Capital gains..psd

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Charging section-45:

1 Charging section-45 Conditions: 1.capital asset 2.Transferred during the current previous year Transfer includes sale,exchange, compulsory acquisition,relinquishment and extinguishment of assets. 3. Transfer takes place during previous year 4. Any profit or gain arises as a result of transfer www.professoraugustin.com

Not a Capital Asset:

2 Not a Capital Asset Any stock-in-trade (land for real estate), consumable stores or raw materials held for the purpose of his business or profession; Personal effects , i.e., movable property (including wearing apparel and furniture, excluding jewellery ), held for personal use by the assessee or any member of his family dependent on him. Agricultural land in India , (Rural ) (has a population of less than ten thousand according to the last preceding census and In any area within such distance, being more than eight kilometers , from the local limits of any municipality or cantonment board referred to in item) www.professoraugustin.com

Not a Capital asset:

3 Not a Capital asset 6.5 per cent Gold Bonds 1977, or 7 per cent Gold Bonds 1980, National, Defence Gold Bonds, 1980, issued by the Central Government; Special Bearer Bonds, 1991, issued by the Central Government; Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 notified by the Central Government. www.professoraugustin.com

Personal effect:

4 Personal effect Only Movable assets used by the assessee or by the family members If not a capital asset -No capital gain and will not be taxed under any other heads www.professoraugustin.com

Short term capital asset:

5 Short term capital asset Less than 3 years from the date of acquisition till the date of transfer(sale) For shares(quoted or un quoted), Units of UTI, Mutual funds and quoted debentures-12 months Unquoted debentures in a recognised stock exchange of India- 3 years www.professoraugustin.com

Long term capital asset:

6 Long term capital asset If it is not short term it becomes long term See the previous slide www.professoraugustin.com

PowerPoint Presentation:

7 Computation of Short-term capital gain 1. Find out the full value of consideration 2. Deduct the following: a) Expenditure incurred wholly and exclusively in connection with such transfer. b) Cost of acquisition. c) Cost of improvement 3. From the resulting sum deduct the exemption provided by section 54B, 54D and 54G. 4. The balancing amount is the short-term capital gain. Short term capital gain-computation www.professoraugustin.com

Computation of Long-term capital gain :

8 Computation of Long-term capital gain 1. Find out the full value of consideration 2. Deduct the following: a. Expenditure incurred wholly and exclusively in connection with such transfer b. Indexed Cost of acquisition c. Indexed Cost of improvement. 3. From the resulting sum deduct the exemption provided by section 54, 54B, 54D, 54EC,, 54F and 54G, and 54GA. 4. The balancing amount is the long-term capital gain. www.professoraugustin.com

Indexed cost of acquisition:

9 Indexed cost of acquisition Formula cost= cost of acquisition of the present seller or Cost of acquisition of the previous owner (original) in case the property was acquired by will or gift or exchange of shares in case of amalgamation. or Fair market value as on 1 st April 1981 which ever is higher Cost x Index of the year of sale Index of the year of acquisition of the present seller www.professoraugustin.com

Indexed cost of acquisition? :

10 Indexed cost of acquisition? S 48 defines "indexed cost of acquisition" as the amount, which bears to the cost of acquisition the same proportion as Cost Inflation Index for the year, in which the asset is transferred, bears to the Cost Inflation Index for the first year in which the asset was held by the assessee or for the year beginning on the 1st day of April, 1981, whichever is later. The Cost Inflation Index, in relation to a previous year, means such Index as the Central Government may, having regard to 75% of average rise in the Consumer Price Index for urban non-manual employees for the immediately preceding previous year to such previous year, by notification in the Official Gazette. www.professoraugustin.com

No Index please!!!:

11 No Index please!!! Depreciated asset Bonds[Debentures] Short term assets Send sms to others about www.professoraugustin.com www.professoraugustin.com

PowerPoint Presentation:

12 Financial year Index Financial year Index 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 100 109 116 125 133 140 150 161 172 182 199 223 244 259 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 281 305 331 351 389 406 426 447 463 480 497 519 551 Note:Index for the financial year not for the assessment year www.professoraugustin.com

PowerPoint Presentation:

13 Exercise:01 Compute the capital gains in the following assesment year 2008-09 (1)Mr. A, a land dealer, sells land on 1-7-2007 for Rs.15,00,000 which was acquired on 1-8-2003 for Rs. 6,00,000. (2)Mr. B sells his personal motorcycle on 1-4-2007 for Rs.12,000 which was acquired on 1-4-2005 for Rs. 42,000. (3) Mr. D sells rural agricultural land on 1-7-2007 for Rs. 14 lakhs. The land was acquired on 1-3-01 for Rs. 8,50,000. Personal assets www.professoraugustin.com www.professoraugustin.com

Answer:01:

14 Answer:01 1. Land dealer sells land comes under business income as land comes under stock in trade. Income from business (15,00,000-6,00,000) is Rs.9,00,000 2.Motor cycle comes under personal effect. It is not a capital asset, therefore there is no capital gain. The gain or loss does not come under any heads also. 3.Rural agricultural land is not a capital asset .It does not attract capital gain on its transfer or under any other heads. www.professoraugustin.com

Dealer and exchange :

15 Dealer and exchange Exercise:02 X is a dealer in shares . He held 1,000 shares of Rs.100 each in AA ltd., which he valued at cost on 31.3.1989. On 1.5.1999, he was offered 2 shares of BB ltd of the face value of Rs.10 each in exchange of 1 share of AA ltd. He accepted the offer. The said shares of BB ltd were held in stock on 31.3.2000 and were valued by X @ Rs.1, 00,000 on the ground that he had not incurred any cost over and above what he had originally paid for shares of AA ltd. Is he correct? Answer:- Exchange of shares at the time of amalgamation or absorption does not amount to transfer.The cost of acquisition of BB Ltd shares is the cost of acquisition of AA Ltd shares. 49(1) www.professoraugustin.com

PowerPoint Presentation:

16 Exercise:03 Shri Kamal purchases a personal diamond set for Rs. 42,00,000 on 15-7-06. On 15-12-07 he sold this set for Rs. 62,00,000. The expenses on transfer were Rs. 45,000. compute his capital gain. Answer:03 Short term capital asset. Jewels include diamond which is not a personal effect Sale Rs.62,00,000 Less: Expenses related to sale 45,000 Net sale consideration 61,55,000 Less: Cost of acquisition Rs.42,00,000 Short term capital gain Rs.19,55,000 Note:If less than three years it becomes short term capital asset. Simple problem www.professoraugustin.com

PowerPoint Presentation:

17 Exercise:4 -Gold is not a personal effect.It is a capital asset. Ms. Richa purchases gold jewels for Rs. 8,50,000 on 2/4/2004. She studded the jewels with diamonds of Rs. 32,00,000 on 15 th April 2004. On 12-1-2008 She sold the jewels for Rs. 94,50,000. The expenses on transfer were Rs. 9,24,500. compute capital gain. Answer:4 Sale 94,50,000 Less :Expenses to sale 9,24,500 Net sale consideration 85,25,500 Less : Index cost of acquisition 9,75,729 (8,50,000 x 551/480) Index cost of improvement 36,73,333 (32,00,000 x 551/480) Long term capital gain 38,76,438 Gold-capital gain Long term asset we use index-see table www.professoraugustin.com

Transfer of house property :

18 Transfer of house property Under S 54, exempt from tax provided The following conditions are satisfied The house is a residential house is taxable under the head "income form house property" The house property, which may be self-occupied or let out, is a long term capital asset (i.e. held for a period of more than 36 months before sale or transfer.) Invest upto capital gain in the same nature of asset(house property) one year before or two years for purchase or construct within 3 years from the date of transfer. 1+2 or 3 The house property, so purchased or constructed, has not been transferred within a period of 3 years from the date of purchase or construction. www.professoraugustin.com

Consequences if a new house is transferred within 3 years? :

19 Consequences if a new house is transferred within 3 years? the amount of capital gain that arise, together with the amount of capital gains exempted earlier, will be chargeable to tax in the year of the sale of the new house property. www.professoraugustin.com

If new house transferred?:

20 If new house transferred? The gain along with exempted gain is taxed as short term www.professoraugustin.com www.professoraugustin.com

How IS long term capital gain taxed?:

21 How IS long term capital gain taxed? Flat rate-20%+Surcharge+Educational cess+ Secondary and higher education cess. Surcharge-10% if net income exceed Rs.10,00,000 for individual,HUF,AOP,BOI Educational cess-3 % on (tax+ surcharge ) Companies -10% if net income does not exceed 1 crore rupees. www.professoraugustin.com

Tax shelter for avoiding long term capital gains tax? :

22 Tax shelter for avoiding long term capital gains tax? The Income Tax Act grants total/partial exemption of capital gains under Sec.- 54, 54B, 54D, 54EC, 54F, 54G and 54H. www.professoraugustin.com

Under S 54 :

23 Under S 54, exempt from tax provided The following conditions are satisfied The house is a residential house is taxable under the head "income form house property" The house property, which may be self-occupied or let out, is a long term capital asset (i.e. held for a period of more than 36 months before sale or transfer.) 1+2 or 3 Invest upto capital gain in the same nature of asset The house property, so purchased or constructed, has not been transferred within a period of 3 years from the date of purchase or construction. Under S 54 www.professoraugustin.com www.professoraugustin.com

PowerPoint Presentation:

24 Exercise:5 Mr. JP Verma purchased a residential house on 1/7/1993 for Rs 5,20,000. He sold this house on 1/8/2007 for Rs 25,00,000 and paid 1% brokerage .He invested Rs 1,50,000 in the 3 year bonds of National Highway Authority of India on 25/01/2008. He purchased a residential house on 1/6/2008 for Rs.8,50,000 and deposited Rs.2,20,000 in nationalized bank under capital gain scheme account. Analyze tax implications of the above transaction for the assessment year 2008-2009 Answer:5 . The bond purchased within 6 months from the date of sale of property. It was done. The amount deposited before the last date of filing in a nationalised bank. It was done. Investments in House and NHA(54 and 54EC) www.professoraugustin.com

answer-5:

25 answer-5 Sale consideration Rs.25,00,000 Less : Expenditure to transfer Rs. 25,000 (1% x 25,00,000) Net sale consideration Rs.24,75,000 Less : Indexed cost of acquisition Rs.11,74,262 (5,20,000 x 551/244) Long term capital gain Rs.13,00,737 Less :deduction U/S 54 ( Investment in House Property) Rs.8,50,000 Less : deposit under capital gain scheme Rs.2,20,000 (deposited before filing returns) Less : amount invested in NHA Bonds Rs.1,50,000 (Deposited with in 6 months from the date of sale U/S 54EC) Taxable capital gain Rs.80.738 www.professoraugustin.com

PowerPoint Presentation:

26 Exercise: 06 Mr. Muthu purchased a house property on 15/6/1977 for Rs 7,50,000. In December 1980 he incurred a n expenditure of Rs75,000 on its re-roofing and change its flooring. After renovation the market value of the house was quoted at Rs8,00,000 on 1/4/1981.He died on 15/10/1999. His daughter,Mrs. Pearl applied for mutation of the house in her name and paid Rs20,000 as transfer duty and other legal charges .The mutation process was completed on 15/03/2000.She added one room in 2001-2002 at a cost of Rs 50,000.She sold the house on 1/04/2008 for Rs30,00,000 and paid 1% brokerage .She purchased a plot on 15/5/2008 for Rs3,50,000. She engaged on expert architect to prepare the design of modern house and supervise its construction. Architect fees has agreed at 5% of the cost of construction. He spent Rs12,00,000 on its construction .The construction of the house was completed on 15/7/2008. compute capital gain for the assessment year 2008-09. Inheritance property www.professoraugustin.com

Answer:-06:

27 Answer:-06 1. Any improvement before 1 st April 1981 can not be considered as improvement .Compare the cost of Rs.7,50,000 with Rs. 8,00,000(FMV) which ever is higher is considered as cost of acquisition as the property is transferred to Mrs.Pearl by will. 2. Index to be calculated from 1999-2000 as she had received the property on 15/03/2000. www.professoraugustin.com

PowerPoint Presentation:

28 Answer-06 Sale consideration Rs.30,00,000 Less : Expenditure to transfer Rs. 30,000 (1% x 30,00,000) Net sale consideration Rs.29,70,000 Less : Indexed cost of acquisition Rs.11,33,162 (8,00,000 x 551/(1999-2000)389) Less: cost of improvement Rs. 28,329 (20,000 x 551/389) Less: cost of improvement Rs. 64,671 (50,000 X 551/426) Long term capital gain Rs.17,43,838 Less :deduction U/S 54 ( Investment in House Property) Rs.8,50,000 Less : deposit under capital gain scheme Rs.2,20,000 (deposited before filing returns) Less : amount invested in NHA Bonds Rs.1,50,000 (Deposited with in 6 months from the date of sale U/S 54EC) Taxable capital gain Rs.80.738 www.professoraugustin.com

PowerPoint Presentation:

29 Exercise:07 Mr. Benedict purchased residential house property on 1/10/1998 for Rs.8,40,000.He sold it on 10/04/2007 for Rs28,70,000 and paid Rs50,000 as brokerage .He purchased a residential house for Rs 16,00,000 on 1/10/2007.He sold the new house on 15/01/2009 for Rs15,50,000 Compute capital gain for the assessment year 2008-2009 and 2010-11 Answer:07 Sale 28,70,000 Less : Expenses related to transfer 50,000 Net sale consideration 28,20,000 Less : Indexed cost of acquisition 13,18,632 (8,40,000 x 551/351(98-99) Long term capital gain 15,01,368 Less : Deduction U/S 54 15,01,368 As investment in house property is more than capital gain entire capital gain is exempted. Sale of new house and withdrawal of exemption 54 www.professoraugustin.com

Sale of new house(answer-07):

30 Sale of new house(answer-07) Assessment year 2009-10 Sale 15,50,000 Less: cost of acquisition 16,00,000 Short term capital loss ( 50,000) Short term capital gain which was exempted earlier, is taxed, if the new house transferred with in 3 years from the date of acquisition, i.e. 15,01,368 is a short term capital gain Net short term capital gain=15,01,368-50,000 =14,51,368(taxable) www.professoraugustin.com

Site and building:

31 Site and building Exercise:08 X an individual purchased a site on April 21,2001 for Rs.2,00,000. He completed construction of a building thereon on April 21, 2005 at a cost of Rs.10,00,000. He sold the property consisting of site and building on December 7, 2007 for Rs.20,00,000(land Rs. 5,00,000 and the balance for building). X seeks your opinion on the nature of capital gain arising to him from the sale of property for the assessment year 2008-09. Answer next slide www.professoraugustin.com

Answer:08:

32 Answer:08 1. Sale consideration of land 5,00,000 Indexed cost of acquisition: land: 2,00,000 X 551/426 = 2,58,685( Long term) Long term capital gain = 2,41,315 Sale value of Building(short term) =15,00,000 cost of acquisition 10,00,000 Short term capital gain 5,00,000 Even the land and building are sold together while computing capital gain we have to differentiate and calculate capital gain individually. Since land was purchased three year before, the gain is long term from land, whereas building is constructed within three years before the date of sale, the gain arising from such building is short term. www.professoraugustin.com

PowerPoint Presentation:

33 Exercise:09 Mr.Santhanam an owner of 3 houses sells a residential house property in Chennai for Rs.40,90,000 on may 23,2007.This house was purchased by him on April 1,1987 for Rs.2,90,000. On May 30, 2007, he purchased a flat in Bombay for Rs.18, 70,000 for the purpose of the residence of his daughter. On March 1, 2008, Mr.Santhanam sold the house in Bombay for Rs, 42,10,000. Compute the capital gain arising on the two transactions. Is Mr.Santhanam eligible for exemption under sec.54 in respect of the second sale? Residential building and Sec.54 www.professoraugustin.com

Under Section 54B :

34 Under Section 54B Individuals agricultural land used for atleast for 2 years before transfer provided the assessee has purchased another land for agricultural purpose within a period of 2 years from the date of such transfer. In the case of compulsory acquisition, It is exempted from tax as per section 10(37) with effect from assessment year 2005-06 onwards. www.professoraugustin.com www.professoraugustin.com

PowerPoint Presentation:

35 Exercise:10 Mr. Nimbus purchased agriculture land for Rs5,00,000 on 1/1/2000 at Bhiwani city .His nephew P is cultivating the land .N sold the land on 1/06/2007 for Rs15,00,000.He incurred Rs56,495 on its sale by way of legal charges .He purchased agriculture land of Rs10,00,000 on 15/02/2008. Compute capital gain for the assessment year 2008-2009. Answer: 10 Urban agricultural land is a capital asset. Long term capital asset Computation: Sale Rs. 15,00,000 Less:- expenditure related to sale Rs. 56,495 Net sale consideration Rs. 14,43,505 Less: Indexed cost of acquisition Rs. 7,08,226 (5,00,000 x 551/389) Long term capital gain Rs.7,35,279 Less: deduction U/S 54B Rs. 7,35,279 Taxable capital gain NIL Sale of urban agricultural land www.professoraugustin.com

PowerPoint Presentation:

36 Exercise-11 Mr. S owns an agriculture land which he inherited from his father on 15/6/1997.His father purchased it on 1/6/1994 for Rs.4,50,000. Mr. S. purchased further agriculture land on 1/1/2005 for Rs.7,50,000.He sold the inherited agriculture land on 15/12/2007 for Rs.10,00,000 and incurred legal expenses amounting Rs.30,000 on its sale .Compute capital gain for the assessment year 2006-2007 Answer:11 Agricultural land in rural area is not a capital asset.Sale of such asset does not come under section 45. There is no capital gain. Sale of agricultural land www.professoraugustin.com

PowerPoint Presentation:

37 Exercise: 12 Mr. K sold agriculture land situated in remote village in 2005-06 for Rs 7,20,000 .He purchased the land in 1999-2000 for Rs5,00,000 selling expenses borne by K amount to Rs15,000.Compute capital gain for the assessment year 2006-2007 Answer:12 Agricultural land in remote area is not a capital asset. There is no capital gain and sale of such land and the gain does not come under any other heads. www.professoraugustin.com

PowerPoint Presentation:

38 Exercise:13 Mr. P purchased agriculture land on 1/4/2003 located in Agra for Rs 15,00,000.He sold it on 1/10/2007 for Rs22,50,000 and incurred selling expenses amounting Rs 30,000 .He deposited Rs5,00,000 on 30/06/2008 in bank on Baroda under capital gain scheme account for the purchase of agriculture land Compute capital gain for the assessment year 2008-2009. Answer:13 Sale 22,50,000 Less: Expenditure to sale 30,000 Net sale consideration 22,20,000 Less: Indexed cost of acquisition 17,85,097 (15,00,000 x 551/463) Long term capital gain 4,34,903 Less: Deduction as amount deposited 4,34,903 Taxable capital gain NIL Note: the amount kept in a separate account should be used to buy an another agricultural land within 2 years from the date of sale. www.professoraugustin.com

Under S 54EC:

39 Under S 54EC where the capital gain arises from the transfer of a long-term capital asset before the 1st day of April, 2000, and the assessee has, at any time within a period of six months after the date of such transfer invested the whole or any part of capital gains, in any of the assets, Bonds in NHAI, Rural Electrification: www.professoraugustin.com

Exercise: 14:

40 Exercise: 14 Mr. K owns an industrial undertaking started on 1/01/2002 .The State Government has acquired the land of the undertaking on 15/02/2005.The land was purchased on 1/1/2002 for Rs.5,00,000 .Government paid compensation of Rs. 15,00,000 on 31/12/2007.On 15/02/2008 ,K purchased land for Rs.6,50,000 for the undertaking. K also purchased 3 year Redeemable bonds of Rs 3,50,000 of Rural Electrification Corp Ltd Compute capital gain for the assessment year 2008-09. Answer:14 Compulsory acquisition amounts to transfer(2007-08 p.y) Sale consideration(first compensation received) 15,00,000 Less: Index cost of acquisition 5,63,380 (5,00,000 x480(2004-05)/426(2001-02) Long term capital gain 9,36,620 Less: Amount invested in an another industry (54 6,50,000 Less :Invested in Rural Electrification bonds(54EC 3,50,000 Taxable long term capital gain is NIL www.professoraugustin.com

Under S 54 F :

41 Under S 54 F where, in the case of an assessee being an individual or a Hindu undivided family , the capital gain arises from the transfer of any long-term capital asset , not being a residential house, within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house. www.professoraugustin.com

PowerPoint Presentation:

42 Exercise: 15 Mr.N sells white silver on April 7 2007 for Rs 4,17,700 (Rs7000 being expenses on transfer ) .The White Silver were purchased by him on 26 July 1984 for Rs 26000.Can he claim exemption under section 54F by purchasing a residential house for Rs 16,00,000 ? Answer:15 Silver is a part of gold.It is a capital asset . The assessee can one more house other than the existing house to the extent of net sale consideration. Net sale consideration=Rs.4,17,700-7000=4,10,700 Less :Indexed cost of acquisition 1,14,608 (26,000 x551/125) Long term capital gain 2,96,092 He can claim full exemption U/S 54F if he invests in a house property Rs.4,10,700. Since he invests 16,00,000 in a house property the entire capital gain is exempted.The assesssee can not buy another house with in three years. www.professoraugustin.com

PowerPoint Presentation:

43 Exercise:16 Mr. KM sold on 31/12/2007 an agriculture land ,purchased during the year 2001-2002 for Rs16,50,000 and incurred selling expenses ,amounting Rs50,000 .Indexed cost of acquisition of the agriculture land during the year 2008-2009 is Rs7,20,000 He purchased a residential plot on 15/4/2008 for Rs4,00,000 and deposited Rs 8,00,000 in SBI under capital gain scheme account on 31/10/2008 ,being the due date of furnishing the return of income. He owns a small residential house, inherited by him 2001-2002 on the death of his mother Compute capital gain for the assessment year 2006-2007 Answer: next slide www.professoraugustin.com

Answer-16:

44 Answer-16 Sale consideration 16,50,000 Expenses to transfer 50,000 Net sale consideration 16,00,000 Less: Index cost of acquisition 7,20,000 Long term capital gain 8,80,000 Amount invested in an another industry (54F) Rs.4 lakhs +8 lakhs Exempted long term capital gain=(8,80,000 x12,00,000)/16,00,000=6,60,000 Taxable long term capital gain=880,000-6,60,000=2,20,000 Note:-The assessee moved from one nature to another therefore, he has to invest entire net sale consideration to claim full exemption. If partly invested proportionately exempted. www.professoraugustin.com

PowerPoint Presentation:

45 Exercise:17 Mr. J transfers his long term assets like jewellery and land on 1/7/2007 for net consideration of Rs15,00,000 giving rise to capital gain of Rs6,00,000.For claiming the exemption in respect of capital gain ,he purchased a residential house on 1/09/2008.Can J claim the exemption under sec 54F in the following cases : He inherited a house from his father on 10/10/2004 He also purchased an another house during the year 2008-09 Answer :17 If assessee sells other than house property buys or construct a house property he can claim deduction U/S 54F provided he invests entire Net sale consideration in such house. If invested less than net sale consideration proportionately exempted. He can not buy one more house within 3 years . If so, the gain exempted earlier is taxed as long term capital gain. www.professoraugustin.com

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