Capital Gains Tax

Any profit or gain arising from the sale or transfer of a capital asset is chargeable to tax under the head ‘capital gains’.It is the income of the previous year in which the transfer of the capital asset took place.Capital gains arising from the transfer of immovable property are chargeable to tax in the previous year, in which the effective transfer of title is conveyed and registered.

There are two types of capital gains – short-term and long-term.Short-term capital gain refers to the capital gain,which has been obtained from the full value of consideration from the transfer of short-term capital assets after reducing permitted deductions.Long-term capital gain refers to the capital gain, which is obtained from the full value of consideration from the transfer of long-term capital assets after permitted deductions.

Capital Gains Exemptions

There are exemptions provided from taxation of capital gains. These exemptions are of two types:

a. Exemption of capital gain under various sub-clauses of Section 10 of the Income Tax act. It contains exempted capital gain in the hands of the various categories of persons.

b. Exemption of capital gain under Sections 54, 54B, 54D, 54EC, 54ED, 54F and 54G:

•  Profit on the sale of property used for residence (Section 54);

• Capital gain on the transfer of land used for agricultural purposes not to be charged in certain cases (Section 54B);

• Capital gain on compulsory acquisition of lands and buildings not to be charged  in certain cases (Section 54D);

• Capital gain not to be charged on investment in certain bonds (Section 54EC);

• Capital gain on transfer of certain listed securities or unit, not to be charged in  certain cases (Section 54ED);

• Capital gain on the transfer of certain capital assets not to be charged in case of investment in residential house (Section 54F); and

• Exemption of capital gains on the transfer of assets in the cases of shifting of industrial undertaking from urban areas (Section 54G).