Friday, August 19, 2016

Tax on Long Term Capital Gain Under Income Tax Act

Capital asset is defined to include:

(a) Any kind of property held by an assessee, whether or not connected with business or profession of the assesse.

(b)Any securities held by a FII which has invested in such securities in accordance with the regulations made under the SEBI Act, 1992.

However, the following items are excluded from the definition of “capital asset”:

(i) any stock-in-trade (other than securities referred to in (b) above), consumable stores or raw materials held for the purposes of his business or profession ;

(ii) personal effects, that is, movable property (including wearing apparel and furniture) held for personal use by the taxpayer or any member of his family dependent on him, but excludes—

(a) jewellery;

(b) archaeological collections;

(c) drawings;

(d) paintings;

(e) sculptures; or

(f) any work of art.

“Jewellery” includes—

a. ornaments made of gold, silver, 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 stones, and whether or not worked or sewn into any wearing apparel;

b. precious 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 India, not being a land situated:

a. Within jurisdiction of municipality, notified area committee, town area committee, cantonment board and which has a population of not less than 10,000;

b. Within range of following distance measured aerially from the local limits of any municipality or cantonment board:

i. not being more than 2 KMs, if population of such area is more than 10,000 but not exceeding 1 lakh;

ii. not being more than 6 KMs , if population of such area is more than 1 lakh but not exceeding 10 lakhs; or

iii. not being more than 8 KMs , if population of such area is more than 10 lakhs. Population is to be considered according to the figures of last preceding census of which relevant figures have been published before the first day of the year.

iv. 61/2 per cent Gold Bonds,1977 or 7 per cent Gold Bonds, 1980 or National Defence Gold Bonds, 1980 issued by the Central Government;

v. Special Bearer Bonds, 1991;

vi. Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 or deposit certificates issued under the Gold Monetisation Scheme, 2015.

Following points should be kept in mind:
The property being capital asset may or may not be connected with the business or profession of the taxpayer. g. Bus used to carry passenger by a person engaged in the business of passenger transport will be his capita asset.
Any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 will always be treated as capital asset, hence, such securities cannot be treated as stock-in-trade.

Illustration

Mr. Kumar purchased a residential house in January, 2015 for Rs. 84,00,000. He sold the house in April, 2016 for Rs. 90,00,000. In this case residential house is a capital asset of Mr. Kumar and, hence, the gain of Rs. 6,00,000 arising on account of sale of residential house will be charged to tax under the head “Capital Gains”.

Illustration

Mr. Kapoor is a property dealer. He purchased a flat for resale. The flat was purchased in January, 2015 for Rs. 84,00,000 and sold in April, 2016 for Rs. 90,00,000. In this case Mr. Kapoor is dealing in properties in his normal business. Hence, flat purchased by him would form part of stock-in-trade of the business. . In other words, for Mr. Kapoor flat is not a capital asset and, hence, gain of Rs. 6,00,000 arising on account of sale of flat will be charged to tax as business income and not as capital gain.

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