Computation of Capital Gains
Introduction
Capital gains are computed based on the holding period, sale value, cost of acquisition and improvement, transfer expenses, reconstitution adjustments, and exemptions under Sections 54 to 54GB.
Steps to Compute Capital Gains
- Formula for Computation
| Particulars | Rs. |
| Full value of consideration | xxx |
| Less: | |
| (a) Expenditure incurred wholly and exclusively in connection with transfer | (xxx) |
| (b) Cost of acquisition | (xxx) |
| (c) Cost of improvement | (xxx) |
| (d) Capital gains taxable under section 45(4), which is attributable to the capital asset remaining with the firm, AOP or BOI after reconstitution | (xxx) |
| Less: Exemption under Sections 54 to 54GB | (xxx) |
| Short-term/Long-term capital gain or Loss | xxx |
Key Components
- Period of holding: For capital gain computation, assets are classified as short-term or long-term based on the holding period, which generally starts from the date of purchase.
- Full Value of Consideration:Includes cash or fair market value for non-cash consideration, adjusted as per specific provisions.
- Transfer Expenses:Includes brokerage, commission, stamp duty, legal fees, etc. However, no deduction is allowed for STT when computing capital gains on sale of securities.
- Cost of Acquisition:Purchase price or cost incurred during acquisition or cost of previous owner.
- Cost of Improvement:Includes capital expenditure incurred on or after April 1, 2001, by the assessee or the previous owner.
- Exemptions:Available under Sections 54 to 54GB for reinvestment in specified assets.
- Adjustments under Section 45(4):Deduction of attributed revaluation gains from capital assets retained by a firm (including AOP or BOI) after reconstitution.
Tax Treatment and Indexation
- General Rule:
- Indexation is not available for short-term capital gains.
- For long-term capital gains on assets transferred on or after July 23, 2024, indexation has been removed.
- Grandfathering for Land/Buildings Acquired Before 23-07-2024:
- Resident individuals and HUFs can opt for indexation and 20% tax if it results in lower tax liability compared to the new 12.5% rate without indexation.
- Indexed Cost of Acquisition/Improvement:
- Formula for Indexation: Indexed Cost=Original Cost×CII (Year of Transfer)/CII (Year of Acquisition/Improvement or 2001-02, whichever is later)
Other Points (Provisos under Section 48)
- For non-residents, gains on shares/debentures of Indian companies are computed in the same foreign currency as used for purchase, then reconverted into INR (applies to every reinvestment and sale).
- Indexation benefit applies to long-term capital assets transferred before 23-07-2024, except for non-resident transfers of Indian shares/debentures.
- No indexation for LTCG under Section 112A (equity shares, equity-oriented funds, business trusts).
- No indexation for LTCG on bonds/debentures, except Capital Indexed Bonds and Sovereign Gold Bonds.
- In case of a non-resident holding rupee-denominated bonds, gains arising from rupee appreciation at redemption shall be ignored.
- For transfers of shares/debentures/warrants by gift or irrevocable trust (under section 47(iii)), FMV on the transfer date is deemed as consideration.