S.S.

T College of Arts & Commerce

Ulhasnagar-421004.

PROJECT REPORT

ON

TITLE OF PROJECT

Direct and indirect taxes

MASTER OF COMMERCE

(M.COM-2)

Pooja Ashok Kadu

PREPARED BY

ROLL NO: 1662094

UNDER THE GUIDANCE

PROF. santosh karmani

Sumitted

In partial fulfillment of the required

For the Award of the Degree of

Masters of commerce in Accounts.

 S.S.T College of Arts & Commerce

Ulhasnagar-421004

CERTIFICATE

This is to certify that Pooja Ashok Kadu

Of master of commerce M.Com-I (2016-17) has successfully

completed the project on Title of Subject direct and indirect
tax Under the guidance of. santosh karmani

Co.ordinator Internal Examination

External Examination
Serial Index Sign.
No.

1 INTRODUCTION

2 OBJECTIVE

3 Capital gain

4
Basis of Charge

5 There must be a Capital

Asset 3[S.2(14)]

6 Capital Assets must be

transferred 4[S.2(47)]
7 Types of Capital Assets

8
Capital Asset u/s. 2(14)

9 Computation of capital
gains (48)

10 1.Short Term Capital Gain

11 2long Term Capital Gain

12 Capital gains exempt from

tax
 TAX ASPECTS OF BUSINESS

INCOME FROM
CAPITAL
GAINS
 INTRODUCTION
When we buy any kind of property for a lower price and then
subsequently sell itat a higher price, we make a gain. The gain on sale of
a capital asset is calledcapital gain. This gain is not a regular income like
salary, or house rent. It is aone-time gain; in other words the capital gain
is not recurring, i.e., not occur againand again periodically

.Opposite of gain is called loss; therefore, there can be a loss under the
headcapital gain. We are not using the term capital loss, as it is incorrect.
Capital Lossmeans the loss on account of destruction or damage of
capital asset. Thus,whenever there is a loss on sale of any capital asset it
will be termed as loss underthe head capital gain

OBJECTIVE
After going through this lesson you will be able to understand the
meaning ofcapital asset, types of capital asset, what is not capital asset,
computation ofcapital gain, types of capital gains etc. You will also be
learning how to calculatethe capital gain of simple problems. The capital
gain is also an income and it istaxable too, at the end of the chapter you
will also learn the tax treatment of thecapital gain
 Capital gain
 Any Income derived from a Capital asset movable or immovable is
taxable under the head Capital Gains under Income Tax Act 1961

Basis of Charge
 Profit or gain arising from the transfer of capital assets during
previous year is chargeable under the head capital gains if
following conditions are full filed
 Their should be profit or gains.
 Transfer should take place in previous year.
 There must be a Capital Asset 3[S.2(14)]

A. Capital assets are. Defined to mean property of any kind, held by

the assessed, whether or not connected with his business or
profession.

B. Property may be tangible or intangible.

C. Land, buildings, vehicles, goodwill, tenancy rights, leasehold

rights, licenses, patents, trademarks, etc. are some examples of
capital assets

Capital Assets must be transferred 4[S.2 (47)]

 Conversion of capital assets into stock in trade.

 The compulsory acquisition of any capital assets by the
government
 The extinguishment of any rights therein;
 The sale, exchange or relinquishment of the asset
 Types of Capital Assets

There are two types of capital assets

 Long Term Capital Gains: An Asset is not a short term capital

gain is long term capital gain. 20 % is taxable.

 Short Term Capital Gains: It means a capital assets held by an

assessed for not more than 36 months immediately prior to its date
of transfer. Tax is calculated as per Income Tax Act.

Computation of STCG

Full value of Consideration XXX

Less: Cost of acquisition XXX
Less: Cost of improvement XXX
--------
Short Term Capital Gain XXX
Less: Exemption U/S 52(B), 54(D) & 54(G) XXX
---------
Net Short Term Capital Gain XXX
Computation of LTCG
Full value of Consideration XXX
Less: Cost of acquisition XXX
Less: Cost of improvement XXX
_____
Short Term Capital Gain XXX
Less: Exemption U/S 54 – 54(H) XXX
______
Net Short Term Capital Gain
 Meaning

 Full Value Consideration: It means what the transferor

or is entitled to receive as consideration for the sale of
property/Asset.

 Cost of Improvement: It is capital expenditure incurred

by is assessed in making any addition/Improvements to the
capital asset.
 Cost of Acquisition: It is the price which the assessed
has paid or the amount which the assessed has incurred for
acquiring the property/Asset.

Indexed Cost of Acquisition

ICOA: Cost of Acquisition*Cost of the year in which assets
transferred
.Cost inflation index of the first year in which asset was first
hold by the assessed or Cost inflation index of the year
beginning on 1st april,1981.(which Every is later)
 Indexed cost of Investment
ICOI: Cost of Acquisition* Cost Inflation Index of the year in
which asset is transferred
Cost inflation index of the year in which improvement took
place.

Computation of Capital gains under Income

Tax Act 1961

COMPUTATION OF CAPITAL GAINS

1. Section – 45 chargeability

2. Section - 47 Transactions not regarded as transfer

3. Section - 48 Methods of computation of capital gains

 Chargeability u/s 45
Profits or gains arising from the transfer of a capital asset is
chargeable to tax in the year in which transfer take place under the
head "Capital Gains"..

Capital Asset u/s. 2(14)

 "capital asset" means property of any kind held by an assessed,
whether or not connected with his business or profession, but does
not include following
o Any stock-in-trade, consumable stores or raw materials held
for the purposes of his business or profession;
o Personal effects, that is to say, movable property (including
wearing apparel and furniture) held for personal use by the
assessee or any member of his family dependent on him, but
excludes;
 jewellery
 archaeological collections
 drawings
 paintings
  sculptures or
 Any work of art. .
 Agriculture land in India provided that it is not situated
a) in any area within the territorial jurisdiction of a
municipality or a cantonment board, having a population of
10,000 or more ; or
b) in any notified area.

Transfer u/s. 2(47)

• Transfer, in relation to a capital asset, include sale, exchange or

relinquishment of the asset or the extinguishment of any rights
therein or the compulsory acquisition thereof under any law.
(Inclusive definition)
 Transactions which do not constitute
transfer (sec 47)

1. Distribution of capital asset on total or partial partition of

HUF

2. Transfer of capital asset under a gift or will or an

irrevocable trust

3. Transfer of capital asset by a company to its 100 percent

subsidiary company.

4. Transfer of capital asset by a company to its 100 percent

holding company

5. Transfer of capital asset in a scheme of amalgamation

6. Transfer of capital asset by a demerged company to the

resulting company
 Not to be considered as transfer

 Conversion of bonds or debentures, debenture-stock or

deposit certificates in any form, of a company into
shares or debentures of that company.

 Transfer of any work of art, archaeological, scientific or

art collection, book, manuscript, drawing, painting,
photograph or print, to
Government/University/National museum/National Art
Gallery/National Archives or any other notified public
institution/museum

Computation of capital gains (48)

The Capital Gains have been divided in two parts under Income
Tax Act 1961.
Short term capital gain and

Long term capital gain

 1.Short Term Capital Gain
• When Capital asset is sold within 36 months (Shares or
securities within 12 months) of its purchase then the gain arising
out of its sales after deducting there from the expenses of sale
(Commission etc.) and the cost of acquisition and improvement is
treated as short term capital.

2.Long Term Capital Gain

• When Capital Asset is held for more than 36 months (12 months
in case of shares or securities) is a long term capital asset and the
gain arising from sale of asset is a long term capital gain.
• Long term capital gains are arrived at after deducting from the
net sale consideration of the long term capital asset the indexed
cost of acquisition and the indexed cost of improvement of the
asset.
Cost of indexation
COI= COST OFACQUISISION
____________________________
COST INFLATION INDEX YEAR OF PURCHASE

Taxability of short term capital gains

• Section 111A of the Income tax Act provides that those equity
shares or equity oriented funds which have been sold in a stock
exchange and securities transaction tax is chargeable on such
transaction of sale then the short term capital gain arising from
such transaction will be chargeable to tax @15% from
assessment year 2009-10 onwards
Taxability of short term capital gains
• The short term capital gains other than those u/s 111A shall be
added to the income of the assessee and will be taxed normally at
slab rates applicable to the assessee.

If an Assessee does the business of buying and selling of shares

in that case he cannot take advantage of section 111A or section
10(38). In this case income will be treated as business income.

Taxation of Long term capital gains:

• The long term capital gains are taxed @ 20% after the benefit
of indexation. No deduction is allowed from the long term capital
gains from section 80C to 80U.

Taxation of long term capital gains

• Section 112(1) provides that any capital gain arising from a long
term capital asset being the listed securities which are sold
outside the stock exchange the long term capital gain shall be
calculated on such securities as below:
 • a) Tax arrived at @ 20% on such long term capital gain after
indexation u/s 48 or

b) Tax arrived at @ 10 % on such long term capital gain without

indexation Whichever is less.

Tax on long term capital gains

• The long term capital gain on equity shares or units of equity
oriented mutual fund which are sold in the stock exchange and on
which securities transaction tax is paid, is exempt u/s 10(38).
 Capital gains exempt from tax
Section 54 Capital gains arising from transfer of residential house.

Section 54B capital gains arising from the transfer of land used for
agriculture purpose.

Section 54D Capital gains on compulsory acquisition of land and

building forming part of industrial undertaking .

Section 54 EC Capital gains not to be charged on investment in

certain bonds.

Section 54ED Capital gains on transfer of certain listed securities /

units not to be charged to tax in certain cases.(up to assessment
year 200708).

Section 54 F Capital gains on transfer of a long term capital asset

other than a house property .

Section 54G capital gains on transfer of assets in case of shifting of

industrial undertaking from urban area.
Section 54GA Capital gains on transfer of assets in cases of
shifting of industrial undertaking from urban area to any special
economic zones .