I
transfer or sell assets (plant, machinery, land or building
or any right in land or building) while shifting of my industrial
undertaking from an urban area to a non-urban area?
What
arethe assets that are taxable under "Capital Gains"?
When you have sold or transferred any asset like shares,
bonds, land or any Other Property you have acquired, then
any difference between the Sale Price and the Cost Price
(in simple terms) is termed as "Capital Gains". The term
used in the Income Tax Law for such assets is "Capital
Asset". "Capital Asset" includes any kind of property,
(e.g.: land, building, flat, apartment, share, debentures,
bonds and etc.) but excludes: - a) Stock-in-trade b) Personal
effects (excluding jewellery) e.g. furniture, motor car
c) 61/2% & 7% Gold Bonds. d) National Defence Gold Bonds.
e) Special Bearer Bonds & Gold Deposit Bonds. f) Agricultural
Land in India.
The
Income Tax Return mentions "Short Term Capital Gains"
and "Long Term Capital Gains". Can these terms be explained
in detail?
If you have sold or transferred an asset held for
less than 36 months (12 months in case of Equity Shares
in any company (both Private Limited and Public Limited)
or units of Unit Trust of India /Mutual Funds) immediately
preceding the date of transfer, then the gain/loss arising
out of this transfer or sale is a "Short Term Capital
Gain/ Loss". For e.g. A plot of land is purchased on 15/12/98
and sold on 15/12/00.The difference between the sale price
and cost price is regarded as "Short Term Capital Gain".
Any sale or transfer of an Asset held for more than 36
months immediately preceding the date of transfer or in
case of Equity Shares or units of Unit Trust of India
/Mutual Funds for more than 12 months sale is a "Long
Term Capital Gain". For e.g: A plot of land is purchased
on 15/12/96 and sold on 15/12/00.The difference between
the sale price and cost price is regarded as "long term
capital gain".
How
will be my Capital Gains calculated?
Capital Gains tax is calculated as difference between
the sale price & indexed cost for Long-term Capital Gain
and for Short Term Capital Gain it is the difference between
Sale Price & Cost Price.
I
have heard the term "Indexation" while referring to Capital
gains. Can you explain what is indexation?
Since the assets are acquired out of the savings on which
tax is already levied, the Income Tax Act allows adjustment
for the rising costs i.e.inflation. For e.g: The cost
of an asset purchased in 1985-86 for Rs.100 and sold in
1999-2000 will be taken as 100* 133/389 i.e. Rs.34/-.
The indexation chart or the cost inflation index is laid
down by the Central Government with regard to 75% of average
rise in the consumer price index for urban and non manual
employees.
|
FINANCIAL YEAR
|
COST INFLATION INDEX
|
|
1981-82
|
100
|
|
1982-83
|
109
|
|
1983-84
|
116
|
|
1984-85
|
125
|
|
1985-86
|
133
|
|
1986-87
|
140
|
|
1987-88
|
150
|
|
1988-89
|
161
|
|
1988-90
|
172
|
|
1990-91
|
182
|
|
1991-92
|
199
|
|
1992-93
|
223
|
|
1993-94
|
244
|
|
1994-95
|
259
|
|
1995-96
|
281
|
|
1996-97
|
305
|
|
1997-98
|
331
|
|
1998-99
|
351
|
|
1999-2000
|
389
|
|
2000-2001
|
406
|
|
2001
- 2002
|
426
|
|
2002
- 2003
|
447
|
|
2003
- 2004
|
463
|
|
2004
- 2005
|
480
|
How
is my Capital Gains computed in the following events:
A)when I start a business with my jewellery?
B)when a firm's assets are transferred to a partner?
C)when a partner transfers his/her personal assets to
a firm?
A)when I start a business with my jewellery?
When you convert a Capital asset into your Stock in Trade
i.e. if you start trading in jewellery which you own,
then the Fair Market Value (which can be obtained from
a Valuation Report from a Government Approved Valuer)
on the date on which you start your Business shall be
assumed to be the Sale Value for the asset so converted.
This notional profit i.e. the difference between the valuation
and cost of the asset will be taxed as Capital Gains in
the year in which the asset is actually sold.
B)when
a firm's assets are transferred to a partner?
In the case when the firm's asset is transferred to a
partner, the value of the asset shown in the books of
the firm is taken as the Cost of Acquisition..
C)when
a partner transfers his/her personal assets to a firm?
When the partner transfers his/her personal assets
to a firm then the Cost of acquisition will be the value
shown at which the transferred asset is recorded in the
books of the Firm.
What
will be the 'capital gains' wherein the Government or
any statutory authority acquires my land compulsorily?
In such cases you may receive some initial compensation
for the asset transferred and later receive some enhanced
compensation. When you receive the initial Compensation,
this amount will be treated as a Sale Value and the Taxes
shall be computed depending on the period of holding of
the asset. This will be taxable in the year in which the
asset is acquired. If you receive an enhanced compensation
later, the whole of the amount will be taxed in the year
when you receive the amount either as a Long Term or as
a Short Term Capital Gain in the same manner the initial
Compensation was taxed.The cost of acquisition or improvement
will be nil. Any legal or litigation expenses can be deducted
as a transfer cost.
I
have received bonus shares and sold them. Am I liable
for capital gains tax, although I have acquired them free?
The bonus shares that you have sold will be taxed
as capital gains. The date of acquisition will be the
date of allotment of bonus shares. The amount of Capital
Gains will be the Sale price.
I
have acquired shares through a rights issue. What will
be the Capital Gains if I sell these shares?
Capital Gains will be the difference between the Sale
price and Cost price (price at which right shares are
purchased) depending on the period for which the shares
have been held.
I
receive an asset through gift or will and then sell them.
Am I liable for Capital Gains Tax?
If you have received any asset through gift or will
& want to sell them, the amount of capital gain will be
the sale price and the date of acquisition will be the
date of gift on which the gift was received or the date
the will comes into force.
I
have purchased shares from the stock exchange and then
sold them. How do I determine my capital gain?
Capital gain is the difference between the sale price
& the cost price. The Cost of shares will
also include the cost of transfer like cost of Share transfer
Stamps, Postage and the brokerage paid for purchase and
sale. The date of purchase will be as per the date of
contract that is mentioned in the broker's note or the
date of transaction as per demat account. When the shares
are held for less than 12 months then it is considered
as Short Term Capital Gain and will be taxed at 10%if security transaction tax is paid.
The
term " Fair Market Value" is being mentioned with reference
to the Capital Gains. Can I know what is Fair Market Value?
Fair Market Value means the price that the Capital
asset would fetch on the date of sale in the open market.
What
are the deductions that I can avail of on Capital Gains?
All expenses incurred with reference to purchase and
sale such as Stamp Duty & Registration Charges, transfer
fees and brokerage paid are availed as deductions.Any
other incidental expense justified for making the purchase/sale
is also treated as a deduction.
How
is my Tax liability on Capital Gains calculated?
Tax on short term Capital gain is calculated at normal
rates. Short-term capital gains is calculated at special
rates.
Are
there any exemptions in the tax regarding capital gains?
YES. You could avail of exemptions and thus not incur
the tax liability.
What
are the exemptions with regard to tax liability on capital
gains?
In short it can be said that in a case where the capital
gains arising from sale of a house property is invested
in a house it is exempt from taxation. Similarly,capital
gains arising from sale of agricultural land and invested
in a similar land is also exempt from taxation.
I
sell or transfer my residential house. Am I liable for
Capital Gains Tax?
If you transfer or sell your residential house, there
will be no tax liability if you invest the Capital Gains,(please
note that it is only the Capital Gains and not the whole
sale price) to purchase or construct another residential
house within a specified period.(i.e with reference to
purchase, the term is within two years from the date of
transfer and if constructed, then the specified period
is within three years). If the residential house is not
purchased or constructed within the due date of filing
your income tax return, then the amount of capital gains
should be deposited in a separate bank account in any
nationalised bank. If the new house thus purchased or
constructed is sold within a period of three years (from
the date of completion) of the construction or purchase,
then this benefit will be withdrawn. The exempted amount
is considered as income of the year in which the asset
is sold.
What
is a "Capital Gains Account"?
Capital Gains which is not invested before the due date
of filing of income tax return, is deposited in a separate
bank account in a nationalised bank. This amount can be
kept in this account till the acquistion or construction
of the specified capital asset (residential house, agricultural
land,etc).
What
are the implications, if I do not utilise the amount deposited
in the separate "Capital Gains Account" with a Bank?
You will have to utilise the amount within the specified
period (either 3 years or 2 years as applicable) from
the date of sale or transfer. After the expiry of two
or three years, the unutilised capital gains will be treated
as income and taxed in the year in which the specified
period expires.
I
sell my agricultural land. Is my capital gain exempt from
tax?
Capital Gains, which arise from the sale or transfer
of agricultural land will not be charged to tax if you
have purchased any other land used for agricultural purpose
within a period of two years after the date of sale or
transfer. If the agricultural land purchased is sold within
a period of three years then the cost of new agricultural
land will be taken as NIL and the amount received on sale
of the agricultural land will be treated as capital gains.
If agricultural land is not purchased before the due date
of filing of income tax return, the amount of capital
gains should be deposited in a rural branch of a bank
or institution which is specified by the Central Government.
The proof of deposit should be attached with the income
tax return.
The
Government has compulsorily acquired my land and buildings
forming a part of my industrial undertaking. Do I have
to pay any taxes?
If you purchase any other land or building or construct
any other building within three years from the date of
the compulsory acquisition for the purposes of shifting
or re-establishing the said undertaking or setting up
another industrial undertaking, you will be exempt from
tax in respect of capital gains arising from such a transfer.
The capital gain in such cases will not be chargeable
to that extent which you have utilised for purchasing
or constructing the new building.
I
have long term capital gains arising from transfer of an
asset. The amount is invested in a residential house. Will
this affect the Tax Liability?
You will not be liable for any tax liability on the
Long Term Capital gains when this amount (capital gains
computed and not the sale price) is invested in purchase
or construction of a residential house.
Can
I avail of any tax-savings through any other Investments?
Capital gains arising as a result of sale or transfer
of a long term capital asset will be exempt if the full
value of net consideration (Sale Proceeds) is deposited
or invested in any specified asset such as NABARD bonds,
bonds of National Highway Development Authority. The lock-in
period of the bonds is five years.
I transfer or sell assets (plant, machinery,
land or building or any right in land or building) while
shifting of my industrial undertaking from an urban area
to a non-urban area?
The capital gain which arises from the transfer of capital
asset as a result of the shifting of such industrial undertaking
to any area (other than an urban area) and within a period
of one year before or three years after the date on which
the transfer took place: -
1. Has purchased new machinery or plant for the purposes
of business of the industrial undertaking in the area to
which the said undertaking is shifted.
2. Acquired building or land or constructed building for
the purpose of his business in the said area.
3. Shifted the original asset & transferred the establishment
of such undertaking to such area.
4. Incurred expenses on such other purpose as may be specified
in a scheme framed by the Central Government.
If the capital gains exceed the cost price of the newly
acquired property then the difference is liable to tax and
not otherwise.
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