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How to compute capital gain on transfer of share allotted in the scheme of demerger?
As per Section 47(vib) of the Income-tax Act, 1961: “Any transfer of a capital asset in a demerger by the demerged company to the resulting company shall not be regarded as a transfer if the resulting company is an Indian company.” Similerly Section 47(vid) says that:“Any transfer or issue of sharesRead more
As per Section 47(vib) of the Income-tax Act, 1961:
“Any transfer of a capital asset in a demerger by the demerged company to the resulting company shall not be regarded as a transfer if the resulting company is an Indian company.”
Similerly Section 47(vid) says that:“Any transfer or issue of shares by the resulting company to the shareholders of the demerged company in consideration of the demerger shall not be regarded as a transfer.”
Hence, When shares are received under a demerger, no capital gain is triggered at the time of receipt. The transaction is not treated as a transfer, and hence not taxed at that point.
Tax is levied only when the shareholder transfers (sells) the shares allotted under the scheme of demerger.
See lessHow to compute capital gains in the case of slump sale under capital gain?
A slump sale refers to the transfer of one or more undertakings as a going concern, for a lump sum consideration, without assigning individual values to the assets and liabilities transferred. This definition is given under Section 2(42C) of the Income Tax Act, 1961. 🧮 How to Compute Capital Gains oRead more
A slump sale refers to the transfer of one or more undertakings as a going concern, for a lump sum consideration, without assigning individual values to the assets and liabilities transferred. This definition is given under Section 2(42C) of the Income Tax Act, 1961.
🧮 How to Compute Capital Gains on a Slump Sale (Section 50B)
Under Section 50B, the capital gain arising from a slump sale is calculated using this formula:
Sale Consideration: Total amount received or receivable for the transfer.
Net Worth: Treated as the cost of acquisition and improvement. It is calculated as:
Important Points While Computing Net Worth:
Depreciable assets: Consider Written Down Value (WDV) as per Income Tax records.
Assets under Section 35AD: Their value is considered NIL.
Other assets: Taken at book value.
Liabilities: Taken at book value.
Revaluation of assets, if any, is to be ignored for this purpose.
📅 Nature of Capital Gains
If the undertaking is held for more than 36 months → Long-Term Capital Gain (LTCG)
If held for 36 months or less → Short-Term Capital Gain (STCG)
💡 Tax Treatment
Indexation benefit is not allowed under Section 50B.
Tax Rates:
LTCG: Taxed at 20% (plus surcharge & cess).
STCG: Taxed at applicable slab rates.
The gain is taxable in the year in which the slump sale takes place.
📋 Filing Requirement
The seller (assessee) is required to obtain a report from a Chartered Accountant certifying the computation of net worth and submit it in Form 3CEA along with the return of income.
See lessHow to compute capital gain on sale/transfer of Land and Buildings?
Computation of Capital Gain ➤ A. For Long-Term Capital Gain (LTCG) As per Section 48 (mode of computation): LTCG = Full Value of Consideration (FVC) – (Indexed Cost of Acquisition + Indexed Cost of Improvement + Expenses on Transfer) Indexed Cost of Acquisition (ICOA) == Original cost × (CII of yearRead more
Computation of Capital Gain
➤ A. For Long-Term Capital Gain (LTCG)
As per Section 48 (mode of computation):
Indexed Cost of Acquisition (ICOA) =
= Original cost × (CII of year of sale ÷ CII of year of purchase)
CII (Cost Inflation Index) is notified annually under Rule 48.
📌 Note: If property is inherited, cost to the previous owner is considered.
Tax Rate:
20% with indexation under Section 112
Surcharge + cess applicable
➤ B. For Short-Term Capital Gain (STCG)
Tax Rate:
As per normal slab rates applicable to the assessee.
📦 3. Deductions from Capital Gains (Expenses on Transfer)
Brokerage/commission
Stamp duty/registration
Legal fees
Advertising cost for sale
💡 4. Exemptions (Optional)
You may claim capital gain exemption under following sections if reinvested:
I have make an agreement with a developer to construct a building on my land against consideration in the form of some construction area, is there any capital gain on this transaction? How it will be calculated?
This section deals with the taxation of capital gains arising from Joint Development Agreements (JDA). It applies only to individuals and Hindu Undivided Families (HUFs). Bare Act Extract – Section 45(5A): "In the case of an assessee being an individual or a Hindu undivided family, the capital gainRead more
This section deals with the taxation of capital gains arising from Joint Development Agreements (JDA). It applies only to individuals and Hindu Undivided Families (HUFs).
Bare Act Extract – Section 45(5A):
“In the case of an assessee being an individual or a Hindu undivided family, the capital gain arising from the transfer of a capital asset, being land or building or both, under a specified agreement shall be chargeable to income-tax as income of the previous year in which the certificate of completion for the whole or part of the project is issued by the competent authority…”
How is Capital Gain Calculated?
Capital gain will be calculated in the year in which the completion certificate is issued, not when the agreement is made.
🔹 Full Value of Consideration (FVC):
The stamp duty value (SDV) of the share of constructed property received by you + any monetary consideration received from the builder.
🔹 Less: Indexed Cost of Acquisition (ICOA):
The cost of the land (acquired or inherited) indexed as per Cost Inflation Index (CII).
🔹 Capital Gain = FVC – ICOA
Conditions to Apply Section 45(5A):
Transfer is made under a registered development agreement.
Applicable only to Individuals and HUFs.
Completion certificate is issued by the competent authority.
Important Notes:
If you sell your share in the project before completion, Section 45(5A) will not apply. In such cases, capital gain is taxed in the year of transfer under general provisions.
If you received advance payments, TDS @10% under Section 194-IC is applicable on monetary consideration.
✅ User-Friendly Example:
Suppose you own a plot and enter into a JDA in FY 2024-25. The builder agrees to give you 3 flats + ₹20 lakhs. The completion certificate is issued in FY 2026-27. The SDV of 3 flats is ₹1.5 crore.
Let’s assume:
Indexed cost of land = ₹40 lakhs
Capital Gain = (₹1.5 crore + ₹20 lakhs) – ₹40 lakhs = ₹1.3 crore
See lessThis ₹1.3 crore is your Long-Term Capital Gain, taxable in FY 2026-27 (AY 2027-28)
In what cases the assessing officer can refer the valuation of capital assets to the valuation officer under income tax act?
Below is an expert-level explanation on the cases in which an Assessing Officer may refer the valuation of capital assets to a Valuation Officer under the Income Tax Act, 1961, presented in the Indian context with relevant statutory references and a clear step-by-step explanation. 1. Key Provision:Read more
Below is an expert-level explanation on the cases in which an Assessing Officer may refer the valuation of capital assets to a Valuation Officer under the Income Tax Act, 1961, presented in the Indian context with relevant statutory references and a clear step-by-step explanation.
1. Key Provision: Section 50C of the Income Tax Act, 1961
The primary statutory mechanism for referring the valuation of certain capital assets is provided under Section 50C. This section specifically deals with the transfer of land or building (i.e., immovable property) and is designed to ensure that the full value of consideration for computing capital gains is not under-reported.
2. When Can the Assessing Officer Refer the Valuation?
The Assessing Officer has the power to refer the valuation of capital assets to a Valuation Officer in the following situation:
A. Transfer of Immovable Property (Land or Building)
Situation Trigger:
When a taxpayer transfers land or a building and the actual sale consideration declared is less than the stamp duty value as determined by a valuation officer.
Purpose of Referral:
This referral ensures that the capital gains are computed on a fair value basis. The valuation officer will determine the appropriate value (usually the stamp duty value) which is then taken as the full value of consideration for capital gains computation, thereby preventing the under-reporting of the sale value.
Mandatory Nature:
Under Section 50C, if the sale consideration is less than the determined value, the higher value (stamp duty value) must be adopted for the purpose of calculating capital gains. The Assessing Officer can refer to a Valuation Officer to finalize this value if the matter is in dispute or if the declared sale consideration is markedly lower than the valuation.
3. Other Capital Assets
Broader Scope:
While Section 50C specifically covers immovable property, generally for other types of capital assets (such as shares, securities, or business assets), the market value is usually determinable using market data, and no statutory referral to a Valuation Officer is provided. Hence, the referral mechanism is most commonly applicable to land and building transactions.
4. Procedure Following Referral
Once the Assessing Officer refers the valuation to a Valuation Officer:
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See lessValuation Process:
The Valuation Officer examines the relevant facts, including the prevailing market conditions and stamp duty rates, to determine the fair value (often the stamp duty value) of the asset.
Adoption for Capital Gain Computation:
The value thus determined is then deemed to be the full value of consideration for computing the capital gains on the transfer.
Representation by the Assessee:
If the taxpayer disputes the valuation, they are required to file a written representation explaining the basis for a lower sale consideration. However, if the Valuation Officer’s determination stands, that value is used for taxation purposes.
What are the condition for getting exemption of capital gain arise from transfer of residential house property?
The principal provision for claiming exemption on the capital gain from the sale of a residential house property is contained in Section 54 of the Income Tax Act, 1961 To claim exemption on long-term capital gains on the transfer of residential house property, a taxpayer must meet the following condRead more
The principal provision for claiming exemption on the capital gain from the sale of a residential house property is contained in Section 54 of the Income Tax Act, 1961
To claim exemption on long-term capital gains on the transfer of residential house property, a taxpayer must meet the following conditions:
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See lessNature of the Asset and Holding Period:
The house property being sold must qualify as a long-term capital asset. For residential house property, the asset is considered long-term if it has been held for at least 24 months (this period is applicable for properties acquired after a prescribed date, as per current law).
Reinvestment Requirement:
Purchase Option:
The taxpayer must invest the net sale consideration (i.e., the sale proceeds after deducting expenses directly related to the sale, such as brokerage and transfer expenses) in the purchase of a new residential house property either:
One year before the date of transfer or,
Two years after the date of transfer.
Construction Option:
If the taxpayer opts for constructing a new residential house property, the construction must be completed within three years from the date of transfer of the original property.
Quantum of Exemption:
The exemption is available only to the extent of the capital gain that is invested in the new residential property.
If only a part of the net sale consideration is reinvested, the exemption will be restricted proportionally; that is, only a part of the capital gain corresponding to the amount invested qualifies for exemption.
Utilization and Subsequent Sale:
The new residential property, in which the capital gain is reinvested, must be held for the minimum period as prescribed.
If the new property is sold within the prescribed period (3 years for purchased property or 4 years for constructed property), the previously claimed exemption may become taxable in the year of such subsequent transfer.
Documentation and Compliance:
Proper documentation (such as sale deed of the original property, purchase agreement or construction contract of the new property, bank statements, and relevant receipts) must be maintained as evidence to support the reinvestment claim when filing the Income Tax Return (ITR).
What is capital gain accounts scheme?
The Capital Gains Account Scheme (CGAS) is a facility provided by the Income Tax Department, through its circulars and guidelines, to enable taxpayers to park the net sale proceeds (or capital gains) from the sale of a long-term capital asset when they intend to claim reinvestment exemptions under pRead more
The Capital Gains Account Scheme (CGAS) is a facility provided by the Income Tax Department, through its circulars and guidelines, to enable taxpayers to park the net sale proceeds (or capital gains) from the sale of a long-term capital asset when they intend to claim reinvestment exemptions under provisions such as Section 54, Section 54EC, or Section 54F of the Income Tax Act, 1961.
Purpose and Need for CGAS
When a taxpayer sells a capital asset and is eligible for exemption by reinvesting the proceeds (or gains) in another specified asset or bonds within a defined time frame, any delay or partial reinvestment can lead to a situation where the taxpayer has not fully discharged their reinvestment obligation. To preserve the benefit of the exemption and avoid immediate taxation on the capital gains:
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See lessDepositing in a CGAS:
The taxpayer can deposit the funds in a designated CGAS account with authorized banks. This deposit acts as a temporary repository for the capital gains until the taxpayer completes the reinvestment as stipulated by the applicable exemption rule.
Safeguard for Reinvestment:
This mechanism allows the taxpayer to claim the benefit of exemption even if the reinvestment is completed at a later date within the prescribed time limit. It ensures that the capital gains are “earmarked” for the intended reinvestment, thereby deferring the tax liability on those gains.
While the term “Capital Gains Account Scheme” does not appear verbatim in the bare act, it is an integral part of the reinvestment framework described in sections such as:
Section 54:
Provides for exemption on long-term capital gains from the sale of residential house property when the net sale proceeds are reinvested in another residential property.
Section 54EC:
Offers exemption on long-term capital gains if the proceeds (or gains) are invested in specified bonds (such as those issued by NHAI or REC) within six months of the sale.
Section 54F:
Pertains to the sale of capital assets (other than a residential house) where full reinvestment of the net sale proceeds in a residential property is required to claim an exemption.