According to income tax act 1961 ‘capital gains’ is the fourth head of income. Any profit or gains arising from the transfer of capital assets during the P.Y. shall be chargeable to income tax under the head capital gains and shall be deemed to be the income of P.Y. in which the transfer took place. Thus from a plain reading – Profits or gains earned on the sale of capital assets by an assessee during the P.Y. is called as capital gains. Meaning of Capital Asset: Capital asset means property of any kind held by assessee whether these are concerned with the business or profession of assessee or not. These may be tangible or intangible, movable or immovable, fixed or floating assets. It includes jwellary of gold/silver/precious stones, right to purchase shares, share of a partner in the firm, leasing rights in mines, route permits, manufacturing licence or business undertakings as a whole. But capital assets do not include the following: (i) Stock of business;
(ii) Agriculture land in rural area;
(iii) Personal effects e.g. wearing clothes, personal vehicle, refrigerator, TV, VCR and other electric / electronic appliances of domestic use domestic furniture, etc.; (iv) 6½ % gold bonds 1977; 7% gold bonds 1980; National Defence Gold Bonds 1980; Special Bearer Bonds 1991; Gold Deposits Bonds 1999 issued by the Central government.
If precious stones, gold and silver is being fixed / set in the furniture, utensils or clothes of assessee then these items become capital assets. Types of Capital Assets
Short Term Capital Assets: The capital assets held by an assessee for a period of not more than 36 months preceeding the date of transfer are called as S.T. capital assets.
In case of shares of a company, listed securities, units of U.T.I., zero coupon bonds, units of mutual funds and equity oriented units. The possession period of assets should not be more than 12 months.
It includes the capital assets on which depreciation is allowed under section 50(2).
Profit or loss due to transfer of depreciable assets will be considered as short term capital gains or short term capital loss.
If total block of these assets are transferred during the previous year then there may be short term capital gains or short term capital loss. Depreciation on these assets is charged on the written down value (W.D.V.) of assets which will increase by the amount of new assets of same block is purchased during the previous year and W.D.V. will decrease by the sale consideration of any assets of same block. Important points regarding Depreciation:
(1) Depreciation is charged on the written down value of block of assets. Blocking of assets means grouping of assets having same rate of depreciation. (2) If any capital asset was purchased and sold in the same previous year then no depreciation is being charged on that asset. (3) 50% of normal depreciation is allowed on an asset acquired and used in the business during the previous year for a period of less than 180 days. (4) If assets acquired by the assessee is used for a period of atleast 180 days or more than 180 days in the previous year then 100% of normal depreciation is allowed on the assets according to prescribed rates of depreciation. (5) If any asset is sold or destroyed or acquired by the government then no depreciation is being charged on the asset in that year. (6) If assessee is a manufacturing concern and purchased any new plant and machinery after 31st March 2005 then an additional depreciation of 20% on such assets is also allowed (10% depreciation in case of asset used for a period of less than 180 days in the year). (7) Unabsorbed Depreciation: when depreciation could not be set off out of business income as well as income from another heads then the remaining amount of depreciation is known as unabsorbed depreciation which will be carried forward for indefinite time till it is fully exhausted. II.
Long Term Capital Assets: The capital assets held by an...
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