P.V.Harini harinip@sbsandco.com

Date: 11-11-2017

CAPITAL GAINS Chargeability of Capital Gain - Section-45

by

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Section 45

Profit or Gain

arising

Transfer of

Capital Asset

Chargeable to tax In the previous year in which SUCH Transfer took place

What Section 45 says ?

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Sale ,Exchange ,Relinquishment of asset

Extinguishment of right

Compulsory Acquisition

Conversion into Stock-in-Trade

Retaining the possession of Immovable Property

in part performance of Contract u/s 53A of TOPA,1882

Any transfer by way of becoming member or by

acquiring shares in Cooperative society, Company, AOP

Maturity or Redemption of Zero Coupon bond

Definitions

Transfer u/s 2(47)

Capital Asset u/s2(14)

• Any Property held by the assesse

• Any Securities held by Foreign

Institutional Investor, Investment made as per SEBI

• Movable Property such as

• Jewellery • Archaeological Collections • Work of Art(drawings,

Sculptures, Paintings)

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Stock in Trade.

Movable Property held for Personal Use (Other than mentioned earlier).

6 1/2 per cent Gold Bonds ,Special Bearer Bonds, Gold deposit bonds.

Agricultural Land in India excluding agricultural land situated within Specified limits :

Exclusions for Capital Asset

Within and Population

Municipality & Not less than 10,000

2Kms from municipality & >10,000 – 1,00,000

6Kms from municipality & >1,00,000 – 10,00,000

8Kms from municipality & >10,00,000

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SECTION EVENT

45(1) In case of damage or destruction of capital asset

45(2) Conversion of capital asset into Stock in Trade

45(3) Transfer by a Individua(member) to a firm or AOP or BOI

45(4) Transfer by a firm or AOP or BOI to the Partner or Member

45(5) Transfer by way of Compulsory Acquisition Or where consideration for the transfer is determined by Central Govt or R.B.I

45(5A) Transfer under Specified Agreement

Exceptions to the above rule

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Event : In case of damage or destruction of capital asset by way of

Flood, typhoon, earthquake, hurricane, cyclone or other convulsion of nature

Riot or civil disturbance

Accidental fire or explosion

Action by or action taken in combating an enemy

Year of Chargeability :Year of receipt of Compensation or the Other assets

Consideration : Profits or gains arising from receipt of such money or FMV of other assets received.

Indexation Facility : Up to year of destruction.

45(1)

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Event : Conversion of capital asset into Stock in Trade

Year of Chargeability : In the year in which Stock in Trade is sold.

Consideration : FMV as on date of conversion shall be considered as Consideration

Business Income : The difference between Sale price and Fair market value on date of conversion is chargeable to tax under head “Profits and Gains of Business and Profession“.

Disclosure is to be made in Tax Audit Report under Clause 15

Other Points : Indexation Facility : Up to year of Conversion.

In the year of Sale of Stock in Trade both Capital Gains and Business Income arises.

If the converted asset is sold in various years, the section will apply in each year in which it was sold.

45(2)

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Event • Transfer by a Individua(member) to a firm or AOP or BOI

Year of Chargeability

• In which such TRANSFER takes place

Consideration

45(3)

• Amount Recorded in the books of the firm or AOP or BOI

Other Points : Transfer is made by way Capital Contribution (or otherwise).

Transfer shall not be made to Company or a Co-operative Society. Chargeable in the hands of Individual (member).

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Event • Transfer by a firm or AOP or BOI to the Partner or Member

Year of Chargeability

• In which such TRANSFER takes place

Consideration

45(4)

• Full Value of Consideration Received from such TRANSFER

Other Points : Transfer is made by way distribution of capital assets on the Dissolution(or

otherwise).

Transfer shall not be made by Company or a Co-operative Society. Chargeable in the hands of Firm / AOP /BOI.

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Event : Transfer by way of Compulsory Acquisition Or where consideration for the transfer is determined by Central Govt or R.B.I

Any payment made to resident on account of Compulsory Acquisition shall be subjected to T.D.S@ 10%.However no deduction shall be made where payment does not exceed Rs.2,50,000.

45(5)

Consideration / Compensation received for the first time 1. • Year of Chargeability : In the year in which such Consideration or

Compensation is first received.

In case of Enhancement 2. • Year of Chargeability : In the year in which such enhanced

Consideration or Compensation is received.

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Other Points :

Any amount of compensation received in pursuance of an interim order of a court, Tribunal or other authority such compensation shall be Chargeable in the previous year in which the final order from such authority is made;

Where in the assessment for any year, the capital gain arising from the transfer of a capital asset is computed by taking the compensation / consideration OR enhanced compensation / consideration and

Subsequently such compensation / consideration is reduced by any court, Tribunal or other authority, such assessed capital gain of that year shall be recomputed by taking the compensation or consideration as so reduced by such court, Tribunal or other authority to be the full value of the consideration.

45(5)

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Event : Transfer of a capital asset, Under Specified Agreement being land or building or both, (assesse being Individual & HUF)

Consideration : Stamp Duty Value of land or building or both as on the date of issue of the said certificate, as increased by the consideration received in Cash

Year of Chargeability : Year of Receipt of Certificate of Completion for whole or part of the project issued by Competent Authority.

Other Points: • Where the assessee transfers his share in the project on or before the date of

issue of Certificate of Completion ,the above said provision shall not apply

• i.e. Capital Gains shall be chargeable in the year in which such transfer takes place

45(5A)

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