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CAPITAL GAINS
MEANING OF CAPITAL GAIN:
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 Profits or gains arising from transfer of a capital asset are called capital gain
and are charged to tax under the head capital gains.

 Capital gain either short term or long tem , depending on the holding
period of capital asset.
PERIOD OF HOLDING CRITERIA FOR DETERMINING SHORT TERM/LONG TERM
CAPITAL ASSETS :- 3

<=12 MONTHS – ST <=24 MONTHS – ST <=36 MONTHS – ST

> 12 MONTHS - LT >24 MONTHS – LT > 36 MONTHS - LT

1. Shares listed in a 1. Unlisted shares; 1. Any other capital

recognized stock 2. An immovable asset does not fell in
exchange; property being land prior two categories.
2. Units of equity or building or both.
oriented mutual
funds;
3. Listed securities like
debentures and govt
securities;
4. Units of uti & zero
coupon bonds.
MEANING OF SHORT TERM CAPITAL GAIN (STCG) & LONG TERM CAPITAL
GAIN (LTCG) : 4

 Capital gain arising on sale of short term capital asset is called short term
capital gain,
 Capital gain arising on sale of long term capital asset is called long term
capital gain,
 Exceptions :- gain on depreciable asset is always taxed as short term
capital gain.
COMPUTATION OF SHORT TERM CAPITAL GAIN :-
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PARTICULARS Rs.
Full value of consideration (i.E., Sales value of the asset) XXXXX
Less: expenditure incurred wholly and exclusively in (XXXXX)
connection with transfer of capital asset (e.G., Brokerage,
commission, etc.)
Net sale consideration XXXXX
Less: cost of acquisition (i.E., The purchase price of the (XXXXX)
capital asset)
Less: cost of improvement (i.E., Post purchases capital (XXXXX)
expenses on improvement of capital asset )
Short-term capital gain XXXXX
CLASSIFICATION OF SHORT TERM CAPITAL GAIN : -
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For the purpose of determination of tax rate, short-term capital gains are
classified as follows :

 Short term capital gains covered under section 111A,

 Short term capital gains other than covered under section 111A.

(Sec-111A : short-term capital gains (STCG) arising on account of sale of equity

shares listed in a recognised stock exchange, units of equity oriented mutual
fund and units of business trust. i.e., STCG covered u/s 111A)
TAX ON SHORT TERM CAPITAL GAIN :
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 Tax on STCG covered under section 111A – 15% ,

 Tax on STCG not covered under section 111A – Normal rate of tax,
which is to be determined on the basis of the total taxable income
of the tax payer.
EXAMPLES OF STCG COVERED U/S 111A -
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 STCG arising on sale of equity shares listed in a recognised stock

exchange, which is chargeable to STT,
 STCG arising on sale of units of equity oriented mutual fund sold
through a recognised stock exchange which is chargeable to STT,
 STCG arising on sale of units of a business trust,
 STCG arising on sale of equity shares, units of equity oriented mutual
fund or units of a business trust through are cognised stock
exchange located in any International Financial Services Centre
and consideration is paid or payable in foreign currency even if
transaction of sale is not chargeable to securities transaction tax
(STT).
EXAMPLES OF STCG NOT COVERED U/S111A -
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 STCG arising on sale of equity shares other than through a recognised stock
exchange,
 STCG arising on sale of shares other than equity shares,
 STCG arising on sale of units of non-equity oriented mutual fund (debt
oriented mutual funds),
 STCG on debentures, bonds and Government securities,
 STCG on sale of assets other than shares/units like STCG on sale of
immovable property, gold, silver, etc.
ADJUSTMENT OF STCG AGAINST THE BASIC EXEMPTION LIMIT -
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 Only a resident individual and resident HUF can adjust the

exemption limit against STCG covered under section 111A. Thus, a
non-resident individual/HUF cannot adjust the exemption limit
against STCG covered under section 111A,
 A resident individual/HUF can adjust the STCG covered under
section 111A against the basic exemption limit but such adjustment
is possible only after making adjustment of other income,
 In other words, first income other than STCG covered under section
111A is to be adjusted against the exemption limit and then the
remaining limit (if any) can be adjusted against STCG covered
under section 111A.
DEDUCTIONS UNDER SECTION 80C TO 80U AND STCG -
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 No deduction under sections 80C to 80U is allowed on short-term capital

gains referred to in section 111A,

 However, such deductions can be claimed from STCG other than covered
under section 111A.
COMPUTATION OF LONG TERM CAPITAL GAIN :-
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PARTICULARS Rs.
Full value of consideration (i.E., Sales value of the asset) XXXXX
Less: expenditure incurred wholly and exclusively in (XXXXX)
connection with transfer of capital asset (e.G., Brokerage,
commission, etc.)
Net sale consideration XXXXX
Less: : Indexed cost of acquisition (XXXXX)
Less: Indexed cost of improvement if any (XXXXX)
Long-term capital gain XXXXX
INDEXATION :
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 Indexation is a process by which the cost of acquisition is adjusted against

inflationary rise in the value of asset,
 The benefit of indexation is available only to long-term capital assets
(having certain exceptions-next slide),
 For computation of indexed cost of acquisition following factors are to be
considered –
• Year of acquisition/improvement,
• Year of transfer,
• Cost inflation index of the year of
acquisition/improvement,
• Cost inflation index of the year of transfer.
EXCEPTIONS TO THE BENEFIT OF INDEXATION TO LTCG -
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 Indexation not available to the LTCG arising from the transfer of bonds
or debentures other than –
1. Capital indexed bonds issued by the govt,
2. Sovereign gold bond issued by the RBI under the sovereign gold
bond scheme,2015
 In case of depreciable assets , there will be no indexation and the
capital gains will always be STCG,
 Indexation not applicable to the LTCG arising from the transfer of
capital assets referred in sec 112A –
1.Equity share in a company , on which STT is paid both at the time of
acquisition and transfer,
2. Unit of equity oriented fund or unit of business trust on which STT is
paid at the time of transfer .
INDEXED COST OF ACQUISITION/IMPROVEMENT -
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 Indexed cost of acquisition is computed with the help of following

formula :

Cost of acquisition × CII of the year of transfer of capital asset

CII of the year of acquisition
 Indexed cost of improvement is computed with the help of following
formula :
Cost of improvement × CII of the year of transfer of capital asset
CII of the year of improvement
TAX ON LONG TERM CAPITAL GAINS :
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 U/S 112 : -
1. LTCG arising from unlisted securities, or shares of a closely held company:
10% with out indexation to non corporate, non resident/foreign company ;
20 % with indexation to other assessees,
2. LTCG arising from listed securities (other than a unit) or a zero coupon
bond : 10% with out the benefit of the indexation or 20% with the benefit
of the indexation which ever is more beneficial to the assesse,
3. LTCG arising from other assets – 20%
 U/S 112A (w.e.f A.Y 2019-20) - capital gains arising from transfer of a long
term capital asset being an equity share in a company(on which STT paid
on acquisition and on transfer) or a unit of an equity oriented fund & a unit
of a business trust ( on which STT paid on transfer of units) shall be taxed at
the rate of 10% of such capital gains exceeding Rs.1,00,000,
ADJUSTMENT OF LTCG AGAINST THE BASIC EXEMPTION LIMIT -
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 Only a resident individual and resident HUF can adjust the exemption limit
against LTCG covered under section 112 or 112A. Thus, a non-resident
individual/HUF cannot adjust the exemption limit against STCG covered
under section 112 or 112A,
 A resident individual/HUF can adjust the LTCG covered under section 112 or
112A against the basic exemption limit but such adjustment is possible only
after making adjustment of other income,
 In other words, first income other than LTCG covered under section 112 or
112A is to be adjusted against the exemption limit and then the remaining
limit (if any) can be adjusted against LTCG covered under section 112 or
112A.
DEDUCTIONS UNDER SECTION 80C TO 80U AND LTCG - 18

 No deduction under sections 80C to 80U is allowed on long-term capital

gains referred to in section 112 or 112A,
COST OF ACQUISITION IN DIFFERENT CASES :
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 1.Long term capital assets referred U/s 112A : Acquired before 01-02-2018
shall be the higher of
a). COA of such asset; and
b). Lower of
i) the FMV* of such asset; and
ii) the full value of consideration received or accruing as a
result of the transfer of the capital asset.
 Any other capital assets : COA means the COA of the asset to the assessee
or the FMV of the asset on 01-04-2001, at the option of the assessee
Fair market value should be calculated in following manner -
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 Fair market value for capital assets listed on recognized stock exchange as
on 31st January, 2018 shall be –
 Fair market value shall be the highest price of the capital asset quoted
on 31st January, 2018.
 Fair market value in case if there is no trading of the capital asset on
31st January, 2018 will be highest price of the capital asset quoted on
date immediately preceding 31st January, 2018 when the asset was last
traded.
 Fair market value of capital assets is a unit and is not listed on recognized
stock exchange as on 31st January, 2018 shall be –
 In such case, fair market value of such capital assets shall be net asset
value of the capital asset as on 31st January, 2018.
 Fair market value in other case shall be –
 In case of equity share which are not listed in the stock exchange as on
31st January, 2018, however, the same has been listed on stock
exchange on the date of transfer – Fair market value in such case shall
be an amount which bears to the cost of acquisition the same
proportion as cost inflation index for the F.Y. 2017-18 bears to the cost
inflation index for the first year in which the asset was held or for the year
beginning on 1st April, 2001, whichever is later.
OTHER POINTS :-
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 UP TO THE A.Y 2018-19 – LTCG on sale of listed equity shares exempt

u/s 10(38), this has been withdrawn by the finance act, 2018w.e.f
A.Y-2019-20,
 New section 112(A) - Long-term capital gains arising from transfer of
an equity share, or a unit of an equity oriented fund or a unit of a
business trust shall be taxed at 10% (without indexation) of such
capital gains. The tax on capital gains shall be levied in excess of
Rs.1 lakh.
 Rebate U/s 87A is not available in respect of tax payable @ 10% on
LTCG u/s112A; hence rebate is available inrespect of tax payable
on LTCG u/s 112.
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SWATHI ALURU,
PARTNER,
A S K & Co.,
Chartered Accountants.