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FAQs on Capital Gain

1. What are capital assets?
A) Capital assets are properties of any kind held by a person whether or not connected with his business or profession.

2. What is capital gain?
A) Any profit or gain arising from transfer of capital asset is capital gain.

3. Which are the two types of capital gains?
A) Short term capital gain and long term capital gain.

4 What is Short term capital gain?
A) Capital gain accrued by the transfer of a capital asset (shares or securities within one year and other properties within three years of acquisition) is called short term capital gain.

5. What is long term capital gain?
A) Capital gain accrued by the transfer of a capital asset (shares or securities after one year and other properties after three years of acquisition) is called long term capital gain.

6. How is capital gain calculated?
A) Capital gain = ( full value of consideration received on transfer) - ( cost of acquisition of capital asset + cost of improvement of capital asset + expenditure incurred  in connection with transfer of capital asset).

7. What are the ways to minimize the incidence of capital gain?
A) The ways to minimize the incidence of capital gain are:
(i) by investing in capital gain bonds
(ii) by reinvesting in residential properties.

8. What is the rate of income tax on a short term capital gain?
A) The short term capital gain is calculated along with the other sources of income of the assessee and is subjected to a maximum tax rate of 30%.

9. What is the rate of income tax on a long term capital gain?
A) The long term capital gain is subjected to a tax rate of 20%.

10. What are the transfer related expenditures which can be minimized from the sale value of an asset for the calculation of capital gain?
a. Brokerage charges
b. Stamp duty and registration fee
c. Travel expenses

11) What is the formula to find the indexed cost of acquisition of a capital asset in the case of long term capital gain?
A) Cost of acquisition = [Cost of purchase x CII (Cost Inflation Index) of current year] / CII of Purchase year

12) Are cost of acquisition and cost of improvement indexed in the case of a short term capital gain?
A) No.

13. What are the exemptions of agricultural land from capital gain?
A) Capital gain from sale of agricultural land is exempted from tax subject to the following conditions:
a. Land should have been used by the assessee or his parents for agricultural purposes for the last two preceding years.
b. The assessee shall purchase agricultural land within 2 years from the date of transfer and shall not sell the same for three years.
c. If the assessee does not purchase the agricultural property within 2 years, he may deposit the capital gain in the CGAS (Capital Gain Account Scheme) of the specified bank.

14. How can long term capital gain from transfer of a residential unit minimized?
A) a. As per section 54, if the assessee within a period of two years after the transfer; or one year before the transfer of the property purchase a residential house, then the capital gain tax will be exempted.
b. If the assessee within a period of three years after the transfer of the property, construct a residential house then the capital gain tax will be exempted.
c. The assessee shall not transfer the new house within a period of three years from the date of its purchase or construction.
d. If the capital gain cannot be reinvested as above them the same shall be deposited in CGAS to claim exemption.

15. How can long term capital gain from transfer of a non residential asset minimized?
A) a. As per section 54F, if the assessee within a period of two years after the transfer or one year before the transfer of the property, purchase a residential house using the net consideration, then the capital gain tax will be exempted.
b. If the assessee within a period of three years after the transfer of the property, construct a residential house using the net consideration, then the capital gain tax will be exempted.
c. However the assessee shall not own more than one residential house.
d. The assessee shall not transfer the new house within a period of three years from the date of its purchase or construction.
e. If the net consideration cannot be re invested as above then the same shall be deposited in CGAS to claim exemption.

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Published by Mento Issac on July 4, 2011



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