Today we will discuss capital gains. To begin with, let us first understand what is meant by capital gains.
Capital gains mean any profit or gains arising on the transfer of capital assets. Thus, the most important aspect is that there should be a TRANSFER of CAPITAL ASSET.
Let us understand what is defined as TRANSFER.
Transfer, concerning capital assets, means:
- Sale, exchange or relinquishment of rights; OR
- Extinguishment of rights; OR
- The compulsory acquisition under any law; OR
- Conversion of the asset as stock in trade; OR
- Maturity or redemption of Zero-coupon bonds; OR
- Any transaction involving allowing possession of immovable property or retained in part performance of contract falling under section 53A of ToPa,1882; OR
- Any transaction, which has the effect of transferring or enabling the enjoyment of immovable property (whether by way of becoming a member or acquiring shares in a co-operative society, company or association of person).
Let us understand what can be termed as a Capital asset.
Capital asset means:
- Property of any kind held by the person,
- Any Securities held by Foreign Investment Institution, but does not include— (i) any stock-in-trade, consumable stores or raw materials held for business purposes; (ii) personal effects, movable property (including wearing apparel and furniture) held for personal use, but excludes Jewellery, archaeological collections, drawings, paintings, sculptures, or any work of art.
- Agricultural land in India, (not being land specifically excluded under the definition given in the Act)
- Specified Gold Bonds issued by the Central Government;
- Special Bearer Bonds, 1991, issued by the Central Government ;
- Gold Deposit Bonds or deposit certificates notified by the Central Government.
Capital gains are calculated as the difference between Sale consideration less Cost of Acquisition / Improvement.
The reader may understand that capital gains can be categorized as Short term capital gains or long term capital gains, based on the duration for which the capital asset is held