Page 342 - DCOM301_INCOME_TAX_LAWS_I

Unit 12: Income under the Head Capital Gains

(b) In respect of which no payment or benefit is received or receivable before maturity or Notes
redemption from infrastructure capital company or infrastructure capital fund or public
sector company; and
(c) Which the Central Government may, by notification in the Official Gazette, specify in this
behalf.

For the purpose of this clause, the expressions “infrastructure capital company” and
“infrastructure capital fund” shall have the same meanings respectively assigned to them under
clauses (a) and (b) of Explanation 1 to clause (23G) of Section 10.
As per Clause (b) above, the payment of and benefit from zero coupon bond shall be received or
receivable from the issuing company or fund only at the time of maturity or redemption.
Consequently, Clause (via) has been inserted in Section 2(47) to provide that the maturity or
redemption of a zero coupon bond shall be regarded as a transfer. The profits arising on the
transfer of such zero coupon bond shall be chargeable under the head “capital gains”. Further,
Section 2(42A) has been amended to provide that if such zero coupon bonds are held for not
more than 12 months, such capital asset shall be treated as short-term capital asset and hence
shall be subject to short-term capital gain. On the other hand, where these bonds are held for
more than 12 months, such capital gain shall be treated as long-term capital gain.
The proviso under Section 112(1) has been amended to include zero coupon bonds. Therefore,
where the tax payable in respect of any income arising from the transfer of a long-term capital
asset being zero coupon bonds exceeds 10% of the amount of capital gain, before giving effect to
the provisions of the second proviso to Section 48 (i.e. before giving effect to indexed cost) such
excess shall be ignored for the purpose of computing the tax payable by the assessee.

Notes Long term capital gain on zero coupon bonds shall be chargeable to tax at minimum
of the following two:
(a) 20% of long term capital gain after indexation of cost of such bonds, or
(b) 10% of long term capital gain before indexation of cost of such bonds.
Calculation of Long Term Capital Gains (LTCG)
Full value of consideration
Less: cost of acquisition
Less: expenditure incurred wholly and exclusively in connection with such transfer
Less: indexed cost of improvement
Less: Exemption(s) available, if any.
The balancing amount is long-term capital gain

The STCG and LTCG computed as above are taken as income under the head Capital Gains for
the purposes of determining the total income. Full Value of Consideration This is the amount
for which a capital asset is transferred. It may be in money or money’s worth or a combination
of both.

Where the transfer is by way of exchange of one asset for another, fair market value of the asset
received is the full value of consideration. Where the consideration for the transfer is partly in
cash and partly in kind fair market value of the kind portion and cash consideration together
constitute full value of consideration.

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