Any transfer of a capital
will not be regarded as
or partial partition of a asset under a gift
transfer for the purpose of
HUF
capital gains tax
COST OF ACQUISITION

It includes the purchase price

expenses incurred up to acquiring
Cost of Acquisition (COA) means date in the form of registration,
any capital expense at the time of storage etc. expenses incurred on
acquiring capital asset completing transfer.
Cost of Acquisition with Reference to Certain Modes of
Acquisition

on any distribution of
Where the capital asset
assets on the total or
became the property of the Under a gift or will
partial partition of a Hindu
assessee
undivided family;

In all above cases, the cost

of acquisition of the asset
By succession,
shall be the cost for which
inheritance
the previous owner of the
property acquired it
Cost of Acquisition with Reference to Certain Modes of
Acquisition

as increased by the cost of any

improvement of the asset incurred or
borne by the previous owner or the
assessee, as the case may be, till the
date of acquisition of the asset by
the assessee.
Cost of improvement

Cost of improvement is
the capital expenditure It also includes any
incurred by an assessee for expenditure incurred in
making any addition or protecting or curing the
improvement in the capital title.
asset.
Cost of improvement
In other words, cost of
improvement includes all
those expenditures, which
are incurred to increase
the value of the capital
asset.
COST OF IMPROVEMENT

Where the capital asset became the property of the

previous owner or the assessee before 1-4-2001, cost
of improvement means all expenditure of a capital
nature incurred in making any addition or alteration
to the capital asset on or after the said date by the
previous owner or the assessee.
COST OF IMPROVEMENT

In any other case, cost of improvement means all expenditure of a capital

nature incurred in making any additions or alterations to the capital assets by
the assessee after it became his property.

However, there are cases where the capital asset might become the property of
the assessee by any of the modes specified in section 49(1). In that case, cost of
improvement means capital expenditure in making any addition or alterations
to the capital assets incurred by the previous owner.
Taxability where Stamp Duty Value
higher than Sale Consideration

when an assessee receives or claims

If the sale consideration declared by
to receive a sale consideration, on
the assessee (seller) is less than the
sale of land or building or both, and
stamp duty value, then the stamp
such sale consideration is less than
duty value shall become deemed sale
the value adopted (Stamp Duty Value
consideration for the purpose of
/ Circle Rate / Ready Reckoner Rate)
calculating capital gain tax.
by the Stamp Valuation Authority.
Taxability where Stamp Duty Value
higher than Sale Consideration
If the stamp duty value does not
exceed 110% of the sale consideration,
then such sale consideration shall be
the sale value for computing capital
gain tax for the sale transactions w.e.f
1st April 2021.
Example
Mr. Singh's father acquired a
Following are the details The assessee furnished residential house in April 2006
provided by Mr. Singh, the following information for Rs 1,25,000 and thereafter
assessee for the financial year regarding sale of property at gifted this property to the
ended 31st March 2022 Chennai: assessee, Mr. Singh on 1st
March 2007.

Stamp duty charges paid by the

The property, so gifted, was
purchaser at the time of
sold by Mr. Singh on 10th
registration @ 13% (as per
June 2021. The consideration
statutory guidelines) was Rs
received was Rs 25,00,000.
3,90,000.
Example

Compute Mr. Singh’s

Cost inflation index:
Capital gains for
F.Y. 2006-07: 122 F.Y.
assessment year
2021-22: 317
2022-23.
Computation of Capital gain of Mr.
Singh for A.Y.2022-23
Particulars Rs Rs
Capital Gains
Full value of consideration 30,00,000
As per section 50C, the full value of consideration would be the
higher of -
Actual Consideration 25,00,000
Stamp Duty Value [Rs 3,90,000/13%] 30,00,000
Since stamp duty value > 110% of actual consideration
Less: Indexed cost of acquisition [Rs 1,25,000 × 317/122] 3,24,795
Long term capital gain 26,75,205
Note

As per section 49(1), cost of acquisition

of the residential house gifted by Mr.
Singh’s father to Mr. Singh would be the
cost for which Mr. Singh’s father
acquired the asset
Example
Mr. Singh's father acquired a
Following are the details The assessee furnished residential house in April 2006
provided by Mr. Singh, the following information for Rs 1,25,000 and thereafter
assessee for the financial year regarding sale of property at gifted this property to the
ended 31st March 2023 Chennai: assessee, Mr. Singh on 1st
March 2007.

Stamp duty charges paid by the

The property, so gifted, was
purchaser at the time of
sold by Mr. Singh on 10th
registration @ 13% (as per
June 2022. The consideration
statutory guidelines) was Rs
received was Rs 25,00,000.
3,90,000.
Example

Compute Mr. Singh’s

Cost inflation index:
Capital gains for
F.Y. 2006-07: 122 F.Y.
assessment year
2022-23: 331
2023-24.
Computation of Capital gain of Mr.
Singh for A.Y.2022-23
Particulars Rs Rs
Capital Gains
Full value of consideration 30,00,000
As per section 50C, the full value of consideration would be the
higher of -
Actual Consideration 25,00,000
Stamp Duty Value [Rs 3,90,000/13%] 30,00,000
Since stamp duty value > 110% of actual consideration
Less: Indexed cost of acquisition [Rs 1,25,000 × 331/122] 3,39,139
Long term capital gain 26,60,860
Note

As per section 49(1), cost of acquisition

of the residential house gifted by Mr.
Singh’s father to Mr. Singh would be the
cost for which Mr. Singh’s father
acquired the asset
EXEMPTION OF
CAPITAL GAINS
Capital Gains on sale of
residential house [Section 54]

Eligible assessees Individual & HUF

Conditions to be There should be a transfer of residential house (buildings

fulfilled or lands appurtenant thereto)

It must be a long-term capital asset

Income from such house should be chargeable under the

head “Income from house property
Where the amount of Where the amount of capital gain exceeds Rs 2 crore, one
capital gains exceeds Rs 2 residential house in India should be –purchased within 1 year
crores before or 2 years after the date of transfer; (or)
constructed within a period of 3 years after the date of transfer.

Where the amount of Where the amount of capital gains does not exceed Rs 2 crore,
capital gains does not
exceed Rs 2 crores the assessee i.e., individual or HUF, may at his option, purchase
two residential houses in India within 1 year before or 2 years
after the date of transfer (or) construct two residential houses
in India within a period of 3 years after the date of transfer.
Quantum of • If cost of new residential house or
Exemption houses, ≥ long term capital gains,
entire long term capital gains is
exempt.

• If cost of new residential house or

houses, < long term capital gains, long
term capital gains to the extent of cost
of new residential house is exempt.
Example
and decided to sell the same on
3rd May 2005 to Ms. Pari and an
advance of Rs 25,000 was taken
Hari has acquired a residential house property
from her. The balance money
in Delhi on 15th April 2002 for Rs 9,00,000
was not paid by Ms. Pari and
Hari has forfeited the entire
advance sum.

On 3rd June 2021, he has sold On 4th April 2021, he had purchased a residential house in Delhi for Rs
this house to Mr. Suri for Rs 8,00,000, where he was staying with his family on rent for the last 5 years
40,00,000. and paid the full amount as per the purchase agreement.
Example
Hari has purchased another old house in
Chennai on 14th October 2021 from Mr. X, an
Indian resident, by paying Rs 5,00,000 and
the purchase was registered with the
appropriate authority.

Determine the taxable capital Cost inflation Index –

gain arising from above
2002-03: 105; 2005-06: 117;
transactions in the hands of Hari
for Assessment Year 2022-23. 2021-22: 317
Computation of indexed cost of
acquisition
Particulars `
Cost of acquisition 9,00,000
Less: Advance taken and forfeited 25,000
Cost for the purpose of Indexation 8,75,000
Indexed cost of acquisition (Rs 8,75,000 x
26,41,667
317/105)
Financial Year Cost Inflation Index
2002-03 105
2021-22 317
 Computation of taxable capital gain
of Mr. Hari for the A.Y.2022-23
Particulars Rs
Sale proceeds 40,00,000
Less: Indexed cost of acquisition 26,41,667
Long Term Capital Gain 13,58,333
Less: Exemption under section 54 in respect of investment in house at
Delhi 8,00,000

Exemption under section 54 in respect of investment in house at Chennai

5,00,000

Taxable long-term capital gain 58,333

Note
Advance received and forfeited on or after 01.04.2014 is taxable
under section 56(2)(ix). Such amount would not be reduced to
compute indexed cost of acquisition while determining capital gains
on sale of such property.

However, in this case, since the advance was received and forfeited in
the year 2005, such advance has to be reduced for calculating
indexed cost of acquisition for the purpose of arriving at capital
gains.
Note
In order to avail exemption of capital gains under section 54,
residential house should be purchased within 1 year before or 2 years
after the date of transfer or constructed within a period of 3 years after
the date of transfer.

In this case, Hari has purchased the residential house in Delhi within
one year before the date of transfer and paid the full amount as per the
purchase agreement.
Note

As per section 54, since the amount of capital gain does not exceed
Rs 2 crore, Mr. Hari can claim exemption thereunder in respect of
investment made in two residential houses situated in India.

However, if Mr. Hari exercises the option to claim exemption in

respect of two residential houses in Delhi and Chennai in P.Y. 2021-
22, he shall not be subsequently entitled to exercise the option for the
same or any other assessment year.
Capital Gains on sale of residential
house [Section 54]

Under Section 54 the IncomeTax

Act, an individual or HUF selling a
residential property can avail tax
exemptions from Capital Gains if
the capital gains are invested in
purchase or construction of
residential property.
Conditions for availing exemption

The asset sold is a

Residential House. Income
Asset must be classified as
from such a house should
a long-term capital asset.
be chargeable as Income
from House Property
Conditions for availing exemption

In case the seller is

The seller should purchase a constructing a house, the seller
residential house either 1 year has an extended time, ie. the
before the date of sale/transfer seller will have to construct
or 2 years after the date of the residential house within 3
sale/transfer. years from the date of
sale/transfer.
Conditions for availing exemption

The new residential house From 1st April 2023 the

should be in India. The capital gains tax exemption
seller cannot buy or under Section 54 to 54F will
purchase a residential house be restricted to Rs.10 crore.
abroad and claim the Earlier, there was no
exemption. threshold.
Conditions for availing exemption

The above conditions are However, the exemption is subject to

cumulative. Hence, even if one With effect from Assessment Year the capital gain not exceeding Rs 2
condition is not fulfilled, then the 2020-21 corresponding to FY 2019- crore. Also, the exemption is
seller cannot avail the benefit of the 20, a capital gain exemption is available only once in the lifetime of
exemption under Section 54. available for purchase of two the seller.
residential houses in India.
What is the amount of Exemption available
under Section 54 of the Income-tax act?

The investment made in

The amount of exemption
purchase or construction
under Section 54 of the Long Term Capital gains
of a new residential house
Income Tax Act for the arising on transfer of
property. Hence, the
long-term capital gains residential house, Or
balance capital gains (If
will be the lower of:
any) will be taxable.
Capital Gain Account Scheme
If such investment is not made before
the date of filing of return of income,
then the capital gain has to be
deposited under the CGAS. Amount
utilized by the assessee for purchase or
construction of new asset and the
amount so deposited shall be deemed
to be the cost of new asset.
Examples
Example : If long-term
Example : If the long-term capital gains is Rs 2.05 crore
capital gains is Rs 2.05 crore and cost of new house is Rs
and the cost of the new house 1.55 crore, then, long-term
is Rs 3 crore, then, the entire capital gains is exempt only
long-term capital gains of Rs upto Rs 1.55 crore. Balance
2.05 crore is exempt. Rs 50 lakhs is taxable @
20%.
Example

Mr. Cee purchased a residential house

on July 20, 2020, for Rs 10,00,000 and
made some additions to the house
incurring Rs 2,00,000 in August 2020. What is the amount of capital gains
He sold the house property in April 2022 taxable in the hands of Mr. Cee for the
for Rs 20,00,000. Out of the sale A.Y.2023-24?
proceeds, he spent Rs 5,00,000 to
purchase another house property in
September 2022.
Answer
The house is sold before 24 months from the date of purchase. Hence, the house is a
short-term capital asset and no benefit of indexation would be available.

Particulars `

Sale consideration 20,00,000

Less: Cost of acquisition 10,00,000

Cost of improvement 2,00,000

Short-term capital gains 8,00,000

Note

The exemption of capital gains under section 54

is available only in case of long-term capital
asset. As the house is short-term capital asset, Mr.
Cee cannot claim exemption under section 54.
Thus, the amount of taxable short-term capital
gains is Rs 8,00,000.
Capital Gains not chargeable on investment in
certain bonds [Section 54EC]

As per provisions of Income Tax Act, 1961, any long term capital gains arising from
transfer of any capital asset would be exempt from tax under section 54EC of the Act if

The entire capital gain realized is invested within 6 months of the date of transfer
in eligible bonds Such investment is held for 5 years.

The investment in the long term specified assets by an assessee during the Financial
Year cannot exceed INR 50 Lakhs
Example

Long term capital gain of Rs 75

lakh arising from transfer of
Examine with reasons whether the
building on 1.5.2022 will be exempt
given statement is true or false
from tax if such capital gain is
having regard to the provisions of
invested in the bonds redeemable
the Income-tax Act, 1961.
after five years, issued by NHAI
under section 54EC.
Answer

False: The exemption under section 54EC

has been restricted, by limiting the maximum
investment in long term specified assets (i.e. Therefore, in this case, the exemption under
bonds of NHAI or RECL or any other bond section 54EC can be availed only to the
notified by Central Government in this extent of Rs 50 lakh, provided the
behalf, redeemable after 5 years) to Rs 50 investment is made before 1.11.2022 (i.e.,
lakh, whether such investment is made within six months from the date of transfer).
during the relevant previous year or the
subsequent previous year, or both.
 Capital gains in cases of investment in residential
house [Section 54F]

Eligible assessees: Individuals/ HUF

Conditions to be fulfilled There must be transfer of a long-term capital asset, not

being a residential house.
Transfer of plot of land is also eligible for exemption
The assessee should Purchase one residential house situated in India within
a period of 1 year before or 2 years after the date of
transfer; or

Construct one residential house in India within 3 years

from the date of transfer.
 Capital gains in cases of investment
in residential house [Section 54F]
The assessee should not own more than one residential house on the
date of transfer.

The assessee should not –

purchase any other residential house within a period of 2 years
or
construct any other residential house within a period of 3 years
from the date of transfer of the original asset.
 Capital gains in cases of investment
in residential house [Section 54F]

If cost of new residential house ≥ Net sale consideration of original asset, entire
capital gains is exempt
If cost of new residential house < Net sale consideration of original asset, only
proportionate capital gains is exempt i.e.
LTCG × Amount invested in new residential house
Net sale consideration
 Capital gains in cases of investment
in residential house [Section 54F]
Consequences where the assessee purchases any other The capital gains exempt earlier under section 54F shall be
residential house within a period of 2 years or constructs deemed to be taxable as long-term capital gains in the
any other residential house within a period of 3 years from previous year in which such residential house is purchased
the date of transfer of original asset: or constructed.

Consequences if the new house is transferred Capital gains would arise on transfer of the new
within a period of 3 years from the date of its house; and
purchase The capital gains exempt earlier under section
54F would be taxable as long-term capital gains.

Note – In case the new residential house is sold after 2 years, the capital gains would be long-term capital gains and
indexation benefit would be available
 Example
From the following particulars, compute the taxable capital gains of Mr. D for A.Y.2022-23

Particulars Amount (Rs )

Cost of jewellery [Purchased in F.Y.2005-06] 4,52,000

Sale price of jewellery sold in January 2022 12,50,000

Expenses on transfer 7,000

Residential house purchased in March 2022 5,00,000

Financial Year Cost Inflation Index

2005-06 117
2021-22 317
Computation of taxable capital
gains for A.Y.2022-23
Particulars `
Gross consideration 12,50,000
Less: Expenses on transfer 7,000
Net consideration 12,43,000
Less: Indexed cost of acquisition (Rs
4,52,000 12,24,650
4,52,000 × 317/117)
18,350
Less: Exemption under section 54F (Rs
5,00,000 7,382
18,350 × Rs 5,00,000/ Rs 12,43,000)
Taxable long-term capital gains 10,969
Capital gains in cases of investment in
residential house [Section 54F]

The assessee needs to satisfy . An exemption is available

An exemption under section
the following conditions in towards the capital gain arisen
54F is available only to an
order to avail exemption under on the transfer of any long term
individual or a Hindu
section 54F of the Income Tax capital asset other than a
Undivided Family (HUF).
Act residential house.

The ‘net consideration’ arisen

on the transfer of long term
capital asset is invested in
either of the following manners
–
Capital gains in cases of investment
in residential house [Section 54F]

a. The amount is invested to b. The amount is invested,

purchase one residential house in within a period of three years, to
India. It is compulsory that such construct one residential house
investment is made within a in India.
period of 1 year before or 2
years after the date of transfer; or
Understanding the term ‘Net
Consideration

The term ‘net consideration’ is defined

under the Explanation to section 54F.
The assessee is required to re-invest Accordingly, net consideration means
the ‘net consideration’, in order to avail the full value of the consideration Net consideration = Full value of
exemption under section 54F of the received on account of the transfer of consideration (-) Expenditure
Income Tax Act. long-term capital assets reduced by any
expenditure exclusively incurred in
connection with the transfer.
Non-availability of exemption under
section 54F
2. The assessee purchases additional
residential house (other than the new
The exemption under section 54F is not 1. The assessee already owns more than residential house purchased/ constructed
available under the following one residential house on the date of to claim an exemption under section 54F
circumstances – transfer of the long term capital assets. is claimed) within a period of one year
from the date of transfer of the long term
capital asset.

3. The assessee constructs additional

residential house (other than the new
residential house purchased/ constructed
to claim an exemption under section 54F
is claimed) within a period of three years
from the date of transfer of the long term
capital asset.
 In the aforesaid three cases, the amount of
capital gains arising from the transfer of the
original asset, which was not charged to tax, It is important that, in the cases above, the
will be deemed to be the income by way of income from the residential house (other than
long term capital gains of the year in which the one owned on the date of transfer of the
new house is transferred or another residential long term capital asset) is chargeable under the
house (other than the new house) whose income head ‘Income from house property’.
is taxable under the head ” Income From House
Property” is purchased or constructed, as the
case may be.
Capital Gains Account Scheme (CGAS)

Under sections 54, 54B, 54D and 54F, capital gains is exempt
to the extent of investment of such gains/ net consideration (in
the case of section 54F) in specified assets within the
specified time. If such investment is not made before the date
of filing of return of income, then the capital gain or net
consideration (in case of exemption under section 54F) has to
be deposited under the CGAS.
Time limit

Such deposit in CGAS should be made before filing

the return of income or on or before the due date of
filing the return of income, whichever is earlier. Proof
of such deposit should be attached with the return.
The deposit can be withdrawn for utilization for the
specified purposes in accordance with the scheme.
 Consequences if the amount deposited in CGAS is not utilized within the stipulated
time of 2 years / 3 years
If the amount deposited is not utilized for the specified purpose within the stipulated period,
then the unutilized amount shall be charged as capital gain of the previous year in
which the specified period expires. In the case of section 54F, proportionate amount will be
taxable.
CBDT Circular No.743 dated 6.5.96 clarifies that in the event of death of an individual before the
stipulated period, the unutilized amount is not chargeable to tax in the hands of the legal heirs
of the deceased individual. Such unutilized amount is not income but is a part of the estate
devolving upon them
REFERENCE TO VALUATION OFFICER

Section 55A provides that the Assessing

Officer may refer the valuation of a capital
asset to a Valuation Officer in the following
circumstances with a view to ascertaining the
fair market value of the capital asset for the
purposes of capital gains -
REFERENCE TO VALUATION OFFICER [SECTION 55A]

In a case where the value of the

asset as claimed by the assessee is
in accordance with the estimate
made by a registered valuer, if the
Assessing Officer is of the opinion
that the value so claimed is at
variance with its fair market value.
REFERENCE TO VALUATION OFFICER [SECTION 55A]

If the Assessing Officer is of the opinion that the

fair market value of the asset exceeds the value of
the asset as claimed by the assessee by more than
15% of the value of asset as claimed or by more
than Rs 25,000 of the value of the asset as
claimed by the assessee.
REFERENCE TO VALUATION OFFICER [SECTION 55A]

The Assessing Officer is of the opinion

that, having regard to the nature of asset
and other relevant circumstances, it is
necessary to make the reference.
Under this provision, the Assessing Officer can make a reference to the
Valuation Officer in cases where the fair market value is taken to be the
sale consideration of the asset. An Assessing Officer can also make a
reference to the Valuation Officer in a case where the fair market value
of the asset as on 01.04.2001 is taken as the cost of the asset, if he is of
the view that there is any variation between the value as on 01.04.2001
claimed by the assessee in accordance with the estimate made by a
registered valuer and the fair market value of the asset on that date.