Sunday, May 6, 2012

What is capital Asset for Capital Gain Under Income Tax Act.


on Sunday, May 6, 2012

Profits or gains arising from the transfer of a capital asset made in a previous year is taxable as capital gains under the head “Capital Gains”. The important ingredients for capital gains are, therefore, 
  1. existence of a capital asset, 
  2. transfer of such capital asset and 
  3. profits or gains that arise from such transfer. 

In this Post we are discussing Meaning of Capital Asset for Calculation of Capital gain.

Capital asset means property of any kind except the following: 

Assets Excluded from the definition of The Capital Assets

a) Stock-in-trade, consumable stores or raw-materials held for the purpose of business or profession. 

b) Personal effects like wearing apparel, furniture, motor vehicles etc.., held for personal use of the tax payer or any dependend member of his family. However, jewellery, even if it is for personal use, is a capital asset. The Finance Act, 2007 has modified the definition of Personal effects w.e.f. 1.4.2008. ‘Personal effects’ now include movable property including wearing apparel and furniture held for personal use by the assessee or any member of his family dependent on him, but excludes:- 
  1. Jewellery 
  2. Archaeological Collections 
  3. Drawings 
  4. Paintings
  5. Sculptures or 
  6. Any work of art 

c) Agricultural land in India other than the following: 
  1. Land situated in any area within the jurisdiction of municipality, municipal corporation, notified area committee, town area committee, town committee, or a cantonment board which has a population of not less than 10,000 according to the figures published before the first day of the previous year based on the last preceding census.
  2. Land situated in any area around the above referred bodies upto a distance of 8 kilometers from the local limits of such bodies as notified by the Central Government .
d) 6 1/2 per cent Gold Bonds, 1977, 7 per cent Gold Bonds, 1980, National Defence Gold Bonds, 1980 and Special  Bearer Bonds, 1991 issued by the Central Government. 

e) Gold Deposit Bonds under Gold Deposit Scheme, 1999 notified by the Central Govt. 

Though there is no definition of “property” in the Income-tax Act, it has been judicially held that a property is a bundle of rights which the owner can lawfully exercise to the exclusion of all others and is entitled to use and enjoy as he pleases provided he does not infringe any law of the State. It can be either corporeal or incorporeal. Once something is determined as property it becomes a capital asset unless it figures in the exceptions mentioned above or the Capital Gains is specifically exempted. 

In the following cases, income from Capital Gains is specifically exempted: 
  1. UTI 64 :Income from transfer of a unit of the Unit Scheme, 1964 referred to in Schedule I to the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 and where the transfer of such asset takes place on or after 1.4.2002. 
  2. Equity Shares :income from transfer of an “eligible equity share” in a company purchased on or after 1.3.2003 and before 1.3.2004 and held for a period of twelve months or more. Eligible equity share means equity share in a Company 
    • that is a constituent of BSE-500 Index of Mumbai Stock Exchange as on 1.3.2003 and is traded in a recognized stock exchange in India. 
    • allotted through a public issue on or after 1.3.2003 and listed in a recognized stock exchange in India before 1.3.2004 and its sale is entered into on a recognized stock exchange in India.
  3. Capital Gains of a political party subject to provisions of Section 13A of the I.T Act, 1961
  4. Agriculture Land :In the case of an individual or HUF, capital gains arising from the transfer of agricultural land, where such land is situated in any area falling within the jurisdiction of a municipality or a cantonment board having population of at least 10,000 or in any area within such distance, not being more than 8 kms, from the local limits of any municipality or cantonment board. Such land should have been used for agricultural purposes during the period of two years immediately preceding the date of transfer. Further, such transfer should be by way of compulsory acquisition under any law and the said capital gains should have arisen from the compensation received on or after 1st April, 2004. 
  5. Long term capital gain of Equity Shares /Funds :Capital gains arising from the transfer of a long term capital asset, being an equity share in a company or unit in an equity oriented fund where such a transaction is chargeable to securities transaction tax and takes place on or after 1st October, 2004.

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