Page 343 - DCOM301_INCOME_TAX_LAWS_I

Income Tax Laws – I

Notes Self Assessment

State whether the following statements are true or false:
13. Any capital gain arising as a result of transfer of a short-term capital asset is known as
short-term capital gain.

14. Short-term capital asset means a capital asset held by an assessee for more than thirty-six
months immediately preceding the date of its transfer.
15. Assets other than short-term capital assets are known as long-term capital assets

16. The Finance Act, 2005 has introduced the procedure regarding the taxation of the income
on the Zero Coupon Bonds being issued on or after 1.6.2005.

12.5 Computation and Deductions in Capital Gains

Section 48 of the Act provides that the income chargeable under the head ‘capital gains’ shall be
computed by deducting from the full value of consideration received or accruing as a result of
the transfer of the capital asset the following amounts, namely (as applicable from the assessment
year 1993–94):
1. The expenditure incurred wholly and exclusively in connection with such transfer;

2. The cost of acquisition of the capital asset and the cost of any improvement thereto.
However, in the case of an assessee who is a non-resident, capital gains arising from the transfer
of a capital asset, being shares in, or debentures of, an Indian company shall be computed by
converting the cost of acquisition, expenditure incurred wholly and exclusively in connection
with such transfer and the full value of the consideration received or accruing as a result of the
transfer of the capital asset into the same foreign currency as was initially utilised in the purchase
of the shares or debentures, and the capital gains so computed in such foreign currency shall be
reconverted into Indian currency.
Further, the above manner of computation of capital gains shall be applicable in respect of
capital gains accruing or arising from every re-investment thereafter in, and sale of, shares in, or
debentures of, an Indian Company.
Where long term capital gain arises from the transfer of a long term capital asset (other than
capital gain arising to a non-resident from the transfer of shares in or debentures of an Indian
company), such long term capital gains will be computed by deducting from the full value of
consideration, the expenditure incurred in connection with the transfer, the ‘indexed cost of
acquisition’ and ‘indexed cost of improvement’.

The Finance Act, 1997 has with effect from 1.4.1998 denied the benefit of indexation of cost of
bonds and debentures other than indexed bonds issued by the government.
Provided also that where shares, debentures or warrants referred to in the proviso to Clause (iii)
of Section 47 are transferred under a gift or an irrevocable trust, the market value on the date of
such transfer shall be deemed to be the full value of consideration received or accruing as a
result of transfer for the purposes of this section.

!
Caution For this purpose:

1. “Foreign currency” and “Indian currency” have the meanings respectively assigned
thereto in Section 2 of the Foreign Exchange Management Act, 1999, and

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