FAQ’s on Capital Gain

1. What is Capital gain?

Any profit arising from sale or Transfer of a capital asset is called Capital Gain and shall be chargeable to tax in the year in which the transfer took place.

2. What do you mean by capital asset?

You can find a detailed article about capital assets in our website,
Follow the below link to know more,
https://pioneerone.in/what-do-you-mean-by-capital-asset/

3. What are all the transactions that are regarded as transfer?

Transactions regarded as transfer,

• Sale
• Exchange
• Relinquishment
• Extinguishment of rights
• Compulsory acquisition under any law
• Conversion of capital asset into stock in trade
• Maturity or redemption of zero coupon bond
• Allowing possession of immovable properties to the buyer in part performance of the contract
• Transaction that has the effect of transferring an immovable property

Disposing of or parting with an asset or any interest therein or creating any interest in any asset in any manner whatsoever.

4. How are capital assets Classified?

Capital assets are classified into short term and long term assets.

• Gain arising on transfer of long-term capital asset is termed as long-term capital gain
• Gain arising on transfer of short-term capital asset is termed as short-term capital gain

5. How to determine whether an asset is long term capital asset or short term capital asset?

You can find a detailed article about long term and short term capital assets in our website,
Follow the below link to know more,
https://pioneerone.in/classification-of-capital-assets/

6. How to compute capital gain?

You can find a detailed article about computation of capital gain in our website,
Follow the below link to know more,
https://pioneerone.in/classification-of-capital-assets/

7. What is indexation?

Indexation is a process by which the cost of acquisition is adjusted against inflationary rise in the value of asset.

8. Is the benefit of indexation available for computing both short term and long term capital gain?

No, the benefit of indexation is available only in case of computing long term capital gain.

9. When is indexation benefit not available?

The benefit of indexation is not available in the following cases,

• Shares and securities, units of equity oriented fund and units of business trust
• Bonds or debentures other than,
  1. Capital indexed bonds (issued by the Government)
  2. Sovereign Gold Bond (issued by RBI under the Sovereign Gold Bond Scheme, 2015)
• Depreciable capital asset (other than an asset used by a power generating unit which is depreciated under SLM).
• Slump sale
• GDR (Global depository receipts).

10. What is the cost of acquisition of the asset?

Cost of acquisition of the capital asset is the cost incurred in acquiring the capital asset.

Cost of acquisition = Purchase consideration + any expenses incurred for acquiring the capital asset.

11. What is the cost of acquisition of the asset purchased before 1st April 2001

The Cost of acquisition will be higher of actual Cost of acquisition or Fair market value as on 01.04.2001