Provisions of Capital Gains Under Taxation Act 1961 Capital gains should be taken to mean profits or gains arising

to the assessee from the transfer of a capital asset. "Capital asset" means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include (i) Any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession (ii) !ersonal effects, that is to say, mo"able property (including wearing apparel and furniture, but e#cluding $ewellery) held for personal use by the assessee or any member of his family dependent on him. %#planation & 'or the purposes of this sub-clause, "(ewellery" includes - (a) )rnaments made of gold, sil"er, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparel (b) !recious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel (iii) Agricultural land in *ndia, not being land situate (a) *n any area which is comprised within the $urisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the rele"ant figures ha"e been published before the +st day of the pre"ious year or (b) *n any area within such distance, not being more than eight kilometers from the local limits of any municipality or cantonment board referred to in item (a), as the ,entral -o"ernment may, ha"ing regard to the e#tent of, and scope for, urbanisation of that area and other rele"ant considerations, specify ./ in this behalf by notification in the )fficial -a0ette (i") 1 +2. per cent -old 3onds, +455, .. or 5 per cent -old 3onds, +46/, 7ational 8efence -old 3onds, +46/, issued by the ,entral -o"ernment (") 9pecial 3earer 3onds, +44+, issued by the ,entral -o"ernment ("i) -old 8eposit 3onds issued under the -old 8eposit 9cheme, +444 notified by the ,entral -o"ernment

Short-term and long-term capital assets,apital assets ha"e been subdi"ided into two categories "i0. :short-term capital assets; and longterm capital assets;. 9ec .(.4A) defines a long term capital asset; as meaning a capital asset which is not a short term asset. <he e#pression :short- term capital asset has been defined in 9ec..(=.A) to mean :a capital asset held by an assessee for not more than >1 months preceding the date of its transfer;. As regards holdings of shares, units, securities, or a 0ero coupon bond, the period of holding any capital asset has been statutorily reduced to +. months. <hus, ordinarily, a long term capital asset is one, which is held by a assessee for more than >1 months, otherwise the capital asset becomes a short-term capital asset. Transfer-sec. !"#$ ,apital gains arise only on the transfer of a capital asset. 9ec .(=5) defines the transfer in relation to a capital asset, and in sec.=? (.)-(?) whereby certain transactions, by implication, ha"e been treated as case of transfer although normally those might not be so treated. <he e#pression includes& i) ii) iii) <he sale, e#change or or relin@uishment of asset or <he e#tinguishment of any rights therein or <he compulsory ac@uisition thereof any under law or

i") *n a case where the asset is con"erted by the owner thereof into, is treated by him as stock-in-trade of a business carried on by him, such con"ersation or treatment or *"a) the maturity or redemption of 0ero coupon bond or Section "% CAP&TA' GA&(S. (+) Any profits or gains arising from the transfer 5>5 of a capital asset effected in the pre"ious year shall, sa"e as otherwise pro"ided in sections ?=, ?=3, ?=8, ?=%, ?=%A, ?=%3, ?=' , ?=and ?=A be chargeable to income-ta# under the head ",apital gains", and shall be deemed to be the income of the pre"ious year in which the transfer took place. (+A) 7otwithstanding anything contained in sub-section (+), where any person recei"es at any time during any pre"ious 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 - (i) 'lood, typhoon, hurricane, cyclone, earth@uake or other con"ulsion of nature or (ii) Biot or ci"il disturbance or

(iii) Accidental fire or e#plosion or (i") 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-ta# under the head ",apital gains" and shall be deemed to be the income of such person of the pre"ious year in which such money or other asset was recei"ed and for the purposes of section =6, "alue of any money or the fair market "alue of other assets on the date of such receipt shall be deemed to be the full "alue of the consideration recei"ed or accruing as a result of the transfer of such capital asset. %#planation. - 'or the purposes of this sub-section, the e#pression "insurer" shall ha"e the meaning assigned to it in clause (4) of section . of the *nsurance Act, +4>6 (= of +4>6). (.) 7otwithstanding anything contained in sub-section (+), the profits or gains arising from the transfer by way of con"ersion by the owner of a capital asset into, or its treatment by him as, stock-in-trade of a business carried on by him shall be chargeable to income-ta# as his income of the pre"ious year in which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of section =6, the fair market "alue of the asset on the date of such con"ersion or treatment shall be deemed to be the full "alue of the consideration recei"ed or accruing as a result of the transfer of the capital asset. (.A) Chere any person has had at any time during pre"ious 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-ta# as the income of the beneficial owner of the pre"ious year in which such transfer took place and shall not be regarded as income of the depository who is deemed to be registered owner of securities by "irtue of sub-section (+) of section +/ of the 8epositories Act, +441, and for the purposes of - (i) 9ection =6 and (ii) !ro"iso to clause (=.A) of section ., the cost of ac@uision and the period of holding of any securities shall be determined on the basis of the first-in-first-out method. %#planation. - 'or the purposes of this sub-section, the e#pressions "beneficial owner", "depository" any "security" shall ha"e the meanings respecti"ely assigned to them in clauses (a), (e) and (l) of sub-section (+) of section . of the 8epositories Act, +441. (>) <he 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 indi"iduals (not being a company or a co-operati"e society) in which he is or becomes a partner or member, by way of capital contribution or otherwise, shall be chargeable to ta# as his income of the pre"ious year in which such transfer takes place and, for the purposes of section =6, the amount recorded in the books of account of the firm, association or body as the "alue of the capital asset shall be deemed to be the full "alue of the consideration recei"ed or accruing as a result of the transfer of the capital asset. (=) <he 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 indi"iduals

(not being a company or a co-operati"e society) or otherwise, shall be chargeable to ta# as the income of the firm, association or body, of the pre"ious year in which the said transfer takes place and, for the purposes of section =6, the fair market "alue of the asset on the date of such transfer shall be deemed to be the full "alue of the consideration recei"ed or accruing as a result of the transfer. (?) 7otwithstanding anything contained in sub-section (+), where the capital gain arises from the transfer of a capital asset, being a transfer by way of compulsory ac@uisition under any law, or a transfer the consideration for which was determined or appro"ed by the ,entral -o"ernment or the Beser"e 3ank of *ndia, and the compensation or the consideration for such transfer is enhanced or further enhanced by any court, <ribunal or other authority, the capital gain shall be dealt with in the following manner, namely &- (a) <he capital gain computed with reference to the compensation awarded in the first instance or, as the case may be, the consideration determined or appro"ed in the first instance by the ,entral -o"ernment or the Beser"e 3ank of *ndia shall be chargeable as income under the head ",apital gains" of the pre"ious year in which such compensation or part thereof, or such consideration or part thereof, was first recei"ed and (b) <he 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 ",apital gains" of the pre"ious year in which such amount is recei"ed by the assessee. %#planation & 'or the purposes of this sub-section, - (i) *n relation to the amount referred to in clause (b), the cost of ac@uisition and the cost of impro"ement shall be taken to be nil (ii) <he pro"isions of this sub-section shall apply also in a case where the transfer took place prior to the +st day of April, +466 (iii) Chere by reason of the death of the person who made the transfer, or for any other reason, the enhanced compensation or consideration is recei"ed by any other person, the amount referred to in clause (b) shall be deemed to be the income chargeable to ta# under the head ",apital gains", of such other person. (1) 7otwithstanding anything contained in sub-section (+), the difference between the repurchase price of the units referred to in sub-section (.) of section 6/,,3 and the capital "alue of such units shall be deemed to be the capital gains arising to the assessee in the pre"ious year in which such repurchase takes place or the plan referred to in that section is terminated and shall be ta#ed accordingly. Section "6 CAP&TA' GA&(S )( *&ST+&,UT&)( )- ASS.TS ,/ C)0PA(&.S &( '&1U&*AT&)(. (+) 7otwithstanding anything contained in section =?, where the assets of a company are distributed to its shareholders on its li@uidation, such distribution shall not be regarded as a transfer by the company for the purposes of section =?.

(.) Chere a shareholder on the li@uidation of a company recei"es any money or other assets from the company, he shall be chargeable to income-ta# under the head ",apital gains", in respect of the money so recei"ed or the market "alue of the other assets on the date of distribution, as reduced by the amount assessed as di"idend within the meaning of sub-clause (c) of clause (..) of section . and the sum so arri"ed at, shall be deemed to be the full "alue of the consideration for the purposes of section =6. Section "# T+A(SACT&)(S ()T +.GA+*.* AS T+A(S-.+. 7othing contained in section =? shall apply to the following transfers & (i) Any distribution of capital assets on the total or partial partition of a Aindu undi"ided family (iii) Any transfer of a capital asset under a gift or will or an irre"ocable trust (i") Any transfer of a capital asset by a company to its subsidiary company, if - (a) <he parent company or its nominees hold the whole of the share capital of the subsidiary company and (b) <he subsidiary company is an *ndian company (") Any transfer of a capital asset by a subsidiary company to the holding company, if - (a) <he whole of the share capital of the subsidiary company is held by the holding company, and (b) <he holding company is an *ndian company & !ro"ided that nothing contained in clause (i") or clause (") shall apply to the transfer of a capital asset made after the .4th day of 'ebruary, +466, as stock-in-trade ("i) Any transfer, in a scheme of amalgamation, of a capital asset by the amalgamating company to the amalgamated company if the amalgamated company is an *ndian company ("ia) Any transfer, in a scheme of amalgamation, of a capital asset being a share or shares held in an *ndian company, by the amalgamating foreign company to the amalgamated foreign company, if - (a) At least twenty-fi"e per cent of the shareholders of the amalgamating foreign company continue to remain shareholders of the amalgamated foreign company, and (b) 9uch transfer does not attract ta# on capital gains in the country, in which the amalgamating company is incorporated ("ib) Any transfer, in a demerger, of a capital asset by the demerged company to the resulting company, if the resulting company is an *ndian company ("ic) Any transfer in a demerger, of a capital asset, being a share or shares held in an *ndian company, by the demerged foreign company to the resulting foreign company, if - (a) At least

se"enty-fi"e per cent of the shareholders of the demerged foreign company continue to remain shareholders of the resulting foreign company and (b) 9uch transfer does not attract ta# on capital gains in the country, in which the demerged foreign company is incorporated & !ro"ided that the pro"isions of sections >4+ to >4= of the ,ompanies Act, +4?1 (+ of +4?1) shall not apply in case of demergers referred to in this clause ("id) Any transfer or issue of shares by the resulting company, in a scheme of demerger to the shareholders of the demerged company if the transfer or issue is made in consideration of demerger of the undertaking ("ii) Any transfer by a shareholder, in a scheme of amalgamation, of a capital asset being a share or shares held by him in the amalgamating company, if - (a) <he transfer is made in consideration of the allotment to him of any share or shares in the amalgamated company, and (b) <he amalgamated company is an *ndian company ("iia) Any transfer of capital asset, being bonds or shares referred to in sub-section (+) of section ++?A,, made outside *ndia by a non-resident to another non-resident ("iii) Any transfer of agricultural land in *ndia effected before the +st day of Darch, +45/ (i#) Any transfer of a capital asset, being any work of art, archaeological, scientific or art collection, book, manuscript, drawing, painting, photograph or print, to the -o"ernment or a Eni"ersity or the 7ational Duseum, 7ational Art -allery, 7ational Archi"es or any such other public museum or institution as may be notified 5?> by the ,entral -o"ernment in the )fficial -a0ette to be of national importance or to be of renown throughout any 9tate or 9tates. %#planation & 'or the purposes of this clause, "Eni"ersity" means a Eni"ersity established or incorporated by or under a ,entral, 9tate or !ro"incial Act and includes an institution declared under section > of the Eni"ersity -rants ,ommission Act, +4?1 (> of +4?1), to be a Eni"ersity for the purposes of that Act. (#) Any transfer by way of con"ersion of bonds or debentures, debenture-stock or deposit certificates in any form, of a company into shares or debentures of that company. (#i) Any transfer made on or before the 5?>ca >+st day of 8ecember, +446, 5?>ca by a person (not being a company) of a capital asset being membership of a recognised stock e#change to a company in e#change for shares allotted by that company to the transferor. %#planation & 'or the purposes of this clause, the e#pression "membership of a recognised stock e#change" means the membership of a stock e#change in *ndia which is recognised under the pro"isions of the 9ecurities ,ontract (Begulation) Act, +4?1 (=. of +4?1)

(#ii) Any transfer of a capital asset, being land of a sick industrial company, made under a scheme prepared and sanctioned under section +6 of the 9ick *ndustrial ,ompanies (9pecial !ro"isions) Act, +46? (+ of +461) where such sick industrial company is being managed by its workersF co-operati"e & !ro"ided that such transfer is made during the period commencing from the pre"ious year in which the said company has become a sick industrial company under sub-section (+) of section +5 of that Act and ending with the pre"ious year during which the entire net worth of such company becomes e@ual to or e#ceeds the accumulated losses. %#planation & 'or the purposes of this clause, "net worth" shall ha"e the meaning assigned to it in clause (ga) of sub-section (+) of section > of the 9ick *ndustrial ,ompanies (9pecial !ro"isions) Act, +46? (+ of +461). (#iii) Chere a firm is succeeded by a company in the business carried on by it as a result of which the firm sells or otherwise transfers any capital asset or intangible asset to the company & !ro"ided that - (a) All the assets and liabilities of the firm relating to the business immediately before the succession become the assets and liabilities of the company (b) All the partners of the firm immediately before the succession become the shareholders of the company in the same proportion in which their capital accounts stood in the books of the firm on the date of succession (c) <he partners of the firm do not recei"e any consideration or benefit, directly or indirectly, in any form or manner, other than by way of allotment of shares in the company and (d) <he aggregate of the shareholding in the company of the partners of the firm is not less than fifty per cent of the total "oting power in the company and their share holding continues to be as such for a period of fi"e years from the date of the succession (#i") Chere a sole proprietary concern is succeeded by a company in the business carried on by it as a result of which the sole proprietary concern sells or otherwise transfers any capital asset or intangible asset to the company & !ro"ided that - (a) All the assets and liabilities of the sole proprietary concern relating to the business immediately before the succession become the assets and liabilities of the company (b) <he shareholding of the sole proprietor in the company is not less than fifty per cent of the total "oting power in the company and his shareholding continues to so remain as such for a period of fi"e years from the date of the succession and (c) <he sole proprietor does not recei"e any consideration or benefit, directly or indirectly, in any form or manner, other than by way of allotment of shares in the company

(#") Any transfer in a scheme for lending of any securities under an agreement or arrangement, which the assessee has entered into with the borrower of such securities and which is sub$ect to the guidelines issued by the 9ecurities and %#change 3oard of *ndia, established under section > of the 9ecurities and %#change 3oard of *ndia Act, +44. (+? of +44.), in this regard. Section "2 0)*. )- C)0PUTAT&)(. <he income chargeable under the head ",apital gains" shall be computed, by deducting from the full "alue of the consideration recei"ed or accruing as a result of the transfer of the capital asset the following amounts, namely &(i) %#penditure incurred wholly and e#clusi"ely in connection with such transfer (ii) <he cost of ac@uisition of the asset and the cost of any impro"ement thereto & !ro"ided that in the case of an assessee, who is a non-resident, capital gains arising from the transfer of a capital asset being shares in, or debentures of, an *ndian company shall be computed by con"erting the cost of ac@uisition, e#penditure incurred wholly and e#clusi"ely in connection with such transfer and the full "alue of the consideration recei"ed or accruing as a result of the transfer of the capital asset into the same foreign currency as was initially utilised in the purchase of the shares or debentures, and the capital gains so computed in such foreign currency shall be recon"erted into *ndian currency, so howe"er, that the aforesaid manner of computation of capital gains shall be applicable in respect of capital gains accruing or arising from e"ery rein"estment thereafter in, and sale of, shares in, or debentures of, an *ndian company & !ro"ided further that where long-term capital gain arises from the transfer of a long-term capital asset, other than capital gain arising to a non-resident from the transfer of shares in, or debentures of, an *ndian company referred to in the first pro"iso, the pro"isions of clause (ii) shall ha"e effect as if for the words "cost of ac@uisition" and "cost of any impro"ement", the words "inde#ed cost of ac@uisition" and "inde#ed cost of any impro"ement" had respecti"ely been substituted. !ro"ided also that nothing contained in the second pro"iso shall apply to the long-term capital gain arising from the transfer of a long-term capital asset being bond or debenture other than capital inde#ed bonds issued by the -o"ernment. %#planation & 'or the purposes of this section, - (i) "'oreign currency" and "*ndian currency" shall ha"e the meanings respecti"ely assigned to them in section . of the 'oreign %#change Begulation Act, +45> (=1 of +45>) (ii) <he con"ersion of *ndian currency into foreign currency and the recon"ersion of foreign currency into *ndian currency shall be at the rate of e#change prescribed in this behalf

(iii) "*nde#ed cost of ac@uisition" means an amount which bears to the cost of ac@uisition the same proportion as ,ost *nflation *nde# for the year in which the asset is transferred bears to the ,ost *nflation *nde# for the first year in which the asset was held by the assessee or for the year beginning on the +st day of April, +46+, whiche"er is later (i") "*nde#ed cost of any impro"ement" means an amount which bears to the cost of impro"ement the same proportion as ,ost *nflation *nde# for the year in which the asset is transferred bears to the ,ost *nflation *nde# for the year in which the impro"ement to the asset took place (") ",ost *nflation *nde#" for any year means such *nde# as the ,entral -o"ernment may, ha"ing regard to se"enty-fi"e per cent of a"erage rise in the ,onsumer !rice *nde# for urban nonmanual employees for that year, by notification in the )fficial -a0ette, specify 5?4 in this behalf.