Explain provisions relating to computation of income under the head –

House Property House Property’s Any land appurtenant or building owned by an individual comes
under 'house property'. It includes shops, flats, factory sheds, office spaces, farm houses, and
agricultural land. It also includes all kinds of house properties such as residential houses, cinema
building, godowns, hotel building, workshop building, etc.

Tax on Income from House Property

Under the Income Tax Act, 1961, income generated from house property is subject to taxation.
The Annual Value of any property is its taxable value and the owner who receives the income from
the property is liable to pay the applicable tax.

Income from House Property?

The legal owner of the property is liable to pay tax on the income from the house property. Self-
occupied and rental property can be treated as sources of income from house property. To be taxed
under the head 'Income from House Property', the income of the property should satisfy the below-
given conditions:
• The owner of the house property should be the assessee.
• The property should comprise buildings, house, and/or land.
• The property can be used for any purpose except for the owner using it for any business or
profession.

The taxable value of any property that falls under the House Property category is the annual value of
the property or any land belonging to it. The tax will be accountable to the owner whom the income
from the property is payable to.

Sections 22 to 27 of the Income Tax Act deal with the subject of taxation of Income from House
Property.
The brief of the sections are as follows –
• Section 22 – What is Taxable under Income from House Property (Annual Value of Property
Explained)
• Section 23 – Determination of Annual Value
• Section 24 – Deductions allowed for Income from House Property
• Section 25 – Aspects or amounts not deductible for Income from House Property
• Section 25AA – Unrealised rent subsequently realised after 1.4.2001
• Section 25B – Arrears of rent received
• Section 26 – Property owned by co-owners
• Section 27 – Deemed ownership situations for taxing Income from House Property The conditions
for taxability of “Income from House Property”? The income from house property is added to your
gross total income only when it fulfills three basic conditions –

22. Income from house property

—The annual value of property consisting of any buildings or lands appurtenant thereto of which the
assessee is the owner, other than such portions of such property as he may occupy for the purposes
of any business or profession carried on by him the profits of which are chargeable to income-tax,
shall be chargeable to income-tax under the head ―Income from house property.

23. Annual value how determined.—(1) For the purposes of section 22, the annual value of any
property shall be deemed to be—
(a) the sum for which the property might reasonably be expected to let from year to year; or
(b) where the property or any part of the property is let and the actual rent received or receivable by
the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received
or receivable; or
(c) where the property or any part of the property is let and was vacant during the whole or any part
of the previous year and owing to such vacancy the actual rent received or receivable by the owner
in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable:
Provided that the taxes levied by any local authority in respect of the property shall be deducted
(irrespective of the previous year in which the liability to pay such taxes was incurred by the owner
according to the method of accounting regularly employed by him) in determining the annual value
of the property of that previous year in which such taxes are actually paid by him.

(2) Where the property consists of a house or part of a house which—

(a) is in the occupation of the owner for the purposes of his own residence; or
(b) cannot actually be occupied by the owner by reason of the fact that owing to his employment,
business or profession carried on at any other place, he has to reside at that other place in a building
not belonging to him, the annual value of such house or part of the house shall be taken to be nil.

(3) The provisions of sub-section (2) shall not apply if—

(a) the house or part of the house is actually let during the whole or any part of the previous year; or
(b) any other benefit therefrom is derived by the owner.

(4) Where the property referred to in sub-section (2) consists of more than one house—
(a) the provisions of that sub-section shall apply only in respect of one of such houses, which the
assessee may, at his option, specify in this behalf;

(b) the annual value of the house or houses, other than the house in respect of which the assessee
has exercised an option under clause (a), shall be determined under sub-section (1) as if such house
or houses had been let.]

(5) Where the property consisting of any building or land appurtenant thereto is held as stock-in-
trade and the property or any part of the property is not let during the whole or any part of the
previous year, the annual value of such property or part of the property, for the period up to one
year from the end of the financial year in which the certificate of completion of construction of the
property is obtained from the competent authority, shall be taken to be nil.

Deductions on Income from House Property

The deductions applicable for Income from House Property can be considered as the following as per
Section 24:
1. Deduction under Section 24(a) – 30% of Net Annual Value
2. Deduction under Section 24(b) - interest on capital borrowed for the purpose of purchase,
construction, repair, renewal or reconstruction of the property

24. Deductions from income from house property.—Income chargeable under the head ―Income
from house property shall be computed after making the following deductions, namely:—
(a) a sum equal to thirty per cent. of the annual value;
(b) where the property has been acquired, constructed, repaired, renewed or reconstructed with
borrowed capital, the amount of any interest payable on such capital:
Provided that in respect of property referred to in sub-section (2) of section 23, the amount of
deduction shall not exceed thirty thousand rupees:
Provided further that where the property referred to in the first proviso is acquired or constructed
with capital borrowed on or after the 1st day of April, 1999 and such acquisition or construction is
completed 3 [within [five years] from the end of the financial year in which capital was borrowed],
the amount of deduction under this clause shall not exceed [two lakh rupees].

Provided also that no deduction shall be made under the second proviso unless the assessee
furnishes a certificate, from the person to whom any interest is payable on the capital borrowed,
specifying the amount of interest payable by the assessee for the purpose of such acquisition or
construction of the property, or, conversion of the whole or any part of the capital borrowed which
remains to be repaid as a new loan.

25. Amounts not deductible from income from house property.— Notwithstanding anything
contained in section 24, any interest chargeable under this Act which is payable outside India (not
being interest on a loan issued for public subscription before the 1st day of April, 1938), on which tax
has not been paid or deducted under Chapter XVII-B and in respect of which there is no person in
India who may be treated as an agent under section 163 shall not be deducted in computing the
income chargeable under the head ―Income from house property.

25A. Special provision for arrears of rent and unrealised rent received subsequently.—(1) The
amount of arrears of rent received from a tenant or the unrealised rent realised subsequently from a
tenant, as the case may be, by an assessee shall be deemed to be the income from house property in
respect of the financial year in which such rent is received or realised, and shall be included in the
total income of the assessee under the head ―Income from house property, whether the assessee is
the owner of the property or not in that financial year.
(2) A sum equal to thirty per cent. of the arrears of rent or the unrealised rent referred to in sub-
section (1) shall be allowed as deduction.

25B. Special provision for arrears of rent received. - Where the assessee-
(a) is the owner of any property consisting of any buildings or lands appurtenant thereto which has
been let to a tenant; and

(b) has received any amount, by way of arrears of rent from such property, not charged to income-
tax for any previous year, the amount so received, after deducting a sum equal to thirty per cent. of
such amount, shall be deemed to be the income chargeable under the head "Income from house
property" and accordingly charged to income-tax as the income of that previous year in which such
rent is received, whether the assessee is the owner of that property in that year or not.

26. Property owned by co-owners.—Where property consisting of buildings or buildings and lands
appurtenant thereto is owned by two or more persons and their respective shares are definite and
ascertainable, such persons shall not in respect of such property be assessed as an association of
persons, but the share of each such person in the income from the property as computed in
accordance with sections 22 to 25 shall be included in his total income.

27. ―Owner of house property, ―annual charge, etc., defined.—For the purposes of sections 22 to
26—
(i) an individual who transfers otherwise than for adequate consideration any house property to his
or her spouse, not being a transfer in connection with an agreement to live apart, or to a minor child
not being a married daughter, shall be deemed to be the owner of the house property so transferred;
(ii) the holder of an impartible estate shall be deemed to be the individual owner of all the properties
comprised in the estate ;
(iii) a member of a co-operative society, company or other association of persons to whom a building
or part thereof is allotted or leased under a house building scheme of the society, company or
association, as the case may be, shall be deemed to be the owner of that building or part thereof;
(iiia) a person who is allowed to take or retain possession of any building or part thereof in part
performance of a contract of the nature referred to in section 53A of the Transfer of Property Act,
1882 (4 of 1882), shall be deemed to be the owner of that building or part thereof;
(iiib) a person who acquires any rights (excluding any rights by way of a lease from month to month
or for a period not exceeding one year) in or with respect to any building or part thereof, by virtue of
any such transaction as is referred to in clause (f) of section 269 UA, shall be deemed to be the
owner of that building or part thereof;
(vi) taxes levied by a local authority in respect of any property shall be deemed to include service
taxes levied by the local authority in respect of the property.

Exclusions to Income from House Property

Though the computation of income from house property basically covers every possible building or
house that can ever exist, there are a few exclusions to the same. The following house properties are
excluded from the income computation –
1. Property occupied by owner for the purpose of own residence
2. Single property ownership but the house is not being used as residence as the owner stays
elsewhere due to limitations of employability
3. Farmhouses contributing to agricultural income
4. Any one palace in the occupation of an ex-ruler
5. Property of a local authority
6. Property of any registered trade union
7. Property of a member of a Scheduled Tribe;
8. Statutory corporation or an institution or association financed by the Government for promoting
the interests of the members either of the Scheduled Castes or Scheduled tribes or both
9. Any corporation established by the government for promoting the interests of members of a
minority group
10. Any cooperative society formed for promoting the interests of the members either of the
Scheduled Castes or Scheduled tribes or both
11. Property Income from the letting of warehouses for storage, processing or facilitating the
marketing of commodities by an authority constituted under any law for the marketing of
commodities
12. Any institution for the development of ‘Khadi and village Industries’
13. Self-occupied house property of an individual, which has not been rented throughout the
previous year
14. House property held for any charitable purposes
15. Property of any political party

Computation of income under the head - Business or profession

Meaning- Income from business or profession is chargeable to tax only if the business or profession
is carried on by a taxpayer at any time during the previous year. Let us first understand what is
Business.

Business, in simple words, means an occupation carried on by a person with a view to earn a profit.
Business does not include income from the Profession or partnership firm. The business includes any
–
• Trade,
• Commerce,
• Manufacturing,
• Even rendering services to others is considered as business.
For example: Owning a shop, running a hotel, transportation, travel agency, share brolking, etc.
Profession may be defined as a vocation, or a job requiring some thought, skill, and special
knowledge. So profession refers to those activities where the livelihood is earned by the persons
through their intellectual or manual skill like:
• Legal
• Medical
• Engineering
• Chartered Accountant
• Architectural etc.

Maintaining Books of Accounts

In case of Business A business meeting any of the following criteria needs to maintain the books of
accounts as per the income tax act:
• Income more than INR 1,20,000 or,
• Total sales, turnover or gross receipts are more than INR 10,00,000 In any of the three immediately
preceding previous years

In case of Profession
The taxpayers carrying out any of the above-mentioned professions are required to maintain the
books of accounts in accordance with rule 6F of the Income Tax Rules. These professionals have to
maintain the books of accounts if the gross receipts exceed INR 1.5 Lakhs in any of the 3 immediately
preceding years.

Incomes chargeable under Business and Profession

Any income earned by a taxpayer with an intention to earn a profit is covered under the head
business and profession. There are 3 types defined for Businesses/profession under the income tax
act:

• Non-Speculative Businesses/Profession: Includes profits/loss from all the normal business carried
by a taxpayer. Any salary, remuneration, commission, etc received by a partner from a partnership
firm is also considered as a business and professional income of a partner. However, the same is
exempt from tax in the hands of the partner.

• Speculative Businesses: As name suggests, it includes profits/loss from doing speculative

transactions i.e, without taking actual delivery of goods. Although profits from the speculative
business (eg. Share trading) are chargeable under this head, they should be maintained and shown
separately while e-filing the income tax return

• Specified Businesses: It includes profits/loss from businesses that are defined under section 35AD
of the income tax act. These businesses include affordable housing projects, water fabrication
manufacturing units, etc.

However, following are the incomes which are not chargeable as income from business and
profession:
• Any profits from activities other than above-mentioned businesses should be shown as casual
income and will be shown under Income from Other Sources

• Any income from salary, remuneration, bonus, etc. received by the director of the company is
treated as Salary Income and not as a business and professional income.

Computation of Taxable Income from Business and Profession

Taxable income from business and profession is profits after deducting expenses related to business
activities. Taxpayer can find profits from books of accounts maintained during the year. Income
earned from Business and Profession is taxable at a Slab Rate applicable to taxpayer. Following are
the slab rates applicable for FY 2019-20/AY 2020-21:

Total Income Tax Rate

Up to INR 2,50,000 NIL
INR 2,50,000 to 5,00,000 5%
INR 5,00,000 to INR 10,00,000 20%
Above INR 10,00,000 30%

28. Profits and gains of business or profession.—The following income shall be chargeable to
income-tax under the head ―Profits and gains of business or profession‖,— (i) the profits and gains
of any business or profession which was carried on by the assessee at any time during the previous
year; (ii) any compensation or other payment due to or received by,—
(a) any person, by whatever name called, managing the whole or substantially the whole of the
affairs of an Indian company, at or in connection with the termination of his management or the
modification of the terms and conditions relating thereto;
(b) any person, by whatever name called, managing the whole or substantially the whole of the
affairs in India of any other company, at or in connection with the termination of his office or the
modification of the terms and conditions relating thereto;
(c) any person, by whatever name called, holding an agency in India for any part of the activities
relating to the business of any other person, at or in connection with the termination of the agency
or the modification of the terms and conditions relating thereto ;
(d) any person, for or in connection with the vesting in the Government, or in any corporation owned
or controlled by the Government, under any law for the time being in force, of the management of
any property or business;
(iii) income derived by a trade, professional or similar association from specific services performed
for its members ;
(iiia) profits on sale of a licence granted under the Imports (Control) Order, 1955, made under the
Imports and Exports (Control) Act, 1947 (18 of 1947);
(iiib) cash assistance (by whatever name called) received or receivable by any person against exports
under any scheme of the Government of India;]
(iiic) any duty of customs or excise re-paid or re-payable as drawback to any person against exports
under the Customs and Central Excise Duties Drawback Rules, 1971;]
(iiid) any profit on the transfer of the Duty Entitlement Pass Book Scheme, being the Duty Remission
Scheme under the export and import policy formulated and announced under section 5 of the
Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992);]
(iiie) any profit on the transfer of the Duty Free Replenishment Certificate, being the Duty Remission
Scheme under the export and import policy formulated and announced under section 5 of the
Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992);]
(iv) the value of any benefit or perquisite, whether convertible into money or not, arising from
business or the exercise of a profession;]
(v) any interest, salary, bonus, commission or remuneration, by whatever name called, due to, or
received by, a partner of a firm from such firm: Provided that where any interest, salary, bonus,
commission or remuneration, by whatever name called, or any part thereof has not been allowed to
be deducted under clause (b) of section 40, the income under this clause shall be adjusted to the
extent of the amount not so allowed to be deducted;]
(va) any sum, whether received or receivable, in cash or kind, under an agreement for—
(a) not carrying out any activity in relation to any business [or profession]; or
(b) not sharing any know-how, patent, copyright, trade-mark, licence, franchise or any other business
or commercial right of similar nature or information or technique likely to assist in the manufacture
or processing of goods or provision for services:
Provided that sub-clause (a) shall not apply to—
• any sum, whether received or receivable, in cash or kind, on account of transfer of the
right to manufacture, produce or process any article or thing or right to carry on any
business 1 [or profession], which is chargeable under the head ―Capital gains;
• any sum received as compensation, from the multi-lateral fund of the Montreal Protocol
on Substances that Deplete the Ozone layer under the United Nations Environment
Programme, in accordance with the terms of agreement entered into with the
Government of India.

29. Income from profits and gains of business or profession, how computed.—The income referred
to in section 28 shall be computed in accordance with the provisions contained in sections 30 to
[43D].

30. Rent, rates, taxes, repairs and insurance for buildings.—In respect of rent, rates, taxes, repairs
and insurance for premises, used for the purposes of the business or profession, the following
deductions shall be allowed—
(a) where the premises are occupied by the assessee—
(i) as a tenant, the rent paid for such premises; and further if he has undertaken to bear the cost of
repairs to the premises, the amount paid on account of such repairs;
(ii) otherwise than as a tenant, the amount paid by him on account of current repairs to the
premises; (b) any sums paid on account of land revenue, local rates or municipal taxes;
(c) the amount of any premium paid in respect of insurance against risk of damage or destruction of
the premises

31. Repairs and insurance of machinery, plant and furniture.—In respect of repairs and insurance of
machinery, plant or furniture used for the purposes of the business or profession, the following
deductions shall be allowed—
(i) the amount paid on account of current repairs thereto;
(ii) the amount of any premium paid in respect of insurance against risk of damage or destruction
thereof.

32. Depreciation.—(1) In respect of depreciation of—

(i) buildings, machinery, plant or furniture, being tangible assets;
(ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or
commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April,
1998, owned, wholly or partly, by the assessee and used for the purposes of the business or
profession, the following deductions shall be allowed—
• in the case of assets of an undertaking engaged in generation or generation and
distribution of power, such percentage on the actual cost thereof to the assessee as may
be prescribed
• in the case of any block of assets, such percentage on the written down value thereof as
may be prescribed:
(a) any motor car manufactured outside India, where such motor car is acquired by the assessee
after the 28th day of February, 1975 but before the 1st day of April, 2001], unless it is used—
(i) in a business of running it on hire for tourists; or
(ii) outside India in his business or profession in another country; and
(b) any machinery or plant if the actual cost thereof is allowed as a deduction in one or more years
under an agreement entered into by the Central Government under section 42
38. Building, etc., partly used for business, etc., or not exclusively so used.— (1) Where a part of
any premises is used as dwelling house by the assessee,—
(a) the deduction under sub-clause (i) of clause (a) of section 30, in the case of rent, shall be such
amount as the [Assessing Officer] may determine having regard to the proportionate annual value of
the part used for the purpose of the business or profession, and in the case of any sum paid for
repairs, such sum as is proportionate to the part of the premises used for the purpose of the
business or profession;
(b) the deduction under clause (b) of section 30 shall be such sum as the [Assessing Officer] may
determine having regard to the part so used.
(2) Where any building, machinery, plant or furniture is not exclusively used for the purposes of the
business or profession, the deductions under sub-clause (ii) of clause (a) and clause (c) of section 30,
clauses (i) and (ii) of section 31 and 1 [clause (ii) of sub-section (1)] of section 32 shall be restricted to
a fair proportionate part thereof which the [Assessing Officer] may determine, having regard to the
user of such building, machinery, plant or furniture for the purposes of the business or profession.

40. Amounts not deductible.—Notwithstanding anything to the contrary in 3 [section 30 to 38], the
following amounts shall not be deducted in computing the income chargeable under the head
―Profits and gains of business or profession,— (a) in the case of any assessee— 4 [(i) any interest
(not being interest on a loan issued for public subscription before the 1st day of April, 1938), royalty,
fees for technical services or other sum chargeable under this Act, which is payable,— (A) outside
India; or (B) in India to a non-resident, not being a company or to a foreign company,

Expenses Allowed as Deductions against Profits and Gains of Business or Profession [Section-30-
37]
1. Rent, Rates, Taxes, Repairs And Insurance For Building [Section 30]
2. Repairs and insurance of machinery, plant and furniture [Section 31]
3. Depreciation [Section 32]
4. Investment allowance in Notified Backward Area in Andhra Pradesh, Bihar, Telangana or West
Bengal [Section 32AD]
5. Tea/Coffee/Rubber Development Account [Section 33AB]
6. Site Restoration Fund [Section 33ABA]
7. Expenditure on Scientific Research [Section 35]
8. Expenditure for Obtaining Right to use Spectrum for Telecommunication Services [Section 35ABA]
9. Expenditure for obtaining Licence to operate Telecommunication Services [Section 35ABB]
10. Deduction in respect Of Expenditure On Specified Business [Section 35AD]
11. Payment to Associations and Institutions for carrying out Rural Development Programmes
[Section 35CCA]
12. Expenditure on Agricultural Extension Project [Section 35CCC]
13. Expenditure on Skill Development Project [Section 35CCD]

Expenses allowed only on a payment basis

Here are some of the examples of such expenses:
• Any taxes, duty, cess or fees by whatever name called.
• Expenses towards contribution to Provident fund, Employees’ state insurance premium, Gratuity
fund, or other funds for the welfare of the employees.
• Bonus, commission, or leave encashment payable to employees.
• Interest on loan from public financial institutions, state financial corporations, or scheduled banks.
 Financial Year Cost Inflation Index (CII)

2001-02 (Base year) 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
 2023-24 348

2024-25 363

The Cost Inflation Index is calculated to match the prices to the inflation rate. In simple words, an
increase in the inflation rate over time will lead to a rise in prices.
The Central Government specifies the cost inflation index by notifying in the official gazette.

Eg:- Rahul purchased a flat in FY 2001-02 for Rs. 10,00,000. He sells the flat in FY 2017-18. What will
be the indexed cost of acquisition?
In this case, CII for the year 2001-02 and 2017-18 is 100 and 272 respectively.
Hence, the indexed cost of acquisition = 10,00,000 x 272/100 = Rs. 27,20,000

Gita has purchased equity shares of Rs.1,00,000 on 1st March 2015 and sells the shares on 1st April
2020. What will be the indexed cost of acquisition?
CII for the year of purchase FY 2014-15 is 240 and for the year of sale 2020-21 is 301
Hence, indexed cost of acquisition = Rs.1,00,000 x 301/240 = Rs.1,25,416

45. Capital gains. —

Any profit or gain that arises from the sale of a ‘capital asset’ comes under the category ‘income from
capital gains’, and hence you will need to pay tax for that amount in the year in which the transfer of
the capital asset takes place. This is called capital gains tax.

Any profits or gains arising from the transfer of a capital asset effected in previous year shall, save as
otherwise provided in sections 54,[54B, [54D, [54E, [54EA, 54EB,] 54F, [54G and 54H]]]]], be
chargeable to income-tax under the head ―Capital gains, and shall be deemed to be the income of
the previous year in which the transfer took place.
(1A) Notwithstanding anything contained in sub-section (1), where any person receives at any time
during any previous year any money or other assets under an insurance from an insurer on account
of damage to, or destruction of, any capital asset, as a result of—
• flood, typhoon, hurricane, cyclone, earthquake or other convulsion of nature; or
• riot or civil disturbance; or
• accidental fire or explosion; or
• action by an enemy or action taken in combating an enemy (whether with or without a
declaration of war), then, any profits or gains arising from receipt of such money or other
assets shall be chargeable to income-tax under the head ―Capital gains and shall be
deemed to be the income of such person of the previous year in which such money or
other asset was received and for the purposes of section 48, value of any money or the
fair market value of other assets on the date of such receipt shall be deemed to be the
full value of the consideration received or accruing as a result of the transfer of such
capital asset.
(2) Notwithstanding anything contained in sub-section (1), the profits or gains arising from the
transfer by way of conversion by the owner of a capital asset into, or its treatment by him as stock-
intrade of a business carried on by him shall be chargeable to income-tax as his income of the
previous year in which such stock-in-trade is sold or otherwise transferred by him and, for the
purposes of section 48, the fair market value of the asset on the date of such conversion or
treatment shall be deemed to be the full value of the consideration received or accruing as a result
of the transfer of the capital asset.

(2A) Where any person has had at any time during previous year any beneficial interest in any
securities, then, any profits or gains arising from transfer made by the depository or participant of
such beneficial interest in respect of securities shall be chargeable to income-tax as the income of
the beneficial owner of the previous year in which such transfer took place and shall not be regarded
as income of the depository who is deemed to be the registered owner of securities by virtue of sub-
section (1) of section 10 of the Depositories Act, 1996,

(3) The profits or gains arising from the transfer of a capital asset by a person to a firm or other
association of persons or body of individuals (not being a company or a co-operative society) in
which he is or becomes a partner or member, by way of capital contribution or otherwise, shall be
chargeable to tax as his income of the previous year in which such transfer takes place and, for the
purposes of section 48, the amount recorded in the books of account of the firm, association or body
as the value of the capital asset shall be deemed to be the full value of the consideration received or
accruing as a result of the transfer of the capital asset.

(4) The profits or gains arising from the transfer of a capital asset by way of distribution of capital
assets on the dissolution of a firm or other association of persons or body of individuals (not being a
company or a co-operative society) or otherwise, shall be chargeable to tax as the income of the
firm, association or body, of the previous year in which the said transfer takes place and, for the
purposes of section 48, the fair market value of the asset on the date of such transfer shall be
deemed to be the full value of the consideration received or accruing as a result of the transfer.

(5) Notwithstanding anything contained in sub-section (1), where the capital gain arises from the
transfer of a capital asset, being a transfer by way of compulsory acquisition under any law, or a
transfer the consideration for which was determined or approved by the Central Government or the
Reserve Bank of India, and the compensation or the consideration for such transfer is enhanced or
further enhanced by any court, Tribunal or other authority, the capital gain shall be dealt with in the
following manner, namely:—
(a) the capital gain computed with reference to the compensation awarded in the first instance or, as
the case may be, the consideration determined or approved in the first instance by the Central
Government or the Reserve Bank of India shall be chargeable as 2 [income under the head ―Capital
gains of the previous year in which such compensation or part thereof, or such consideration or part
thereof, was first received]; and
(b) the amount by which the compensation or consideration is enhanced or further enhanced by the
court, Tribunal or other authority shall be deemed to be income chargeable under the head ―Capital
gains of the previous year in which such amount is received by the assessee:

(c) where in the assessment for any year, the capital gain arising from the transfer of a capital asset is
computed by taking the compensation or consideration referred to in clause (a) or, as the case may
be, enhanced compensation or consideration referred to in clause (b), and subsequently such
compensation or consideration is reduced by any court, Tribunal or other authority, such assessed
capital gain of that year shall be recomputed by taking the compensation or consideration as so
reduced by such court, Tribunal or other authority to be the full value of the consideration.]
Explanation.—For the purposes of this sub-section,—
(i) in relation to the amount referred to in clause (b), the cost of acquisition and the cost of
improvement shall be taken to be nil;
(ii) the provisions of this sub-section shall apply also in a case where the transfer took place prior to
the 1st day of April, 1988;
• where by reason of the death of the person who made the transfer, or for any other reason, the
enhanced compensation or consideration is received by any other person, the amount referred
to in clause (b) shall be deemed to be the income, chargeable to tax under the head ―Capital
gains, of such other person.
• (5A) Notwithstanding anything contained in sub-section (1), where the capital gain arises to an
assessee, being an individual or a Hindu undivided family, from the transfer of a capital asset,
being land or building or both, under a specified agreement, 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; and for the purposes
of section 48, the stamp duty value, on the date of issue of the said certificate, of his share,
being land or building or both in the project, as increased by the consideration received in cash,
if any, shall be deemed to be the full value of the consideration received or accruing as a result
of the transfer of the capital asset: Provided that the provisions of this sub-section shall not
apply where the assessee transfers his share in the project on or before the date of issue of the
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 the provisions of this Act, other than the
provisions of this sub-section, shall apply for the purpose of determination of full value of
consideration received or accruing as a result of such transfer.

There are two types of Capital Gains –

short-term capital gains tax (STCG) and long-term capital gains tax (LTCG).
STCA ( Short-term capital asset ) An asset held for a period of 12 months or less is a short term
capital asset.
LTCA ( Long-term capital asset ): An asset held for more than 12 months is a long-term capital asset.
They will be classified as a long-term capital asset if held for more than 12 months as earlier.

46. Capital gains on distribution of assets by companies in liquidation.—(1) Notwithstanding

anything contained in section, where the assets of a company are distributed to its shareholders on
its liquidation, such distribution shall not be regarded as a transfer by the company for the purposes
of section 45.
(2) Where a shareholder on the liquidation of a company receives any money or other assets from
the company, he shall be chargeable to income-tax under the head ―Capital gains‖, in respect of the
money so received or the market value of the other assets on the date of distribution, as reduced by
the amount assessed as dividend within the meaning of sub-clause (c) of clause (22) of section 2 and
the sum so arrived at shall be deemed to be the full value of the consideration for the purposes of
section 48.

46A. Capital gains on purchase by company of its own shares or other specified securities.— Where
a shareholder or a holder of other specified securities receives any consideration from any company
for purchase of its own shares or other specified securities held by such shareholder or holder of
other specified securities, then, subject to the provisions of section 48, the difference between the
cost of acquisition and the value of consideration received by the shareholder or the holder of other
specified securities, as the case may be, shall be deemed to be the capital gains arising to such
shareholder or the holder of other specified securities, as the case may be, in the year in which such
shares or other specified securities were purchased by the company.

48. Mode of computation.—The income chargeable under the head ―Capital gains shall be
computed, by deducting from the full value of the consideration received or accruing as a result of
the transfer of the capital asset the following amounts, namely:—
(i) expenditure incurred wholly and exclusively in connection with such transfer;
(ii) the cost of acquisition of the asset and the cost of any improvement thereto:

49. Cost with reference to certain modes of acquisition.—(1) Where the capital asset became the
property of the assessee—
(i) on any distribution of assets on the total or partial partition of a Hindu undivided family;
(ii) under a gift or will;
(iii) (a) by succession, inheritance or devolution, or 6 [(b) on any distribution of assets on the
dissolution of a firm, body of individuals, or other association of persons, where such dissolution had
taken place at any time before the 1st day of April, 1987, or]
(c) on any distribution of assets on the liquidation of a company, or
(d) under a transfer to a revocable or an irrevocable trust, or (e) under any such transfer as is
referred to in clause (iv) 7 [or clause (v)] 8 [or clause (vi)] 9 [or clause (via)] 10[or clause (viaa) or
clause (viab) or clause (vib) 11[or clause (vic)] or clause (vica) or clause (vicb) or clause (vicc)] 12[or
clause (xiii) or clause (xiiib) or clause (xiv) of section 47];
(iv) such assessee being a Hindu undivided family, by the mode referred to in sub-section (2) of
section 64 at any time after the 31st day of December, 1969,] the cost of acquisition of the asset shall
be deemed to be the cost for which the previous owner of the property acquired it, as increased by
the cost of any improvement of the assets incurred or borne by the previous owner or the assessee,
as the case may be.

Section 51. Advance money received.—Where any capital asset was on any previous occasion the
subject of negotiations for its transfer, any advance or other money received and retained by the
assessee in respect of such negotiations shall be deducted from the cost for which the asset was
acquired or the written down value or the fair market value, as the case may be, in computing the
cost of acquisition:

Section 54 - (1)][[Subject to the provisions of sub-section (2), where, in the case of an assessee being
an individual or a Hindu undivided family] [, the capital gain arises from the transfer of a long-term
capital asset, being buildings or lands appurtenant thereto, and being a residential house, the
income of which is chargeable under the head "Income from house property" hereafter in this
section referred to as the original asset, and the assessee has within a period of] [one year before or
two years after the date on which the transfer took place purchased, or has within a period of three
years after that date constructed, a residential house, then, instead of the capital gain being charged
to income-tax as income of the previous year in which the transfer took place, it shall be dealt within
accordance with the following provisions of this section, that is to say,-

(i) if the amount of the capital gain [is greater than the cost of [the residential house] so purchased
or constructed (hereafter in this section referred to as the new asset), the difference between the
amount of the capital gain and the cost of the new asset shall be charged under section 45 as the
income of the previous year; and for the purpose of computing in respect of the new asset any
capital gain arising from its transfer within a period of three years of its purchase or construction, as
the case may be, the cost shall be nil; or

(ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain
shall not be charged under section 45; and for the purpose of computing in respect of the new asset
any capital gain arising from its transfer within a period of three years of its purchase or construction,
as the case may be, the cost shall be reduced by the amount of the capital gain.

(2) The amount of the capital gain which is not appropriated by the assessee towards the purchase of
the new asset made within one year before the date on which the transfer of the original asset took
place, or which is not utilised by him for the purchase or construction of the new asset before the
date of furnishing the return of income under section 139, shall be deposited by him before
furnishing such return such deposit being made in any case not later than the due date applicable in
the case of the assessee for furnishing the return of income under sub-section (1) of section 139 in
an account in any such bank or institution as may be specified in, and utilised in accordance with, any
scheme which the Central Government may, by notification in the Official Gazette, frame in this
behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-
section (1), the amount, if any, already utilised by the assessee for the purchase or construction of
the new asset together with the amount so deposited shall be deemed to be the cost of the new
asset:

Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the
purchase or construction of the new asset within the period specified in sub-section (1), then,-

(i) the amount not so utilised shall be charged under section 45 as the income of the previous year
in which the period of three years from the date of the transfer of the original asset expires; and

(ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.