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Unit 12: Income under the Head Capital Gains

In respect of such long-term capital gain, deductions under Chapter VIA (i.e. under Sections 80C Notes
to 80U) are not allowed. Further, income other than long term capital gains will be subject to tax
at the rates in force.

Self Assessment

Fill in the blanks:
17. ………………………………..means any capital expense at the time of acquiring capital
asset under transfer.

18. Where the cost for which the previous owner acquired the property cannot be ascertained
the cost of acquisition to the previous owner means the ………………………on the date on
which the capital asset became the property of the owner.
19. …………………… is the capital expenditure incurred by an assessee for making any addition
or improvement in the capital asset.
20. Long-term Capital gains will be taxable at a flat rate of………………………

12.6 Capital Gains Exempt from Tax

Under different Sections of the Act, capital gains arising from the transfer of certain capital assets
are exempt from tax under certain circumstances. These provisions are dealt with section wise
below:
Section 54: In case the asset transferred is a long term capital asset being a residential house, and
if out of the capital gains, a new residential house is constructed within 3 years, or purchased 1
year before or 2 years after the date of transfer, then exemption on the LTCG is available on the
amount of investment in the new asset to the extent of the capital gains. It may be noted that the
amount of capital gains not appropriated towards purchase or construction of a new house
within 3 years may be deposited in the Capital Gains Account Scheme of a public sector bank
before the due date of filing of Income Tax Return. This amount should subsequently be used for
purchase or construction of house.
Section 54F: When the asset transferred is a long term capital asset other than a residential house
and if out of the consideration, investment in purchase or construction of a residential house is
made within the specified time as in sec. 54, then exemption from the capital gains will be
available as:
If cost of new asset is greater than the net consideration received, the entire capital gain is
exempt.

Otherwise, exemption = Capital Gains x Cost of new asset/ Net consideration. It may be
noted that this exemption is not available, if on the date of transfer, the assessee owns any
house other than the new asset.

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Caution It may be noted that the Finance Act 2000 has provided that with effect from
assessment year 2001–2002, the above exemption shall not be available if assessee owns
more than one residential house, other than new asset, on the date of transfer. Investment
in the Capital Gains Account Scheme may be made as in Sec.54.

Section 54EA: If any long term capital asset is transferred before 1.4.2000 and out of the
consideration, investment in specified bonds/debentures/shares is made within 6 months of
the date of transfer then exemption from capital gains is available as computed in Section 54F.

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