Introduction:-
The Article Discusses
about Tax Treatment of Long Term Capital Gain arising from Transfer of Capital
Assets under Income Tax Act, 1961. Articles discusses Meaning of Capital
Assets, What Constitutes a Capital and what is not a capital Asset, How to
Apply Indexation Provisions, Period for Computation of Long Term Capital Asset,
Tax on long-term capital gain @ 10% in certain special cases, Adjustment of
LTCG against the basic exemption limit and Deductions under sections 80C to 80U
and LTCG.
Meaning of Capital
Gains
Profits or gains
arising from transfer of a capital asset are called “Capital Gains” and are
charged to tax under the head “Capital Gains”.
Meaning of Capital
Asset
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.
Meaning of long-term
capital asset and short-term capital asset
|
Short-Term Capital
Asset
|
Long-Term Capital
Asset
|
|
Any capital asset
held by the taxpayer for a period of not more than 36 months immediately
preceding the date of its transfer will be treated as short-term capital
asset.
However, in respect
of certain assets like shares (equity or preference) which are listed in a
recognised stock exchange in India (listing of shares is not mandatory if
transfer of such shares took place on or before July 10, 2014), units of
equity oriented mutual funds, listed securities like debentures and
Government securities, Units of UTI and Zero Coupon Bonds, the period of
holding to be considered is 12 months instead of 36 months.
Note:
With effect from
Assessment Year 2017-18, period of holding to be considered as 24 months
instead of 36 months in case of unlisted shares of a company.
|
Any capital asset
held by the taxpayer for a period of more than 36 months immediately
preceding the date of its transfer will be treated as long-term capital
asset.
However, in respect
of certain assets like shares (equity or preference) which are listed in a
recognised stock exchange in India (listing of shares is not mandatory if
transfer of such shares took place on or before July 10, 2014), units of
equity oriented mutual funds, listed securities like debentures and
Government securities, Units of UTI and Zero Coupon Bonds, the period of
holding to be considered is 12 months instead of 36 months.
Note:
With effect from
Assessment Year 2017-18, period of holding to be considered as 24 months
instead of 36 months in case of unlisted shares of a company.
|
Mr. Kumar is a
salaried employee. In the month of April, 2010 he purchased a piece of land and
sold the same in December, 2015. In this case, land is a capital asset for Mr.
Kumar. He purchased land in April, 2010 and sold in December, 2015 i.e. after
holding it for a period of more than 36 months. Hence, land will be treated as
long-term capital asset.
Illustration
Mr. Raj is a salaried
employee. In the month of April, 2014, he purchased a piece of land and sold
the same in December, 2015. In this case land is a capital asset for Mr. Raj.
He purchased land in April, 2015 and sold it in December, 2015, i.e., after
holding it for a period of less than 36 months. Hence, land will be treated as
short-term capital asset.
Illustration
Mr. Raj is a salaried
employee. In the month of April, 2013 he purchased equity shares of SBI Ltd.
(listed in BSE) and sold the same in December, 2015. In this case shares are
capital assets for Mr. Raj. He purchased shares in April, 2013 and sold them in
December, 2015, i.e., after holding them for a period of more than 12 months.
Hence, shares will be treated as long-term capital assets.
Illustration
Mr. Kumar is a
salaried employee. In the month of April, 2015 he purchased equity shares of
SBI Ltd. (listed in BSE) and sold the same in January, 2016. In this case
shares are capital assets for Mr. Kumar. He purchased shares in April, 2015 and
sold them in January, 2016, i.e., after holding them for a period of less than
12 months. Hence, shares will be treated as short-term capital assets.
Illustration
Mr. Kumar is a
salaried employee. In the month of April, 2015 he purchased un-listed shares
of XYZ Ltd. and sold the same in January, 2016. In this case shares are capital
assets for Mr. Raj and to determine nature of capital gain, period of holding
would be considered as 36 month as shares are unlisted. He purchased shares in
April, 2015 and sold them in January, 2016, i.e., after holding them for a
period of less than 36 months. Hence, shares will be treated as Short Term
Capital Assets.
Illustration
Mr. Raj is a salaried
employee. In the month of April, 2011 he purchased un-listed shares
of XYZ Ltd. and sold the same in December, 2015. In this case shares are
capital assets for Mr. Raj and to determine nature of capital gain, period of
holding would be considered as 36 month as shares are unlisted. He purchased
shares in April, 2011 and sold them in December 2015, i.e., after holding them
for a period of more than 36 months. Hence, shares will be treated as Long Term
Capital Assets.
Illustration
Mr. Vikas is a
salaried employee. In the month September, 2013 he purchased unlisted shares of
ABC ltd. and sold the same in May 2016. In this case, shares are sold in
assessment year 2017-18. Hence, period of holding for unlisted shares to be
considered as 24 months instead of 36 months.
Mr. Vikas purchased
shares in September 2013 and sold them May 2016, i.e. after holding them for a
period of 24 months or more. Hence, shares will be treated as Long Term Capital
Assets.
Meaning of short-term
capital gain and long-term capital gain
Gain arising on
transfer of short-term capital asset is termed as short-term capital gain and
gain arising on transfer of long-term capital asset is termed as long-term
capital gain. However, there are few exceptions to this rule like gain on
depreciable asset is always taxed as short-term capital gain.
Illustration
In April, 2016 Mr.
Raja sold his residential house property which was purchased in May, 2001.
Capital gain on such sale amounted to Rs. 8,40,000. In this case the house
property is a long-term capital asset and, hence, gain of Rs. 8,40,000 will be
charged to tax as long-term capital gain.
Illustration
In April, 2016 Mr.
Rahul sold his residential house property which was purchased in May, 2014.
Capital gain on such sale amounted to Rs. 8,40,000. In this case the house
property is a short-term capital asset and, hence, gain of Rs. 8,40,000 will be
charged to tax as short-term capital gain.
Reason for bifurcation
of capital gains into long-term and short-term gains :–
The taxability of
capital gains depends on the nature of gain, i.e., whether short-term or long-term.
Hence, to determine the taxability capital gains are classified into short-term
capital gain and long-term capital gain. In other words, the tax rates for
long-term capital gain and short-term capital gain are different.
Computation of
long-term capital gains
Long-term capital gain
arising on account of transfer of long-term capital asset will be computed as
follows :
|
Particulars
|
Rs.
|
|
Full value of
consideration (i.e., Sales consideration of asset)
|
XXXXX
|
|
Less: Expenditure incurred wholly and exclusively
in connection with transfer of capital asset (E.g., brokerage, commission,
advertisement expenses, etc.) .
|
(XXXXX)
|
|
|
Net sale
consideration
|
XXXXX
|
|
Less: Indexed cost of acquisition (*)
|
(XXXXX)
|
|
Less: Indexed cost of improvement if any (*)
|
(XXXXX)
|
|
|
Long-Term Capital
Gains
|
XXXXX
|
(*) Indexation is a
process by which the cost of acquisition is adjusted against inflationary rise
in the value of asset. For this purpose, Central Government has notified cost
inflation index. The benefit of indexation is available only to long-term capital
assets. For computation of indexed cost of acquisition following factors are to
be considered:
- Year
of acquisition/improvement
- Year
of transfer
- Cost
inflation index of the year of acquisition/improvement
- Cost
inflation index of the year of transfer
Indexed cost of
acquisition is computed with the help of following formula :
Cost of acquisition ×
Cost inflation index of the year of transfer of capital asset= not in short term
Indexed cost of
improvement is computed with the help of following formula :
Cost of improvement ×
Cost inflation index of the year of transfer of capital asset = not in short
term
Cost inflation index of the year of improvement
The Central Government
has notified the following Cost Inflation Indexes:-
|
Fin. Year
|
Index
|
Fin. Year
|
Index
|
|
1981-82
|
100
|
1999-00
|
389
|
|
1982-83
|
109
|
2000-01
|
406
|
|
1983-84
|
116
|
2001-02
|
426
|
|
1984-85
|
125
|
2002-03
|
447
|
|
1985-86
|
133
|
2003-04
|
463
|
|
1986-87
|
140
|
2004-05
|
480
|
|
1987-88
|
150
|
2005-06
|
497
|
|
1988-89
|
161
|
2006-07
|
519
|
|
1989-90
|
172
|
2007-08
|
551
|
|
1990-91
|
182
|
2008-09
|
582
|
|
1991-92
|
199
|
2009-10
|
632
|
|
1992-93
|
223
|
2010-11
|
711
|
|
1993-94
|
244
|
2011-12
|
785
|
|
1994-95
|
259
|
2012-13
|
852
|
|
1995-96
|
281
|
2013-14
|
939
|
|
1996-97
|
305
|
2014-15
|
1024
|
|
1997-98
|
331
|
2015-16
|
1081
|
|
1998-99
|
351
|
2016-17
|
1125
|
Illustration
Mr. Raja purchased a
piece of land in May, 2004 for Rs. 84,000 and sold the same in April, 2016 for
Rs. 10,10,000 (brokerage Rs. 10,000). What will be the taxable capital gain in
the hands of Mr. Raja?
Computation of capital
gain will be as follows :
|
Particulars
|
Rs.
|
|
Full value of
consideration (i.e., Sales consideration of asset)
|
10,10,000
|
|
Less: Expenditure incurred wholly and exclusively
in connection with transfer of capital asset (brokerage)
|
10,000
|
|
Net sale
consideration
|
10,00,000
|
|
Less: Indexed cost of acquisition (*)
|
1,96,875
|
|
Less: Indexed cost of improvement, if any
|
Nil
|
|
Long-Term
Capital Gains
|
8,03,125
|
(*) The cost Index
notified for the year 2004-05 is 480 and for the year 2016-17 is 1 125.Hence,
the indexed cost of acquisition, i.e., the inflated cost of acquisition will be
computed as follows:
Cost of acquisition × Cost inflation index of the year of transfer
of capital asset
Cost inflation index
of the year of acquisition
Rs. 84,000 × 1125 = Rs. 1,96,875
480
Long-term capital
gains arising on account of sale of equity shares listed in a recognised
stock exchange, i.e., LTCG exempt under section 10(38)
As per section 10(3
8), long-term capital gain arising on transfer of equity share or units of
equity oriented mutual fund (*) or units of business trust is not chargeable to
tax in the hands of any person, if following conditions are satisfied:
- The
transaction i.e. the transaction of sale of equity shares or units of an
equity oriented mutual fund or units of business trust should be liable to
securities transaction tax.
- Such
shares/units should be long-term capital asset.
- Transfer
should have taken place on or after October 1, 2004.
(*) Equity oriented
mutual fund means a mutual fund specified under section 10(23D) and 65% of its
investible funds out of total proceeds are invested in equity shares of a
domestic company.
In other words, if
LTCG is covered under section 10(3 8), then it is exempt from tax.
Exemption from long
term capital gains under section 10(3 8) shall be available w.e.f April 1, 2017
even where STT is not paid, provided that –
- transaction
is undertaken on a recognised stock exchange located in any International
Financial Service Centre, and
- consideration
is paid or payable in foreign currency
Illustration
Mr. Janak is a
salaried employee. In the month of January, 2014 he purchased 100 shares of X
Ltd. @ Rs. 1,400 per share from Bombay Stock Exchange. These shares were sold
through BSE in April, 2016 @ Rs. 2,000 per share (securities transaction tax
was paid at the time of sale). What will be the nature of capital gain in this
case?
**
Shares were purchased
in January, 2014 and were sold in April, 2016, i.e., sold after holding them
for a period of more than 12 months and, hence, the gain will be long-term
capital gain.
In the given case
shares are sold after holding them for a period of more than 12 months, shares
are sold through recognised stock exchange and the transaction is liable to
STT, hence, the LTCG will be covered under section 10(3 8) and will not be
charged to tax.
Illustration
Mr. Saurabh is a
salaried employee. In the month of January, 2014, he purchased 100 units of ABC
Mutual fund @ Rs. 100 per unit. The mutual fund is an equity oriented mutual
fund. These units were sold through BSE in April, 2016 @ Rs. 125 per unit
(securities transaction tax was paid at the time of sale). What will be the
nature of capital gain in this case?
**
Units were purchased
in January, 2014 and were sold in April, 2016, i.e., sold after holding them
for a period of more than 12 months and, hence, the gain will be long-term
capital gain.
In the given case,
units were of equity oriented mutual funds which were sold after holding them
for a period of more than 12 months. These units were sold through recognised
stock exchange and the transaction was liable to STT, hence, the LTCG on sale
of such units will be covered under section 10(38) and will not be charged to
tax.
Illustration
Mr. Raja is a salaried
employee. In the month of January, 2014 he purchased 100 preference shares of
ABC Ltd. @ Rs. 100 per share. These shares were sold in April,2016 @ Rs. 125
per share (securities transaction tax was paid at the time of sale). Can the
capital gains be claimed as exempt under section 10(38)?
**
Section 10(38) is
applicable in case of LTCG arising on transfer of equity shares or units of
equity oriented mutual-fund which are transferred on or after 1-10-2004 through
a recognised stock exchange and such transaction is liable to securities
transaction tax.
In the given case, the
shares are preference shares and hence, the provisions of section 10(3 8) are
not applicable. In other words, Mr. Raja cannot claim exemption under section
10(38) in respect of such gain.
Illustration
Mr. Rahul is a
salaried employee. In the month of January, 2011 he purchased 100 units of debt
oriented mutual fund @ Rs. 100 per unit. These units were sold in March, 2016 @
Rs. 125 per share (securities transaction tax was paid at the time of sale).
Can the capital gain be claimed as exempt under section 10(3 8)?
**
Section 10(38) is
applicable in case of LTCG arising on transfer of equity shares or units of
equity oriented mutual-fund which are transferred on or after 1-10-2004 through
a recognised stock exchange and such transaction is liable to securities
transaction tax.
In the given case, the
units sold are of debt oriented mutual funds (i.e., not equity oriented mutual
fund) and, hence, the provisions of section 10(3 8) are not applicable. In
other words, Mr. Rahul cannot claim exemption under section 10(38) in respect
of such gain.
Illustration
Mr. Jay is a salaried
employee. In the month of January, 2014 he purchased 100 shares of ABC Ltd. @
Rs. 100 per share. These shares were sold in April, 2016 @ Rs. 125 per share to
his friend. The shares were not listed in any recognised stock exchange. Can
the capital gain be claimed as exempt under section 10(3 8)?
**
Section 10(38) is
applicable in case of LTCG arising on transfer of equity shares or units of
equity oriented mutual-fund which are transferred on or after 1-10-2004 through
a recognised stock exchange and such transaction is liable to securities
transaction tax.
In the given case, the
shares were not listed in recognised stock exchange and, hence, the provisions
of section 10(3 8) were not applicable. In other words, Mr. Jay could not claim
exemption under section 10(38) in respect of such gain.
Tax on long-term
capital gain
Generally, long-term
capital gains are charged to tax @ 20% (plus surcharge and cess as applicable),
but in certain special cases, the gain may be (at the option of the taxpayer)
charged to tax @ 10% (plus surcharge and cess as applicable). The benefit of
charging long-term capital gain @ 10% is available only in respect of long-term
capital gains arising on transfer of any of the following asset:
(a) Any security (*)
which is listed in a recognised stock exchange in India;
(b) Any unit of UTI or
mutual fund (whether listed or not) ($); and
(c) Zero coupon bonds.
(*) Securities for
this purpose means “securities” as defined in section 2(h) of the Securities
Contracts (Regulation) Act, 1956. This definition generally includes shares,
scrips, stocks, bonds, debentures, debenture stocks or other marketable
securities of a like nature in or of any incorporated company or other body
corporate, Government securities, such other instruments as may be declared by
the Central Government to be securities and rights or interest in securities.
($) This option is
available only in respect of units sold on or before 10-7-20 14.
In other words, in
case of long term capital gain arising on account of aforesaid assets, the
taxpayer has following two options:
a. Avail of the
benefit of indexation; the capital gains so computed will be charged to tax at
normal rate of 20% (plus surcharge and cess as applicable).
b.Do not avail of the
benefit of indexation; the capital gain so computed is charged to tax @ 10%
(plus surcharge and cess as applicable).
The selection of the
option is to be done by computing the tax liability under both the options, and
the option with lower tax liability is to be selected.
Illustration
Mr. Kumar (a non
resident) purchased equity shares (listed) of Shyamal Ltd. in December 1995 for
Rs. 28,100. These shares are sold (outside recognised stock exchange) in April,
2016 for Rs. 5,00,000. He does not have any other taxable income in India. What
will be his tax liability.
**
In this situation, Mr.
Kumar has following two options:
|
Particulars
|
Option 1 (Avail
indexation)
|
Option 2 (Do not
avail indexation)
|
|
Full value of
consideration
|
5,00,000
|
5,00,000
|
|
Less. Indexed cost of acquisition (Rs. 28,100 ×
1125/281)
|
1,12,500
|
|
|
Less. Cost of acquisition
|
|
28,100
|
|
Taxable Gain
|
3,87,500
|
4,71,900
|
|
Tax @ 20% on Rs.
3,87,500
|
77, 500
|
|
|
Tax @ 10% on Rs.
4,71,900
|
|
47,190
|
From the above
computation, it is clear that Mr. Kumar should exercise option 2, since in this
situation the tax liability (excluding cess as applicable) comes to Rs. 47,190
which is less than tax liability under option 1 i.e. Rs. 77,500. Tax liability
after EC @ 2% and SHEC @ 1% will come to Rs. 48,606.
Illustration
Mr. Kumar (a
non-resident) purchased a piece of land in December, 1995 for Rs. 28,100 and
sold the same, in April, 2016 for Rs. 5,00,000. Can he claim the option of not
availing of the indexation and paying tax @ 10% on the capital gain?
**
In this situation, the
asset transferred is land and hence the options discussed in preceding
illustration are not available and the gain will be computed after availing of
the indexation and the resulting gain will be charged to tax @ 20% (plus
surcharge and cess as applicable). The computation in this case will be as
follows :
|
Particulars
|
(Rs.)
|
|
Full value of
consideration
|
5,00,000
|
|
Less. Indexed cost of acquisition (Rs. 28,100
×1125/281)
|
1,12,500
|
|
Less. Indexed cost of improvement
|
Nil
|
|
|
Long term capital
gain
|
3,87,500
|
|
Tax @ 20% on Rs.
3,87,500
|
77,500
|
|
Add. EC @ 2% and SHEC @ 1%
|
2,325
|
|
Net tax payable
|
79,825
|
Adjustment of LTCG
against the basic exemption limit
Basic exemption limit
means the level of income up to which a person is not required to pay any tax.
The basic exemption limit applicable in case of an individual for the financial
year 2016-17 is as follows :
- For
resident individual of the age of 80 years or above, the exemption limit
is Rs. 5,00,000.
- For
resident individual of the age of 60 years or above but below 80 years,
the exemption limit is Rs. 3,00,000.
- For
resident individual of the age of below 60 years, the exemption limit is
Rs. 2,50,000
- For
non-resident individual, irrespective of the age of the individual, the
exemption limit is Rs. 2,50,000.
- For
HUF, the exemption limit is Rs. 2,50,000.
Illustration: Basic
exemption limit
Mr. Kapoor (resident
and age 25 years) is a salaried employee earning a salary of Rs. 1,84,000 per
annum. Apart from salary income, he has earned interest on fixed deposit of Rs.
6,000. He does not have any other income. What will be his tax liability for the
year 2016-17?
**
For resident
individual of age of below 60 years, the basic exemption limit is Rs. 2,50,000.
In this case the taxable income of Mr. Kapoor is Rs. 1,90,000 (Rs. 1,84,000 +
Rs. 6,000), which is below the basic exemption limit of Rs. 2,50,000, hence,
his tax liability will be nil.
Illustration: Basic
exemption limit
Mr. Viren (resident
and age 62 years) is a businessman. His taxable income for the year 2016-17 is
Rs. 2,25,200. He does not have any other income. What will be his tax liability
for the year 2016-17?
**
For resident
individual of the age of 60 years and above but below 80 years, the basic
exemption limit is Rs. 3,00,000. In this case, the taxable income of Mr. Viren
is Rs. 2,25,200, which is below the basic exemption limit of Rs. 3,00,000,
hence, his tax liability will be nil.
Illustration: Basic
exemption limit
Mrs. Raja (resident
and age 82 years) is a doctor. Her taxable income for the year 2016- 17 is Rs.
4,84,000. She does not have any other income. What will be her tax liability
for the year 2016-17?
**
For resident
individual of the age of 80 years and above, the basic exemption limit is Rs.
5,00,000. In this case, the taxable income of Mrs. Raja is Rs. 4,84,000, which
is below the basic exemption limit of Rs. 5,00,000, hence, her tax liability
will be nil.
Illustration: Basic
exemption limit
Mr. Raj (a
non-resident and age 82 years) is a retired person. He is residing in Canada.
He owns a house in Mumbai which is given on rent. The taxable rental income for
the year 2016-17 amounts to Rs. 1,84,000. What will be his tax liability for
the year 2016- 17?
For non-resident
individual, irrespective of the age, the basic exemption limit is Rs. 2,50,000.
In this case the taxable income of Mr. Raj is Rs. 1,84,000, which is below the
basic exemption limit of Rs. 2,50,000, hence, his tax liability will be nil.
Adjustment of LTCG
against the basic exemption limit
In the preceding
illustrations we observed that if the income is below the basic exemption
limit, then there will be no tax liability. Now a question arises that can an
individual adjust the basic exemption limit against long-term capital gain? The
answer will depend on the residential status of the individual (i.e., resident
or non-resident). The provisions in this regard are as follows :
Only a resident
individual/HUF can adjust the exemption limit against LTCG. Thus, a
non-resident individual and non-resident HUF cannot adjust the exemption limit
against LTCG.
A resident individual
can adjust the LTCG but such adjustment is possible only after making
adjustment of other income. In other words, first income other than LTCG is to
be adjusted against the exemption limit and then the remaining limit (if any)
can be adjusted against LTCG.
Illustration
Mr. Kapoor (age 67
years and resident) is a retired person. He purchased a piece of land in
December, 2010 and sold the same in April, 2016. Taxable long-term capital gain
on such sale amounted to Rs. 1,84,000. Apart from gain on sale of land, he is
not having any other income. What will be his tax liability for the year
2016-17?
*
For resident
individual of the age of 60 years and above but below 80 years, the basic
exemption limit is Rs. 3,00,000. Further, a resident individual can adjust the
basic exemption limit against LTCG. In this case, LTCG of Rs. 1,84,000 can be
adjusted against the basic exemption limit. In other words, Mr. Kapoor can
adjust the LTCG on sale of land against the basic exemption limit.
Considering the above
discussion, the tax liability of Mr. Kapoor for the year 2016-17 will be nil.
Illustration
Mr. Kapoor (age 67
years and non-resident) is a retired person. He purchased a piece of land (at
Delhi) in December, 2010 and sold the same in April, 2016. Taxable long-term
capital gain on such sale amounted to Rs. 1,84,000. Apart from gain on sale of
land, he is not having any other income. What will be his tax liability for the
year 20 16-17?
*
For non-resident
individual of any age, the basic exemption limit is Rs. 2,50,000. Further, a
non-resident individual cannot adjust the basic exemption limit against LTCG.
Hence, in this case the exemption limit of Rs. 2,50,000 cannot be adjusted
against LTCG. In other words, Mr. Kapoor cannot adjust the LTCG on sale of land
against the basic exemption limit. Thus, LTCG of Rs. 1,84,000 will be charged
to tax @ 20% (plus cess @ 2% and 1%). Thus, the tax liability will come to Rs.
37,904.
Illustration
Mr. Kapoor (age 67
years and resident) is a retired person earning a monthly pension of Rs. 5,000.
He purchased gold in December, 2010 and sold the same in April, 2016. Taxable
LTCG amounted to Rs. 2,70,000. Apart from pension income and gain on sale of
gold he is not having any other income. What will be his tax liability for the
year 2016- 17?
*
For resident
individual of the age of 60 years and above but below 80 years, the basic exemption
limit is Rs. 3,00,000. Further, a resident individual can adjust the basic
exemption limit against LTCG. However, such adjustment is possible only after
adjusting income other than LTCG. In this case, he is having pension income of
Rs. 60,000 (Rs. 5,000 × 12) and LTCG on gold of Rs. 2,70,000. Thus, first we
have to adjust the pension income against the exemption limit and the balance
limit will be adjusted against LTCG.
The basic exemption
limit in this case is Rs. 3,00,000, after adjustment of pension income of Rs.
60,000 from the exemption limit of Rs. 3,00,000 the balance limit available
will come to Rs. 2,40,000. The balance of Rs. 2,40,000 will be adjusted against
LTCG.
Total LTCG on gold is
Rs. 2,70,000 and the available limit is Rs. 2,40,000, hence, the balance LTCG
left after adjustment of Rs. 2,40,000 will come to Rs. 30,000. The gain of Rs.
30,000 will be charged to tax @ 20% (plus cess @ 2% and 1%). Thus, the tax
liability before cess will come to Rs. 6,000 and after deducting rebate of Rs.
5,000 as per section 87A, he would be liable to pay tax of Rs. 1,030 (including
cess @ 2% and 1%).
Illustration
Mr. Gagan (age 67
years and non-resident) is a retired person earning a monthly pension of Rs.
5,000 from Indian employer. He purchased a piece of land in Delhi in December,
2010 and sold the same in April, 2016. Taxable LTCG amounted to Rs. 2,20,000.
Apart from pension income and gain on sale of land he is not having any other
income. What will be his tax liability for the year 2016-17?
*
For non-resident
individual, irrespective of the age, the basic exemption limit is Rs. 2,50,000.
Further, a non-resident individual cannot adjust the basic exemption limit
against LTCG covered under section 112. In other words, Mr. Gagan can adjust
the pension income against the basic exemption limit but the remaining
exemption limit cannot be adjusted against LTCG on sale of land.
The basic exemption
limit in this case is Rs. 2,50,000, and the same will be adjusted against
pension income of Rs. 60,000. The balance limit of Rs. 1,90,000 (i.e., Rs.
2,50,000 less Rs. 60,000) cannot be adjusted against LTCG. Hence, in this case
Mr. Gagan has to pay tax @ 20% (plus cess @ 2% and 1%) on LTCG of Rs. 2,20,000.
Thus, the tax liability will come to Rs. 45,320.
Deductions under
sections 80C to 80U and LTCG
No deduction under
sections 80C to 80U is allowed from long-term capital gains.
Illustration
Mr. Kapoor (age 57
years and resident) is a retired person. He purchased a piece of land in
December, 2010 and sold the same in April, 2016. Taxable LTCG on such sale
amounted to Rs. 4,00,000. Apart from gain on sale of land he is not having any
income. He deposited Rs. 1,00,000 in Public Provident Fund (PPF) and Rs. 50,000
in NSC. He wants to claim deduction under section 80C on account of Rs.
1,50,000 deposited in PPF and NSC. Can he do so?
**
Deduction under
sections 80C to 80U cannot be claimed from long-term capital gains. Hence, Mr.
Kapoor cannot claim deduction under section 80C of Rs. 1,50,000 from LTCG of
Rs. 4,00,000. The taxable income of Mr. Kapoor will be computed as follows :
|
Particulars
|
Rs.
|
|
Long-Term Capital
Gains
|
4,00,000
|
|
Gross Total Income
|
4,00,000
|
|
Less: Deduction under sections 80C to 80U
|
Nil
|
|
Total Income or
Taxable Income
|
4,00,000
|
He can claim basic
exemption of Rs. 2,50,000 (being resident individual) and has to pay LTCG on
remaining Rs. 1,50,000 @ 20% (+ Ed. Cess+ SHEC). Thus, his tax liability before
cess will come to Rs. 30,000 and after deducting rebate of Rs. 5,000 as per section
87A, he would be liable to pay tax of Rs. 25,750 (including cess @ 2% and 1%).
