54B Capital gain on transfer of land used for agricultural purposes not to be charged in certain cases 54D Capital gain on compulsory acquisition of lands and buildings not to be charged in certain cases 54EC Capital gain not to be charged on investment in certain bonds
54ED
54F Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house
54G Exemption of capital gains on transfer of assets in cases of shifting of industrial undertaking from urban area
54GA Exemption of capital gains on transfer of assets in cases of shifting of industrial undertaking from urban area to any Special Economic Zone
54GB Capital gain on transfer of residential property 54H Extension of time-limit for acquiring new asset
[CA INTER N05, 4 Marks]
Question: Briefly discuss about the provisions relating to claiming of exemption in respect of short-term capital gains, in order to reduce tax liability. [54B, 54D and 54G]
Answer:
[CS EP D10 & D11, 2 marks & 3 marks]
Question: Distinguish between exemption to capital gains u/s 54G and exemption to capital gains u/s 54GA.
Question: Write short note on exemption u/s 54, 54B, 54D, 54EC, 54F, 54G, 54GA under the head capital gain?
Prior use Used by
1 "eligible company" means a company which fulfils the following conditions, namely:—
(i) it is a company incorporated in India during the period from the 1st day of April of the previous year relevant to the assessment year in which the capital gain arises to the due date of furnishing of return of income under sub-section (1) ofsection 139by the assessee;
(ii) it is engaged in the business of manufacture of an article or a thing;
(iii) it is a company in which the assessee has more than fifty per cent share capital or more than fifty per cent voting rights after the subscription in shares by the assessee; and
(iv) it is a company which qualifies to be a small or medium enterprise under the Micro, Small and Medium Enterprises Act, 2006 (27 of 2006);
2"new asset" means new plant and machinery but does not include—
(i) any machinery or plant which, before its installation by the assessee, was used either within or outside India by any other person;
(ii) any machinery or plant installed in any office premises or any residential accommodation, including accommodation in the nature of a guest-house;
(iii) any office appliances including computers or computer software;
(iv) any vehicle; or
(v) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head "Profits and gains of business or profession" of any previous year.
Withdrawal income (except S.54EC). If the deposited amount not used for specific purpose within the due date will be charged u/s 45.
Note 2: Amount of exemption (except S.54F & S.54GB): WEL (amount invested or capital gain) and for S.54F and S.54GB, exemption = WEL (
)
Question: Write a note on extension of time for acquiring new asset or depositing or investing amount of capital gain. [S.54H]
Answer: the period of acquiring new asset [for claiming benefits u/s 54] is calculated from the date of receipt of the compensation, if the original asset compulsorily acquired under any law
[CA INTER M00, 7 Marks]
Question: Raghavan owned a residential house at Madurai, the original cost of which was ₹1,00,000. It was acquired on 1.9.1999. He sold the house on 1.6.2015 for ₹8,00,000 and purchased another house on 30.5.2016 at Tiruchi for ₹6,00,000. The second house at Tiruchi was sold by him for ₹8,00,000 on 30.6.2018.
Discuss the impact of these transactions with regard to assessment to capital gains.
Answer:
1 Assumed ₹6,00,000 was deposited in capital gain deposited account scheme
Sale consideration of Tiruchi house 8,00,000 Less Cost of acquisition [₹600000 – 5,22,108] being exemption availed u/s 54
as Tiruchi house is sold within 3 years
77,892
Short term Capital gain 7,22,108
[CMA RTP J12 & D12]
Question: Tina was the owner of two residential houses. On 5th April, 2015, she disposed one of the houses and utilized the entire sale proceeds to construct first floor on her second house which he completed by 15th March, 2016. She seeks your advice as to the taxability of transaction to capital gains under the provisions of Income Tax Act, 1961.
Answer: Vide S.54, where an assessee transfers a residential house being a Long-term Capital Asset and the Long-term capital gain on such transaction is utilized for construction of another residential house, within a period of 3-years from the date of transfer, is entitled for exemption. Construction of first floor in the existing building should be treated as independent residential unit entitled for exemption u/s 54 / 54F.
[P.V.NARASIMHAN 181 ITR 101]
[CMA RTP J11]
Question: On 16th January 2016, Suman sold agricultural land for ₹22 lacs. He incurred selling expenses for ₹50,000. Compute capital gains:
If the land sold, was purchased on 1st February 1999 for ₹4 lacs, and the land was used for agricultural purposes by his mother. He again purchased agricultural land of ₹8 lacs on 25th January 2016.
Amount deposited in a scheduled bank under“ Capital Gains Deposit Scheme is ₹4 lacs on 6th April, 2016.
Answer:
Computation of Capital Gains for the A.Y. 2016-17 ₹
Consideration for transfer 22,00,000
Less Expenses on transfer 50,000
Net Consideration 21,50,000
Less Indexed Cost of Acquisition ( 4,00,000 × 1081/351) 12,31,909
Long-term Capital Gains 9,18,091
Less Exemption u/s 54B Cost of New Land purchased 8,00,000 Less Amount deposited in “Capital Gains Account Scheme
before due date of furnishing return specified u/s 139(1)
₹4,00,000 4,00,000
Taxable long term Capital Gains NIL
[CMA INTER D1, 1 Mark]
Question: On 17th January, 2016, M/s. Naina sold a house property and earned a long term capital gain of1,02,50,000. She invested a sum of ₹50,00,000 in bonds specified in section 54EC on 8th March, 2016. She further invested a sum of ₹50,00,000 in same bonds on 8th May, 2016. Taxable Income of M/s. Naina for the Assessment Year 2016-17 will be1:
a) 50,00,000 b) 52,50,000 c) 1,00,50,000 d) 2,50,000
[CMA RTP J12 & D12]
Question: Saptarshi acquired shares of G Ltd. on 15.12.2001 for ₹5 lacs which were sold on 14.6.15 for ₹19 lacs. Expense on transfer of shares is ₹40,000. He invests ₹8 lacs in the bonds of Rural Electrification Corporation Ltd., on 16.10.2015.
a. Compute capital gain for the assessment year 2016-17.
b. State the period for which the bonds should be held by the assessee. What will be the consequences if such bonds are sold within the specified period?
c. What will be the consequences if Saptarshi takes a loan against the security of such bonds?
Answer:
(a) Computation of Capital Gains for the A.Y. 2016-17 ₹
Consideration for transfer 19,00,000
Less Expenses on Transfer 40,000
Net Consideration 18,60,000
Less Indexed Cost of Acquisition [5,00,000 × 1081/426] 12,68,779
Long-term Capital Gains 5,91,221
Less Exemption u/s 54EC 5,91,221
Taxable long-term Capital Gain NIL
(b) Saptarshi should not transfer or convert (otherwise than transfer) into money such bonds within 3 years from the date of their acquisition. If these bonds are transferred or converted into money within 3 years, capital gain exempted earlier shall attract taxability towards long-term capital gain of the previous year in which such asset is transferred or converted into money.
(c) If any loan is taken against security of such bonds, it shall be taxable as long-term capital gains of the previous year in which such loan is taken against the security of such bonds.
1Ans: B [52,50,000]
[CA IPCC M 14, 8 Marks]
Question: Mr. Roy, aged 55 years owned a Residential House in Ghaziabad. It was acquired by Mr. Roy on 10-10-1986 for ₹6,00,000. He sold it for ₹53,00,000 on 4-11-2015. The stamp valuation authority of the state fixed value of the property at ₹71,00,000. The Assessee paid 2% of the sale consideration as brokerage on the sale of the said property.
Mr. Roy Acquired a Residential House property at Kolkata on 10-12-2015 for ₹10,00,000 and deposited
₹7,00,000 on 10-4-2016 and ₹5,00,000 on 15-6-2016 in the capital gains bonds of Rural Electrification Corporation Ltd. He deposited ₹4,00,000 on 6-7-2016 and ₹3,00,000 on 1-11-2016 in the capital gain deposit scheme in a Nationalized Bank for construction of an additional floor on the residential house property in Kolkata.
Compute the Capital Gain chargeable to Tax for the Assessment Year 2016-17 and Income Tax chargeable thereon assuming Mr. Roy has no other income.
Answer: Computation of taxable capital gains of Mr. Roy AY 2016-17
₹ ₹
Sale consideration (S.50C WEH of sale value or stamp duty value) 71,00,000
Less: Expenses on transfer (2% of ₹53 lacs) 1,06,000
Net sale consideration 69,94,000
Less: Indexed cost of acquisition ( ) 46,32,857
Long term Capital Gains 23,61,143
Less: Exemption u/s 54 14,00,000
Exemption u/s 54 EC 7,00,000
21,00,000
Long Term Capital loss 2,61,143
Since Mr. Roy has no other income, he can set off ₹2,50,000 (the basic exemption limit) against his LTCG income.
Tax is calculated as follows ₹ On the first ₹2,50,000 Nil On balance ₹11,143, @ 20% 2,229 Less: Rebate u/s 87A 2,000
Balance 229
Add: 3% Education Cess 7
Total tax liability 236
Rounded off 240
Notes:
1. ₹5 lacs worth of REC bonds purchased on 15-6-2016 are not considered for exemption u/s 54EC, as they are purchased more than 6 months after the date of transfer.
2. ₹3 lacs deposited in Capital Gains Deposit Scheme on 1-11-2016 is not considered for exemption u/s 54 since the same is deposited after 31-7-2016, the due date of filling return of income.
[CA INTER N06, 10 Marks]
Question: Mr. Malik owns a factory building on which he had been claiming depreciation for the past few years. It is the only asset in the block. The factory building and land appurtenant thereto were sold during the year. The following details are available.
₹
Building completed in September, 2008 for 10,00,000
Land appurtenant thereto purchased in April, 2006 for 12,00,000 Advance received from a prospective buyer for land in May, 2007,
forfeited in favour of assessee, as negotiations failed
50,000
WDV of the building block as on 1.4.2015 8,74,800
Sale value of factory building in November, 2015 8,00,000
Sale value of appurtenant land 25,00,000
The assessee is ready to invest in long-term specified assets u/s 54EC, within specified time.
Compute the amount of taxable capital gain for the assessment year 2016-17 and the amount to be invested u/s 54EC for availing the maximum exemption.
Answer:
Computation of taxable capital gain of Mr. Malik for A.Y.2016-17
Particulars ₹ ₹
Factory building
Sale price of building 8,00,000
Less WDV as on 1.4.2015 8,74,800
Short-term capital loss on sale of building (S.50) (-) 74,800 Land appurtenant to the above building
Sale value of land 25,00,000
Less Indexed cost of acquisition [(12,0,000 – 50,000 u/s 51)1081/519] 23,95,279
Long-term capital gains on sale of land 1,04,721
Chargeable long term capital gain1 [amount required 29,921
1 As per S.74, short term capital loss can be set-off against any income under the head ―Capital gains‖,
long-to invest for availing exemption u/s 54EC]
[CA INTER M06 & M12, 8 & 8 Marks (similar in M12 Anusha instead of Mr. A)]
Question: Mr. A who transfers land and building on 2.1.2016, furnishes the following information:
1. Net consideration received ₹17 lakhs.
2. Value adopted by stamp valuation authority, which was not contested by Mr. A ₹19 lakhs.
3. Value ascertained by Valuation Officer on reference by the Assessing Officer ₹20 lakhs.
4. This land was distributed to Mr. A on the partial partition of his HUF on 1.4.1981. Fair market value of the land as on 1.4.81 was ₹1,10,000.
5. A residential building was constructed on the above land by Mr. A at a cost of ₹3,20,000 (construction completed on 1.12.2012) during the financial year 2012-2013.
6. Short-term capital loss incurred on sale of shares during the financial year 201 2-2013 ₹2,05,000.
Mr. A seeks your advice as to the amount to be invested in NABARD bonds so as to be exempt from clutches of capital gain tax.
Answer: Computation of Capital Gains of Mr. A for the Assessment Year 2015-16.
Particulars ₹
(a) Sale consideration 17,00,000
(b) Stamp Duty Value 19,00,000
(c) Whichever is higher of (a) or (b) [S.50C(1)] 19,00,000
(d) Value as per valuation officer 20,00,000
Whichever is lower of (c) or (d) [S.50C(3)]
Full value of consideration (deemed)
19,00,000
Less Indexed cost of land (1,10,000 1081/100) 11,89,100 Indexed cost of building (3,20,000 1081/852) 4,06,009
Long-term capital gain 3,04,891
Less Brought forward short-term capital loss set off 2,05,000 Amount to be invested in NHAI / REC bonds [S.54EC] 99,891
[CA INTER N04, 6 Marks]
Question: Mr. `X’ furnishes the following data for the previous year ending 31.3.201 6.
(a) Equity Shares of AB Ltd., 10,000 in number were sold on 31.5.2015, at ₹350 for each share.
(b) The above shares of 10,000 were acquired by `X’ in the following manner:
term or short-term. Therefore, in this case, short-term capital loss of ₹74,800 can be set-off against long-term capital gain of ₹1,31,021
(i) Received as gift from his father on 1.6.1980 (5,000 shares) the market price on 1.4.81 ₹50 per share.
(ii) Bonus shares received from AB Ltd. on 21.7.1996 (2,000 shares).
(iii) Purchased on 1.2.2005 at the price of ₹125 per share (3,000 shares).
(c) Purchased one residential house at ₹25 lakhs, on 1.9.2016 from the sale proceeds of shares.
(d) `X’ already owns a residential house, even before the purchase of above house.
You are required to compute the taxable capital gain. He has no other source of income chargeable to tax.
Answer: It is also assumed that the transaction of sale of shares is not exempt under section 10(38).
Computation of taxable capital gain of Mr. X for A.Y. 2016-17 ₹ ₹ Sale consideration received on sale of 10,000 shares @ ₹400 each 40,00,000 Less Indexed cost of acquisition
(a) 5,000 shares (gift from father on 1.6.1980) * + 27,02,500
(b) 2,000 bonus shares received from AB Ltd Nil
(c) 3000 shares purchased on 1.2.2005 * + 8,44,531 35,47,031
Long term capital gain 4,52,969
Less Exemption u/s 54F 2,83,106
Taxable long term capital gain 1,69,863
[CMA RTP J11]
Question: Bipasha purchased jewellery worth ₹2,20,000 during 1986-87. During the year 1991-92, she further purchased jewellery worth ₹3,50,000. All the jewellery was sold by her on 15.6.15. The jewellery purchased in 1986-87 was sold for ₹20 lacs and that purchased in 1991-92 was sold for ₹32 lacs. On 26.6.15 she deposited ₹50 lacs in capital gains scheme account. On 21.10.15 withdrawing from the Deposit Account, she utilized ₹48 lacs for purchase of a residential house property in Kolkata. On the date of transfer, she owns only one residential house.
Answer:
Computation of Capital Gains for the A.Y. 2016-17
₹ a) On transfer of jewellery purchased during 86-87 Consideration for transfer 20,00,000
Less Indexed Cost of Acquisition ( ) 16,98,714
Long-term Capital Gains 3,01,286
b) On transfer of jewellery purchased during 1991-92 Consideration for transfer 32,00,000
Less Indexed Cost of Acquisition ( ) 19,01,256
Long term capital gains 12,98,744 In order to avail the maximum benefit u/s 54F, the exemption should be computed as follows:
Total long-term Capital Gain 16,00,030
Less Exemption u/s 54F * + 15,38,490
Taxable Long-term Capital Gains 61,540
[CMA RTP J11]
Question: P Ltd., owns an industrial undertaking manufacturing chemicals in Bangalore owns the following assets
a) Plant and machinery (WDV ₹5 lacs) sold for ₹15 lacs.
b) Building (WDV ₹12 lacs) sold for ₹60 lacs.
c) Furniture and fixtures (WDV ₹50,000) sold for ₹1,80,000
d) Land cost of acquisition ₹5,00,000 during 1987-88 and sold for ₹30 lacs
The industrial undertaking was shifted as per policy of the Government from urban area to other area.
The new assets acquired during the period 1.1.16 to 31.3.16 are plant and machinery ₹20 lacs; buildings
₹40 lacs.
Compute capital gain chargeable to tax for the assessment year 2016-17.
Answer:
Short-term Capital Gains on Depreciable assets ₹
(i) Plant & Machinery (15,00,000 – 5,00,000) 10,00,000
(ii) Buildings (60,00,000 – 12,00,000) 48,00,000
(iii) Furniture & Fixtures (1,80,000 – 50,000) 1,30,000 59,30,000 Long-term capital gains on industrial land:
Consideration for transfer 30,00,000
Less Indexed Cost of Acquisition (5,00,000 × 1081/150) 36,03,333 6,03,333
Total Capital Gains 53,26,667
Less Exemption u/s 54G
Plant & Machinery 20,00,000
Building 40,00,000 65,00,000
but restricted to ₹5,91,221 [₹53,26,667 — 1,30,000, being STCG on furniture, not eligible for the purpose of claiming exemption u/s 54G
5,91,221
Short term Capital Gains (on furniture) 1,30,000
[CA INTER N07, 8 Mark]
Question: Mrs. Malini Hari shifted her industrial undertaking located in corporation limits of Faridabad, to a Special Economic Zone (SEZ) on 1.12.2015.
The following particulars are available: ₹
(a) Land: Purchased on 20.01.2010 4,26,000
Sold for 22,00,000
(b) WDV of Building as on 01.04.2015 [Construction completed on 14.03.2010] 8,20,000
Sold for 11,89,000
(c ) WDV of cars as on 01.04.2015 7,40,000
Sold for 6,00,000
(d ) Expenses on shifting the undertaking 1,15,000
(e ) Assets acquired for the undertaking in the SEZ (on or before 25.06.2016) ₹
(i) Land 3,00,000
(ii) Building 5,00,000
(iii) Computers 1,00,000
(iv) Car 4,20,000
(v) Machinery (Second hand) 2,00,000
(vi) Furniture 50,000
There is no intention of investing in any other asset in this undertaking. Compute the exemption available under Section 54GA for the assessment year 2016-17.
Answer: Computation of exemption available u/s 54GA of the Capital Gain:
Particular Land Building Cars
Sales consideration 22,00,000 11,89,000 6,00,000
Less Cost of acquisition (8,20,000) (7,40,000)
Indexed cost of requisition (Land) ( ) 7,91,247
Gross Gain / Loss 14,08,753 3,69,000 (1,40,000)
(LTCG) (STCG) (STCL) Less Exemption u/s 54 GA:
Total investment except furniture (include cost of shifting)
[3,00,000+5,00,000+1,00,000+4,20,000+2,00,000+1,15,000] = 16,35,000 12,66,000 3,69,000 Nil
Net Gain / Loss 1,42,753 Nil (1,40,000)
LTCG STCL
Income chargeable under the head Capital Gain:
LTCG (on Land) ₹1,42,753 Less STCL (on Car) (₹1,40,000)
LTCG ₹2,753
[CMA RTP D10]
Question: R, an individual resident in India bought 1,000 equity shares of ₹10 each of A Ltd. at ₹50 per share on 30.5.2015. He sold 700 equity shares at ₹35 per share on 30.9.2015 and the remaining 300 shares at ₹25 per share on 20.12.2015. A Ltd. declared a dividend of 50%, the record date being 10.8.2015. R sold on 01.02.2016 a house from which he derived a long term capital gain of ₹75,000. Compute the capital gain arising to ₹for the Assessment Year 2016-17.
Answer:
Assessee : Mr. R Previous Year : 2015-2016 Assessment Year : 2016-17
Analysis as per Section 94(7):
1. In the given case, shares were purchased on 30.05.2015 within 4 months prior to Record Date i.e.
10.08.2015.
2. Shares are sold on 30.09.2015 and on 20.12.2015. The first sale is within 3 months and the next one is after that period. Dividend has been received @ 50% on Face Value ₹10 per share on the entire 1,000 shares.
3. Loss arising out of transfer of the first 700 shares should be ignored to the extent of such dividend.
Computation of Taxable Capital Gains Particulars
Date of Transfer 30.09.15 20.12.15
No. of Shares 700 300
Sale price / share ₹35 ₹25
Consideration for transfer (₹) 24,500 7,500
Less Cost of Acquisition (₹) (35,000) (15,000)
Short Term Capital Loss (₹) (10,500) (7,500)
Add: Dividend (700 shares of Face Value ₹10 per share @ 50%) (₹) 3,500 Nil [Transferred within 3 Months from Record Date]
Short Term Capital Loss [after considering S.94(7)] — (Note) (₹) (7,000) (7,500)
Total Short Term Capital Loss (₹) (14,500)
Long Term Capital Gains (Given) (₹) 75,000
Taxable LTCG (after set off u/s 71) (₹) 60,000
Note: Since 300 shares are transferred on 20.12.15 which is 3 months after the reorder date, dividend received need not be adjusted against Short Term Capital Loss.
[CMA RTP J10]
Question: ‘X’ received a vacant site under his father’s will. The value of the site on 31.3.2016 is ₹15 Lakhs.
As per terms of the ‘Will’ in the event ‘X’ wants to sell the site he should offer it to his brother for sale at
₹10 Lakhs. ‘X’, therefore, claims that the value of the site should be taken at ₹10 Lakhs as at 31.3.2016. Is the claim correct?
Answer:
1. As per Rule 21 of Schedule III to the Act, the price or other consideration for which any property