Introduction:

Gain arising on transfer of capital asset is charged to tax under the head “CapitalGains”.

Income from capital gains is classified as “Short Term Capital Gains” and“Long Term Capital Gains”. In this part you can gain knowledge about theprovisions relating to tax on Long Term Capital Gains.

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”.

A capital asset is something you own for investing or for personal purposes,such as stocks, bonds or stamp collections. If you sell a capital asset, you get ahuge profit or loss of money, depending on the price. Significant items ofproperty such as houses, cars, rental properties, stocks, bonds, and even antiquesor works of art are considered capital assets. An asset with a useful life longerthan a year that is not intended for sale during normal business operations isreferred to as a capital asset for enterprises.

Meaning of Capital Asset:

Capital asset is defined to include:

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

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

(c) Any ULIP to which exemption under section 10(10D) does not apply onaccount of the applicability of the fourth & fifth proviso thereof.

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

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

(ii) personal effects, that is, movable property (including wearing apparel andfurniture) held for personal use by the taxpayer or any member of his familydependent 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 anyalloy containing one or more of such precious metals, whether or not containingany precious or semi-precious stones, and whether or not worked or sewn intoany wearing apparel;

b. precious or semi-precious stones, whether or not set in any furniture, utensilor 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 areacommittee,

cantonment board and which has a population of not less than 10,000;

[As amended by Finance Act, 2022]

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

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

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

iii. not being more than 8 KMs , if population of such area is more than 10lakhs.

Population is to be considered according to the figures of last preceding censusof 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 NationalDefence Gold Bonds, 1980 issued by the Central Government;

(v) Special Bearer Bonds, 1991;

(vi) Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 ordeposit certificates issued under the Gold Monetisation Scheme, 2016.

Following points should be kept in mind:

The property being capital asset may or may not be connected with the businessor profession of the taxpayer. E.g. Bus used to carry passenger by a personengaged in the business of passenger transport will be his capital asset.

Any securities held by a Foreign Institutional Investor which has invested insuch securities in accordance with the regulations made under the Securities andExchange 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, 2018 for Rs. 84,00,000.He sold the house in April, 2022 for Rs. 90,00,000. In this case residentialhouse is a capital asset of Mr. Kumar and, hence, the gain of Rs. 6,00,000arising on account of sale of residential house will be charged to tax under thehead “Capital Gains”.

Illustration

Mr. Kapoor is a property dealer. He purchased a flat for resale. The flat waspurchased in January, 2019 for Rs. 84,00,000 and sold in April, 2022 for Rs.90,00,000. In this case Mr. Kapoor is dealing in properties in his normalbusiness. Hence, flat purchased by him would form part of stock-in-trade of thebusiness. . 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 asbusiness income and not as capital gain.

[As amended by Finance Act, 2022]