➢ Rural agricultural land in India: It is defined

CAPITAL GAINS
under Section 2(14)(iii) and located outside
➢ Capital gain is the profit or gain arising from municipal limits (specific distance and
the transfer (sale, exchange, etc.) of a capital population criteria apply).
asset.
➢ Gold Deposit Bonds and certain sovereign
SECTION 2(14) – DEFINITION OF gold bonds (as notified): This is also an
CAPITAL ASSET exclusion and not capital asset
➢ “Capital asset” means property of any kind ➢ If something is a capital asset, any gain from
held by a person, whether or not connected its transfer (sale, exchange, etc.) is taxable
with their business or profession, but excludes under capital gains (Section 45).
certain items. ➢ If it’s not a capital asset, then no capital gains
INCLUSIONS (WHAT IS A CAPITAL tax applies on its sale.
ASSET) SHORT-TERM CAPITAL ASSET (STCA) -
➢ Capital assets include: SECTION 2(42A)
✓ Land and buildings ➢ Under the Income-tax Act, 1961, a Short-Term
Capital Asset is defined as, A capital asset held
✓ Shares, debentures, mutual funds
by an assessee for not more than 36 months
✓ Bonds, securities immediately before the date of transfer.
✓ Jewellery, paintings, sculptures, and other SECTION 2(42B) – SHORT-TERM
collectibles CAPITAL GAIN (STCG)
✓ Rights and interests in property (e.g. lease ➢ Under the Income-tax Act, 1961, Section
rights, trademarks) 2(42B) defines: “Short-Term Capital Gain”
EXCLUSIONS (WHAT IS NOT A CAPITAL means profit or gain arising from the transfer
ASSET) of a short-term capital asset.
➢ Stock-in-trade: Assets held for business or ➢ STCG is fully taxable (no exemption like
trading (e.g. goods in a shop). But note that agricultural income).
land and shares held as stock-in-trade can be
SECTION 2(29A) – LONG-TERM
taxable under business income.
CAPITAL ASSET (LTCA)
➢ Personal movable items, like:
➢ A capital asset held by the assessee for more
✓ Furniture than a specified period immediately before
✓ Clothes the date of transfer is called a long-term
capital asset.
✓ Vehicles
SECTION 2(29B) – LONG-TERM
✓ Household utensils
CAPITAL GAIN (LTCG)
➢ Exception: These are capital assets if they are:
➢ Profit or gain arising from the transfer of a
✓ Jewellery long-term capital asset is called Long-Term
✓ Paintings Capital Gain.

✓ Sculptures
✓ Archaeological collections
 "TRANSFER" – SECTION 2(47)
➢ “Transfer” in relation to a capital asset includes COMPUTATION OF CAPITAL GAINS
a wide range of transactions beyond just ➢ Section 45 of the Income-tax Act, 1961 deals
selling an asset. with the taxation of capital gains. It lays down
➢ Under Section 2(47) "transfer" to include: when and how capital gains are chargeable to
➢ Sale, exchange, or relinquishment of the tax.
asset: ➢ Any profit or gain arising from the transfer of
✓ Selling land, exchanging one property for a capital asset during the previous year is
another, or giving up rights in a flat. taxable under the head "Capital Gains" in the
year in which the transfer takes place.
➢ Extinguishment of any rights in the asset:
TRANSACTIONS NOT AMOUNTING TO
✓ Letting a lease expire or surrendering TRANSFER
property rights.
➢ Under the Income-tax Act, 1961, Sections 46
➢ Compulsory acquisition under any law:
and 47 specify certain transactions that are
✓ Government acquires land for public use. not treated as a "transfer", and therefore, no
➢ Conversion of capital asset into stock-in- capital gains tax is charged on them.
trade: TRANSFER IN CASE OF LIQUIDATION
✓ Converting land into real estate inventory OF A COMPANY
for business. ➢ Section 46(1):
➢ Maturity or redemption of certain ✓ When a company goes into liquidation
investment instruments: and distributes assets to shareholders, that
✓ Redeeming zero-coupon bonds or units of distribution is not considered a "transfer"
mutual funds. in the hands of the company.

➢ Part performance of contract under ➢ No capital gains tax on the company for such
Section 53A of the Transfer of Property Act, transfer.
1882: ➢ Under section 46(2) for the shareholder, the
✓ Giving possession of property under an amount received is taxable under capital
agreement to sell (even without full sale gains.
deed). ➢ So, for company it is not a transfer but for
➢ Possession or Enjoyment: shareholder it is taxable.

✓ Any transaction involving possession or MODE OF COMPUTATION OF CAPITAL

enjoyment of property under legal GAINS
arrangements like leases or trusts. ➢ Section 48 of the Income-tax Act, 1961 lays
➢ So, in simple terms a “Transfer” includes any down the method to compute capital gains
action where you lose ownership or control when a capital asset is transferred.
over a capital asset, whether you sell it, give it CAPITAL GAINS
away, exchange it, or it is taken over by law.
➢ Full Value of Consideration: The total sale
➢ Capital gains tax is triggered only when there price or value received on transfer of the
is a “transfer” of a capital asset. capital asset.
➢ Expenses on Transfer: Expenses directly
related to the sale:
✓ Brokerage or commission
✓ Legal fees
✓ Stamp duty, etc.
➢ Cost of Acquisition: Original price paid to
buy the asset.
➢ Cost of Improvement: Capital expenses to
improve the asset (not regular maintenance).
MEANING OF ADJUSTED ‘, COST OF
IMPROVEMENT ‘AND COST OF
ACQUISITION ‘(SECTION 55)
➢ Adjusted (though not defined separately in
the Act) in the context of capital gains is
“Adjusted” generally refers to inflation-
adjusted values—mainly through the Cost
Inflation Index (CII), used in indexation for
long-term capital gains and is applied to:
✓ Cost of Acquisition
✓ Cost of Improvement
➢ This means the original cost is increased to
reflect inflation, reducing the taxable capital
gain.
COST OF ACQUISITION
➢ The price paid to acquire the capital asset
(including purchase price + related expenses
like brokerage, registration, stamp duty, etc.)
COST OF IMPROVEMENT
➢ Any capital expenditure incurred by the
assessee to make additions or improvements
to the capital asset. It does not include:
✓ Routine repairs or maintenance
✓ Expenses claimed as deduction under any
other section