Cost Inflation Index for Financial Year 2011-12 as Per Notification Issued on 23-6-2011

In exercise of the powers conferred by clause ( v ) of the Explanation to section 48 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby makes the following amendment in the notification of the Government of India in the Ministry of Finance (Department of Revenue), Central Board of Direct Taxes number S.O. 709(E), dated the 20th August, 1998, namely :—

In the said notification in the Table, after serial number 30 and the entries relating thereto, the following serial number and entries shall be inserted, namely :—

  

“31

2011-12

785″

 

                                                             
                                                                        
                                                                                                                                                                            
         
                        
 

Capital Gain Exemption by making Investment in certain bonds of REC and NHAI

As per the Section 54EC of the Income Tax Act, 1961 any capital gain arises from the transfer of long term capital assets and the assessee has, at anytime within a period of six months after the date of such transfer, invested the whole or any part of capital gains in specified bonds.

  • Conditions
    • LTCA is transferred by individual, HUF, FIRM, Company, or another person during previous year.
    • Maximum Amount of Investment in specified Bonds is limited to Rs.50 lacs for Financial Year.
    • Within a period of 6 months, the capital gain arises should be invested in bonds redeemable after 3 years issued by-
  1. National highway Authority of India
  2. The rural Electricity Corporation Ltd.
  • Exemption amount will lower of below amount:
  1. Capital gain arises on transfer of capital asset
  2. The amount invested in specified asset as mentioned above
  • If new asset is transferred within 3 years

    If the specified asset are transfer before the specified time period

    Then the amount previously exempted from tax will be charable to tax in the previous year it occurs.

TAX HELP: So Assessee can always Invest Rs.50 before 31st march and another Rs.50 lacs in next financial year and take the maximum benefit of Rs.100 lakhs if the asset was sold between 1st October to 31st March as assessee has the window of 6 months for investment and this can be divided between two financial years.

Chart for Long Term Tax Rate

Chart of Income Tax Rate on Long term Capital Gain(LTCG) for Last 5 Years. Currently Income Tax rate on Long Term Gain is 20% plus 3% Education Cess and Surcharge(if Applicable). There is no Income Tax on Long term gain on equity shares on which STT is paid .i.e. Those equity shares which are sold through recognized stock exchange, then no income tax is payable on such long term gain. For Equity Shares to be treated as long term must be hold for 12 Months. Read the Meaning of Long Term for Different Assets    

Tax on LTCG 2009-10 2010-11 2011-12 2012-13 2013-14
Tax rate 20% 20% 20% 20% 20%
Surcharge on Individual/HUF/AOP/BOI (if net Income exceeds Rs. 10Lac) 10%
Surcharge on Firm/LLP(if net income exceeds Rs. 1Crore) 10%
Surcharge on Domestic Company (if net income exceeds Rs. 1 Cr.) 10% 10% 7.5% 5% 5%
Education Cess & SHE Cess 3% 3% 3% 3% 3%


Note :

  1. Tax on LTCG can be taken as 10% +SC+ Cess in case of transfer of listed shares/ securities units without indexation benefit.
  2. Income from LTCG is exempt in case of transfer of equity shares/units of equity oriented fund which are liable to STT.

What do We Mean by Long Term Capital Gain Tax

For the purpose of the taxability capital assets are divided into two category short term asset and long term asset. Any gain or loss arising from long term assets are known as long term capital gain or loss and tax paid or payable on such gain is known as long term capital gain tax. In case of loss from one capital asset it can be used to set off a long term gain from other long term asset.

One of the basic criteria for dividing the assets into long term and short term is period of holding means for how long assets are owned by the person. And as per section 112 of the income tax act,1961 asset is treated as long term if the period of holding i.e. it is owned for more than 36 months but in case financial assets like equity shares, listed securities, units of mutual fund and zero coupon bonds tenure is reduced to 12 months.

Few of the benefits for long term assets are as follows:

  • Long term gain on listed equity share is exempted from tax.
  • Benefit of indexation is available on long term assets, which is like income tax is giving you the benefit of inflation, so that you have to pay tax on gain which is inflation adjusted.
  • Lower rate of tax is applied on long term gain .i.e. is 20% rate of tax and if assessee is not taking the benefit of indexation then only 10% rate of tax is applicable.

When time –period is considered as 12Months

1 

Equity or Pref. shares 

Shares May or may not be listed 

2 

Securities (Debentures, Govt. securities)

Should be listed 

3 

Units of UTI

Units May or may not be listed 

4 

Units of mutual Fund

Units May or may not be listed 

5 

Zero Coupon Bonds 

Bonds May or may not be listed 

What do We Mean by Transfer and Transaction not Regarded as Transfer.

For the purpose of the taxability of capital assets, one of the basic condition is the transfer the capital asset .i.e. there should be change in the ownership of the asset which can be due to sale, exchange, surrender, extinguishment of right, acquisition, conversion or redemption or any other act by which shows that ownership of the asset has been changed.

There are certain transactions which are not regarded as transfer under the income tax act and those exceptions are given under section 47 of the income tax act like asset received by the members at the time partition of HUF or asset transferred under a gift or will or irrevocable trust.

There are certain transactions which person may not consider transfer but from income tax point of view they are considered as transfer, which are as follows

Transfer by way of conversion by owner of a capital asset into stock in trade of a business carried on by him but capital gain tax will be payable only when such stock in trade is sold by that person.

The profits or gain arising from the transfer of a capital assets by a person to a firm or other association of person or body of individuals in which he is or becomes partner or member tax is payable by person who is transferring the capital assets.

The profits or gain arising from the transfer of a capital assets by way of distribution of capital assets on the dissolution of a firm or other association of person or body of individuals shall be chargeable to tax as capital gain for such Firm/AOP/BOI.

What is transfer

  • Sale
  • Exchange
  • Surrender of asset
  • Extinguishment of right
  • Compulsory acquisition of asset
  • Conversion of cap. Asset into stock in trade
  • Redemption of zero coupon bonds

Transactions not regarded as transfer

  • Asset recovered at the time of liquidation of company to its share holders
  • Asset received by a member at the time of partition of HUF
  • Asset received in gift
  • Transfer of FCCB/GDR purchase in foreign currency & Transfer is made by one NR to another NR outside India
  • Work of archeological collection etc. transfer to govt. national museum.
  • Conversion of bonds/ deb. into shares/deb. Of that company.
  • Land of Sick Industrial company

Short Term Capital Gain Rate on Transfer of Equity Shares (Listed) or Units of Equity Oriented Mutual Fund

Tax on STCG

2009-10

2010-11

2011-12

2012-13

2013-14

Tax rate

15%

15%

15%

15%

15%

Surcharge on Ind/HUF/AOP/BOI (if net Income exceeds Rs. 10Lac)

10%

Surcharge on Firm/LLP(if net income exceeds Rs. 1Crore)

10%

Surcharge on Domestic Company (if net income exceeds Rs. 1 Cr.)

10%

10%

7.5%

5%

5%

Edu. Cess & SHE Cess

3%

3%

3%

3%

3%

Note: Above rates are only applicable when securities transaction tax is paid at the time of transfer of such equity shares which means that transaction is done through recognised stock exchange in India.

What do We Mean by Short Term Capital Gain Tax

For the purpose of the taxability capital assets are divided into two category short term asset and long term asset. Any gain or loss arising from short term assets are known as short term capital gain or loss and tax paid or payable on such gain is known as short term capital gain tax. In case of short term loss from one capital asset it can be used to set off a long term or short gain from other assets.

One of the basic criteria for dividing the assets into long term and short term is period of holding means for how long assets are owned by the person. And as per section 111A of the income tax act asset is treated as short term if the period of holding .i.e. owned for less than 36 months, but in case financial assets like equity shares, listed securities, units of mutual fund and zero coupon bonds tenure is reduced to 12 months.

Few of the points for short term assets are as follows:

  • Short term gain on listed equity share or units of equity oriented fund on which securities transaction tax is payable is taxable at the rate of 15% .
  • Benefit of indexation is no available on short term gain.

When time –period is considered as 12Months

1 

Equity or Pref. shares 

Shares May or may not be listed 

2 

Securities (Debentures, Govt. securities)

Should be listed 

3 

Units of UTI 

Units May or may not be listed 

4 

Units of mutual Fund

Units May or may not be listed 

5 

Zero Coupon Bonds 

Bonds May or may not be listed 

Computation of the Value of Land and Building When Stamp Duty is Paid at Higher Rate

As per section 50C of the Income Tax Act, 1961 where value of asset if less than the amount taken for stamp duty calculation then Assessee Officer can asked for valuation of the property through valuation officer.

CONDITIONS

  • There is a transfer of land or building or both. It may be long-term or short-term capital asset. It may be depreciable or non- depreciable asset.
  • The sale consideration is less than value (stamp value) adopted by Stamp Duty Authority in respect of such transfer.

CONSEQUENCES IF THE ABOVE CONDITIONS ARE SATISFIED

  • The value (stamp value) adopted by Stamp Duty Authority shall be taken as full value of consideration for the purpose of computation of capital gain.
  • The table gives the full value of consideration in different situations-
Different situations Full value of consideration for the purpose of capital gains
Where the assessee accepts the value adopted by stamp duty authority. Value adopted by stamp duty authority is taken as full value of consideration.
Where the assessee has disputed value adopted by stamp duty authority. The stamp duty valuation is taken as full value of consideration.
Where the assessee claims that stamp value is more than the fair market value
  • Fair market value determined by the valuation officer (if it is less than the stamp duty valuation) is taken as full value of consideration
  • Stamp value (if fair market value determined by the valuation officer is more than the stamp value) is taken as full value of consideration.

OTHER RELATED POINTS

  • Where an assessee objects to stamp duty valuation, the assessing officer is duty bound to refer the matter to the valuation officer
  • Section 50C is applicable only to section 45 of capital gain and it cannot be applied for determining business income under section 28 or any other income.
  • Section 50C is applicable in case of a transferor. It cannot be invoked for charging tax on undisclosed investment in the hands of transferee.

Capital Gain on Transfer of Shares/Securities By An Employee Received as Stock Option/Sweat Equity Section 49

  • PROVISIONS AND RELATED ISSUES-

 

DIFFERENT SITUATIONS

ALLOTMENT OF SHARES/SECURITIES BY THE EMPLOYER-COMPANY TO ITS EMPLOYEES FREE OF COST OR AT CONCESSIONAL RATE

Tax on perquisite in respect of allotment of securities by the employer- company

If option is exercised by employee during 1999-2000 or after march 31, 2009, the perquisite is taxable.

Taxable value= fair market value on the date of exercise of option- acquisition cost paid.

Transfer of these securities by employees

Capital gain is taxable in the year in which securities are transferred.

If shares are allotted during 1999-2000 or after March 31, 2009, fair market value on the date of exercise of option.

  • If shares are allotted before April 1, 2007, the amount actually paid to acquire shares.
  • If shares are allotted on or after April 1, 2007 but before April 1, 2009, fair market value on the date of vesting of option.

Transfer of these securities by employees by gift or under an irrecoverable transfer

Capital gain is taxable in the hands of transferor in the year in which these securities are gifted.

Cost of acquisition in the hands of transferor would be taken as sale consideration.

Transferee will also be subject to tax under the head income from other sources.

What is Full Value of Consideration under Section 48 of Income Tax

The meaning of the word “full” means entire or complete. The expression “full value” means the whole price without any deduction.

  • Full value of consideration means consideration received or receivable by transfer in lieu of asset, which he has transferred. Such consideration may be received in cash or in kind.
  • The full value of consideration is not considered as market value of asset

Even if full value of consideration is received in installment in different year, the entire value of consideration has been taken into account for computing the capital gain, which becomes chargeable in the year of transfer.

How to Find Out Expenditure on Transfer

The Expression “expenditure incurred wholly and exclusively in connection with such transfer “means expenditure incurred which is necessary to affect the transfer. Ex. Cost of stamp, travelling expenses, registration fee

One should keep note the following points.

  • Vague claim for expenses is not allowed
  • Expenditure in connection with transfer need not necessarily have been incurred prior to passing of title.
  • If amount is subject matter of other head then amount can’t be claimed under sec.48