Income From Capital Gains for CFP – 8

Exemption from capital gains has one of favourite topic in the taxation as well as advanced exam of CFP.

• The Act allows full or partial exemption from capital gain tax in terms of various sections which we are going to learn gradually
• For exemption mainly two things have been stated in the section i.e. acquire specific assets or make investment in stated instruments
• If the new asset is not acquired up to the submission of the return of income, then the tax payer will have to deposit whole or any part of the capital gain not so utilized, in the Capital Gain Account Scheme, 1988 with a nationalized bank
• Example: Mr. A sells his existing house in March 2011 and has not acquired a new house till 31st March, 2011, that doesn’t mean that the capital gains is taxable but amount is to be deposited in the above account till the time he acquires a new house to stay away from the capital gains tax liability
• The proof of the same should be submitted with the return
• In case amount not so utilized shall be charged as capital gains of the previous year in which the period of 3 years from the date of transfer expires

Deduction on Sale of Residential House Sec 54

I will explain Rest of the sections applicable for CFP exams in the coming posts.

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Income From Capital Gains for CFP – 7

Capital Gain on Bonus Shares:

For bonus shares cost of acquisition is calculated as follows:

If acquired,

1. Before 1/4/1981 — Fair Market Value on 1/4/1981
2. After 1/4/1981 — Nil

Capital Gain on Right Shares:

1. Cost of acquisition of right shares is rights issue price + rights renouncement purchase price
2. Period of holding starts from the date of allotment of the rights shares

Capital Gain on Zero Coupon Bonds:

1. Maturity or redemption of zero coupon bond will be regarded as a transfer and shall be chargeable under the head capital gains
2. If  zero coupon bonds are held for not more than 12 months – STCG
3. If held for more than 12 months – LTCG
4. Indexation benefit is available in case of LTCG