Tax Implications

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Tax Implications

• CAPITAL GAINS

By C.Venkata Krishna For Community Graduates
studying Income Tax
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Computation Of Total Income

• Income from Salaries
• Income from House Property
• Profits Gains of Business/Profess.
• Capital Gains (Sec 45)
• Income from Other Sources

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CHARGEABILITYAny profits or Gains arising from
the transfer of a Capital Asset during the
previous year is Chargeable to Tax under this
head of income.That is to Say-

• There Should be a Capital Asset
• Capital Assets should be transferred during the
  previous year.
• Profit/Gains should have arisen.
• Such Profit/Gains should be liable for tax.

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What are Capital AssetsIt includes all type of
assets Whether movable/immovable,
tangible/intangible etc.,It excludes the
following-

• Stock in trade, consumable stores/raw materials
  held for business/profession.
• Personal effects including wearing apparel and
  furniture.
• Agricultural Land (Conditions on Situation
  applies)
• Certain Specified Gold Bonds
• Special Bearer Bonds
• Gold Deposit Bonds

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Judicial points on what is taxable and what is
not taxable.

• Personal effects should be movable property, it
  should be held for personal use and it should not
  be Jewellary, archaeological collections,
  drawings, paintings, sculptures, or any work of
  art.
• Gold and Silver coins and bars used for pooja of
  deities as a matter of pride or ornamentation are
  not personal effects. Therefore taxable.
• Furniture's are of personal use. Therefore not
  taxable.
• Foreign Stamp collections not a personal effect.
  Therefore taxable.
• Car, Scooter etc., are under personal effects.
  Therefore exempted.
• Securities, Loose diamonds, Goats are not
  personal effects. Therefore taxable.

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TYPES OF CAPITAL ASSETS

• SHORT TERM
• If the asset is held for Less than 36
  Months then they are Short Term capital assets.
• In case of Equity/Preference Shares in a
  Company, Securities such as Debentures/Government
  Securities and Units of UTI and Units of Mutual
  funds and Zero Coupon bonds the term is 12
  instead of 36 months.

• LONG TERM
• If the asset is held for More than 36 Months
  then they are Long Term Capital Assets.

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TAX LIABILITY

• SHORT TERM CAPITAL GAINS
• To determine the Value of Consideration
• To deduct expenditure incurred for the transfer
• To deduct the cost of acquisition.
• To deduct cost of improvement.
• To avail exemption u/s 54 B, 54 D, 54 G, and 54
  GA.
• The balance amount is Short Term Capital Gains.
• Short Term Capital Gains are chargeable to Tax
  based on SLAB RATES.

• LONG TERM CAPITAL GAINS
• To determine the Value of Consideration
• To deduct expenditure incurred for the transfer.
• To deduct indexed cost of acquisition
• To deduct indexed cost of improvement.
• To avail exemption u/s 54, 54 B,54 D, 54 EC, 54F,
  54 G, 54 GA,
• The balance amount is Long Term Capital Gains.
• Long Term Capital Gains are chargeable to Tax on
  Flat Rate i.e 20

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INDEXATION BENEFIT

• What is Indexation-
• Indexation is nothing but working out the value
  of asset based on cost inflation index.
• Cost inflation index for the year 1981-82 is
  100 Cost inflation index for the year 2007-08 is
  551.
• If an assessee had purchased an asset during
  the year 81-82 for a sum of Rs.100.00. The same
  assets value will be 551 if purchased during the
  year 2007-08 based on cost inflation index.
• Therefore the assessee gets additional
  benefit by deducting 551 instead of 100.

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EXEMPTED CAPITAL GAINS

• Section 54
• Section54 B
• Section 54 D

• Transfer of a Long Term Residential House
  Property and Purchasing/Constructing a New
  Residential House Property.
• Transfer of Agricultural Land and acquires a new
  land for agricultural purpose.
• Compulsory acquisition of land and buildings
  forming part of industrial undertaking and again
  invested.

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EXEMPTED CAPITAL GAINS

• Section 54 EC
• Section 54 F
• Section 54 G

• Transfer of Long Term Capital Asset and investing
  in Long Term Bonds.
• Transfer of a Long Term Capital Asset other than
  a House Property and investing in Long Term
  Residential House Property.
• Transfer of Assets in shifting of industrial
  undertakings from urban area to rural area.

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EXEMPTED CAPITAL GAINS

• Section 54 GA

• Capital Gains from Transfer of assets in cases of
  Shifting of industrial undertaking from urban
  area to any special economic zone

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• Thanks