Yellow Colorful Illustration Business Financial Report Presentation

EXEMPTION U/S 54 OF INCOME TAX

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EXEMPTION U/S 54 OF INCOME TAX

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Under Section 54 of the Income Tax Act, an Individual or HUF selling a residential plot can avail tax exemptions from Capital Gains if the capital gains are invested in purchase or construction of residential property.

Taxpayers such as partnership firms, LLP’s, companies or any other association or body cannot claim tax exemption under Section 54.

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Conditions for claiming exemption under Section 54

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A.

Assessee

Only Individual or HUF can claim exemption under this section.

B.

Transferred Asset

Asset sold/ transferred during the previous year must be Residential house property being Land and Building appurtenant there to.

C.

Capital Gain on Transferred Asset

Asset must be classified as long-term capital asset, and the gain arising must be long–term capital gain.

D.

Asset to be Acquired

New asset acquired must be only one Residential house property.

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NOTE: If long term capital gain is upto Rs. 2 Crores the assessee can acquire two residential house properties in prescribed time limit. The benefit of two-house properties is available only once in lifetime.

E.

Time limit for Purchase or reconstruction

Purchase: The residential property shall be purchase 1 year before or 2 years after the date of transfer; and

.

Construction: The construction of new house must be completed within 3 years from the date of transfer.

F.

Deposit Scheme

Capital Gain Account Scheme (Note 1).

G.

Amount of exemption
i.Capital Gain
ii.Cost of New Asset/ Deposit Amount

                 (whichever is lower)

.

Note:

If cost of new asset exceeds Rs. 10 crores, then the amount exceeding Rs. 10 crores shall not be taken into account for the purpose of exemption (w.e.f. A.Y 24-25).

H.

Locking Period on Transfer of New Asset

If New Asset is transferred within 3 years from date of purchase or construction the exemption claimed earlier shall be withdrawn & Cost of Acquisition of new asset reduced by exempted capital gain while calculating capital gain on new asset.

I.

Case Laws

Syed Ali Adil (2013)(A.P.)

Where the assessee has acquired 2 adjacent flats and he had affected modification to make them single flat by opening the door between them, it was immaterial that the flat was acquired from two different seller and two separate sale deeds were created. Hence, both flats shall be deemed single house property for the purpose of exemption u/s 54.

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Kamal Wahal (2013) (Delhi)

Having regard to the rule of purposive construction and the object of enactment of Section 54. Exemption u/s 54 cannot be denied solely on the ground that the new residential house is purchase by the assessee exclusively in the name of his wife.

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T.N. Aravinda Reddy (SC)

Where a property is owned by more than one person and the co-owner release his share or interest in the property in favour of one of the co-owners, it can be said that the property has been purchased by the assessee. Such release also fulfils the condition of Section 54 as to purchase so far as assessee is concerned.

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NOTE 1: CAPITAL GAIN ACCOUNT SCHEME

1.

Amount: If investment u/s 54 is not made before the date of filing of return, then the amount of capital gain has to be deposited under Capital Gain Account Scheme. The amount so deposited shall be deemed to cost of new asset.
2.

Time Limit: Such deposit in Capital Gain Account Scheme should be made before due date or actual date of filing the return, whichever is earlier.
3.

Unutilized Amount: If the amount deposited is not utilized for the specified purpose within the stipulated period, then the unutilized amount shall be charged as Capital Gain of the P.Y in which the specified period expires.

NOTE: CBDT clarifies that in the event of death of an individual before the stipulated period, the unutilized amount is not chargeable to tax in the hands of legal heir of deceased individual.

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Example: Hari Ltd acquired a residential house property in Delhi on 15th April 2022 for Rs. 8,75,000. On 3rd June 2023, he has sold his house to Mr. Suri for Rs. 42,00,000. On 4th April 2023, he had purchased a residential house in Delhi for Rs. 8,00,000 where he was staying with his family on rent. Hari Purchased another house in Chennai on 14th October 2023 from Mr. X and Indian Resident by Paying Rs. 5,00,000 and the purchase was registered with the appropriate authority.

Determine the taxable Capital Gain arising from above transactions in hands of Mr. Hari for A.Y 2024-25.

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Computation of taxable capital gain of Mr. Hari for the A.Y 2024-25

Particulars

Amount (in Rs.)

Sale consideration of house property

42,00,000

Less: Indexed cost of acquisition (Note.)

29,00,000

Long term Capital Gain

13,00,000

Less: Exemption u/s 54 for investing in house at Delhi

Less: Exemption u/s 54 for investing in house at Chennai

8,00,000

5,00,000

Taxable Long Term Capital Gain

Nil

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NOTE 1: Computation of Indexed Cost of Acquisition

Cost of Acquisition

–

8,75,000

Cost Inflation Index for 2002-03

105

.

Cost Inflation Index for 2023-24

348

.

Indexed Cost of Acquisition (8,75,000 x 348/105)

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29,00,000

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NOTE 2: As per Section 54 since, the amount of Capital Gain does not exceed Rs. 2 crores, Mr. Hari can claim exemption thereunder in respect of investment made in two residential houses situated in India.

NOTE 3: As per Section 54, residential house should be purchased within 1 year before or 2 years after the date of transfer or constructed within a period of 3 years after the date of transfer. As Mr. Hari fulfils all the conditions of the Section 54 he can claim deduction u/s 54.

Cream and Orange Modern Insurance Agency Presentation

TAX ON ULIP MATURITY & LIP

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TAX ON ULIP MATURITY & LIP

1.What do you mean by ULIP?

ULIP (unit linked insurance plan) is a financial product that combines the characteristics of Investment and insurance. It was introduced in an effort to make insurance policies a bit more lucrative in terms of rate of return. In ULIP, the amount of premium paid is diverted partly towards life insurance, while a major portion is directly or indirectly invested in stock market.

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Before 1st February 2021, whatever returns you received on the maturity of ULIP plan were tax-free under Section 10(10D) of the Income Tax Act. Also, you can claim a tax deduction u/s 80C.

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2.Taxation in case of ULIP & LIP?

Section 2(14): “Capital Asset” means any ULIP to which exemption u/s 10(10D) does not apply on account of the applicability of the 4th & 5th provisos thereof.

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Section 10(10D): Exemption on maturity of Life Insurance Policy

Any sum received under a Life Insurance Policy, including the bonus is Exempt from tax.

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Following sums are taxable:

S.NO

EXPLANATION

1.     

Sum received under a Keyman insurance policy.

2.     

Sum received where premium paid is more than prescribed limit (20%, 10%, 15% as the case may be) given u/s 80C.

(If it is received on the death of person then it is fully exempt).

3.     

Sum received where any ULIP, issued on or after 1st Feb 2021, if the amount of premium payable for any of the P.Y during the term of such policy exceeds Rs. 2,50,000.

Provided, if premium is payable, for more than one ULIP’s, issued on or after 1st Feb 2021, the exemption u/s 10(10D) shall apply only with respect to those ULIP’s, where the aggregate amount of premium does not exceed Rs. 2,50,000, in any of the P.Y during the term of any of those policies. (4th & 5th provisos of Section 10(10D).

4.     

Sum received where any Life Insurance Policy, other than ULIP, issued on or after the 1st April 2023, if the amount of premium payable for any of the P.Y during the term of policy exceeds Rs. 5,00,000.

Provided, if premium is payable, for more than one life insurance policy other than ULIP’s, issued on or after 1st April 2023, the exemption u/s 10(10D) shall apply only with respect to those LIP’s, where the aggregate amount of premium does not exceed Rs. 5,00,000, in any of the P.Y during the term of any of those policies. (6th & 7th provisos of Section 10(10D).

NOTE: Exemption is available if sum received in point 4 & 5 on the death of the person.

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Example:

Mr. Kunal is a resident Indian who has the following life insurance policies, some of which are ULIP’s. The details of such policies are given hereunder:

 

A

B

C (ULIP)

D (ULIP)

E (ULIP)

F (ULIP)

G (ULIP)

Date of issue

1.4.17

1.4.18

1.1.21

1.4.21

1.2.21

1.3.21

1.4.21

Premium (p.a)

50,000

40,000

3 lakhs

3 lakhs

1 lakh

1.4 lakhs

2.5 lakhs

Date on which premium falls

01/04

01/04

01/01

01/04

01/02

01/03

01/04

Date of Maturity

31.3.25

31.3.25

31.12.29

31.3.30

31.1.30

28.2.30

31.3.30

Consideration on maturity

7 lakhs

4 lakhs

32 lakhs

32 lakhs

11 lakhs

17 lakhs

28 lakhs

Sum assured

6 lakhs

3.5 lakhs

30 lakhs

30 lakhs

10 lakhs

15 lakhs

25 lakhs

.

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A: Taxability of Normal Insurance Policy

S.NO

EXPLANATION

1.     

Income on maturity of policy “A” shall be exempt u/s 10(10D) because premium paid during the policy term is not more than 10% of policy value.

2.     

Income on maturity of policy “B” shall not be exempt u/s 10(10D) because premium paid is more than 10% of policy value. In this case income component Rs. 1,20,000 (4,00,000 – 2,80,000) taxable under IFOS in the P.Y 24-25.

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B: Taxability of Unit Linked Insurance Policy (ULIP)

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S.NO

EXPLANATION

a)     

Income on maturity of ULIP “C” shall be exempt u/s 10(10D) because premium paid during the policy term is not more than 10% of policy value and ULIP is taken before 01.02.21.

b)     

Income on maturity of ULIP “D” shall be taxable as ULIP taken on or after 01.02.21 and premium paid per year is more than Rs. 2,50,000 in a year. In this case income component Rs. 5,00,000 (Rs. 32,00,000 – Rs. 27,00,000) taxable under Capital Gain in P.Y 2029-30 and taxable as LTCG u/s 112A @ 12.5%.

c)     

In case of ULIP’s “E, F & G” premium in respect of single policy is not more than Rs. 2,50,000 but aggregate exceed Rs. 2,50,000 so in this case assessee can claim exemption for ULIP’s for which premium is not more than Rs. 2,50,000. Assessee can claim exemption either for ULIP “E & F” or “ULIP “G”. Aggregate capital gain in case of ULIP “E & F” is Rs. 6,40,000 ((11,00,000-9,00,000) +(17,00,000-12,60,000)), and in case of ULIP G is Rs. 5,50,000 (28,00,000-22,50,000). Since, it is beneficial to claim exemption u/s 10(10D) for ULIP’s “E & F” so assessee should opt this option and pay capital gain on LTCG of Rs. 5,50,000 on ULIP “G” in P.Y 2029-30.

.

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3.Calculation of Capital Gain in case of ULIP?

As per rule 8AD computation of capital gain in case of ULIP will be as follows:

S.NO

EXPLANATION

      i.           

Amount received for first time: Taxable Amount- A-B, where,

A= the amount received for the first time in the P.Y, including bonus; and

B= aggregate amount of premium till date of receipt of the amount as referred to in “A”.

    ii.           

Amount received subsequent time: Taxable Amount- C-D, where,

C= the amount received excluding amount already considered in point “A”; and

D= aggregate of the premium till the date of receipt of the amount as referred to in “C” excluding the amount already considered in point “B”

NOTE: The Capital Gain shall be deemed to be the capital gain arising from the transfer of an unit of an equity-oriented fund and taxable u/s 112A.

.

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Example: Mr. Kumar invested Rs. 3,00,000 per year in ULIP of ICICI from 01/04/2021 for 10 years. Policy value is Rs. 40,00,000. Mr. Kumar received Rs 37,00,000 on 17/07/2026 from such policy. On 31/03/2031 he again received Rs. 28,00,000 from such policy. Compute Capital Gain?

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Computation of Capital Gain P.Y 26-27 (FIRST TIME).

PARTICULAR

AMOUNT (In Rs.)

Full Value of Consideration

37,00,000

Less: Cost of Acquisition (3,00,000 * 6)

18,00,000

LTCG taxable u/s 112A

19,00,000

.

.

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Computation of Capital Gain P.Y 30-31 (SUBSEQUENT TIME).

PARTICULAR

AMOUNT (In Rs.)

Full Value of Consideration

28,00,000

Less: Cost of Acquisition (3,00,000 * 4)

12,00,000

LTCG taxable u/s 112A

16,00,000

.

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4.Calculation of Capital Gain in case of LIP?

Clarification on GST component: It is clarified by CBDT that the premium payable/ aggregate premium payable for LIP’s other than ULIP’s, issued on or after 01.04.2023, for any P.Y, would be exclusive of the amount of GST payable on such premium.

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Example: Hari, Ram & Kavi take life insurance policy on 10/07/2023. They do not have any other policy & do not take any other insurance policy in future. Discuss Tax Treatment

PARTICULAR

HARI

RAM

KAVI

SUM ASSURED

45,00,000

60,00,000

60,00,000

ANNUAL PREMIUM

4,00,000

5,20,000

6,50,000

TERM OF POLICY

10 YEARS

10 YEARS

10 YEARS

DEDUCTION U/S 80C

60,000 P.A.

1,50,000 P.A.

1,20,000 P.A.

MATURITY AMOUNT

52,00,000

77,00,000

80,00,000

.

.

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Mr. Hari – As annual premium within the limit of 10% of sum assured & annual premium isn’t more than Rs. 5,00,000 so exemption u/s 10(10D) is available. Nothing will be taxable u/s 56(2)(xii).

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Mr. Ram – Annual premium is within the limit of 10% of sum assured but premium on policy taken on or after 01/04/23 is more than Rs. 5,00,000 so exemption u/s 10(10D) not available & it is taxable u/s 56(2)(xii) under IFOS.

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Mr. Kavi – Annual premium exceeds the limit of 10% of sum assured & premium on policy taken on or after 01/04/23 is more than Rs. 5,00,000 so exemption u/s 10(10D) not available & it is taxable u/s 56(2)(xii) under IFOS.

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Computation of Taxable Amount from LIP under IFOS (P.Y 33-34).

PARTICULAR

MR. RAM

MR. KAVI

Maturity Amount (A)

77,00,000

80,00,000

Annual Premium Paid

52,00,000

65,00,000

Less Deduction claimed u/s 80C

15,00,000

12,00,000

Total Premium paid net off deduction u/s 80C

(37,00,000)

(53,00,000)

TAXABLE INCOME

40,00,000

27,00,000

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Blue and Yellow Modern Finance Presentation

EXCEPTION TO SECTION 45(1)

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EXCEPTION TO SECTION 45(1):

As per Section 45(1), Capital Gain is chargeable to tax in the year of transfer, but in the following cases Capital Gain is not taxable in the year of transfer:

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Section 45(1A): Insurance claims for Damage or Destruction of Capital Asset:

Normally Capital Gain is taxed in the year of transfer but in case of destruction of Capital Asset, Capital Gain will be taxable in the year in which insurance claim is received.

Capital Asset is destroyed due to fire, flood, earthquake, tsunami, riot, civil disturbance, enemy action or any other calamity and insurance claim is received the capital gain is applicable. Hence, if no claim received, no capital gain will arise.

Computation of Capital Gain 45(1A)

Particulars

Amount (in Rs.)

Full value of consideration (Insurance Claim)

xxx

Less: Cost of Acquisition/ indexed cost of acquisition

xxx

Less: Cost of improvement/ indexed cost of improvement

xxx

STCG/ LTCG

xxx

.

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Section 45(2): Conversion of Capital Asset into Stock in Trade:

Conversion of Capital Asset into stock-in-trade is treated as transfer, capital gain shall arise where an assessee converts capital asset into stock-in-trade.

Capital Gain shall be taxable in the year in which such stock-in-trade is sold.

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Capital Gain

Rs.

PGBP

Rs.

Full value of consideration (FMV on date of conversion)

xxx

Sale Price of stock in trade

xxx

(-) Cost of acquisition/ Indexed cost of acquisition

xxx

(-) Fair Market Value of Asset as on date of transfer

xxx

(-) Cost of improvement/ indexed cost of improvement

xxx

.

.

STCG/LTCG

xxx

PGBP

xxx

.

NOTES:

.

1.

If any part of stock-in-trade is sold, then only part capital gain shall arise in the year in which part stock-in-trade is sold.
1.

In case of conversion of capital asset into stock and subsequent sale of stock, period of 6 months shall be calculated from the date of sale of stock for the purpose of exemption u/s 54EC.

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Section 45(2A): Transfer in Securities held in D-MAT:

Capital Gain is applicable in hands of beneficial owner (i.e. shareholder). The Cost of Acquisition and period of holding shall be determined on the basis of First-in-First-out (FIFO) method.

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NOTES:

.

1.

The date of transfer & period of holding does not change even when securities held in D-MAT form.
2.

FIFO method applied only for D-MAT securities & not for physical securities.
3.

If investor held multiple D-MAT accounts the FIFO applied account wise.
4.

In D-MAT, of old physical stock is dematerialized, under FIFO method, the basis for determining the movement out of the A/c is the date of entry into A/c.

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Section 45(3): Capital Gain on transfer of capital asset by a partner/ member to Firm/ AOP/ BOI:

The profits or gains arising from transfer of a Capital Asset by a person to a firm or a AOP or a BOI in which he is or becomes a partner or member, by way of capital contribution or otherwise, shall be his income of the year in which such transfer took place and for the purpose of Section 48, full value of consideration will be the amount recorded in the books of accounts of the Firm/AOP/BOI as the value of capital asset.

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Section 45(4): Capital Gain on transfer of capital asset by a Firm/ AOP/ BOI to partner/member:

Where a Partner receives during the Previous Year any money or capital asset or both from a firm in connection with the reconstitution, then any profits or gains arising from such receipt shall be chargeable to tax as income of firm under the head “Capital Gains” in the Previous Year in which assets received by partner.

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Computation of Capital Gain 45(4)

Particulars

Amount (in Rs.)

Value of money on date of receipts (B)

xxx

Add: Fair Market Value (FMV) of Capital Assets on date of receipt (C)

xxx

TOTAL

xxx

Less: Partner capital account balance at the time of reconstruction (D)

xxx

Capital Gain

xxx

.

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Section 45(5): Compensation on compulsory acquisition under any law:

Normally Capital Gain is taxed in the Year of transfer but in case of compulsory acquisition of Capital Asset, Capital Gain will be taxable in the year in which compensation is received.

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FOR INTIAL COMPENSATION

Rs.

FOR ENCHANCED COMPENSATION

Rs.

Full value on consideration (Initial Compensation)

xxx

Full value of consideration (enhanced compensation)

xxx

(-) Cost of acquisition/ indexed acquisition

xxx

(-) Litigation expenses

xxx

(-) Cost of Improvement/ indexed improvement.

xxx

.

.

STCG/ LTCG

xxx

STCG/ LTCG

xxx

.

NOTES:

S.NO

EXPLANATION
1.

In case of initial compensation, it will be taxable in the year in which first installment is received.
2.

In case of enhanced compensation, it will be taxable as and when received.
3.

If any enhance compensation is received due to the interim order of any court, then such compensation shall not be taxable in the year of receipt but shall be taxable in the year in which final order is passed by such court or other authority.
4.

Any interest received on late compensation shall be taxable under IFOS in the year of receipt & 50% deduction will be allowed u/s 57.
5.

If compensation is reduced by any court or authority the rectification has to be made to give effect of the same.
6.

Nature of capital gain of Enhanced Compensation will be same as that of Initial Compensation.
7.

If due to death of transferor, the enhanced compensation is received by any other person. In that case, the enhanced compensation will be taxable under Capital Gains of such other person.
8.

Any Capital Gains arising to an Individual or HUF on compulsory acquisition of urban agriculture land shall be exempt from tax provided such land has been used for agricultural purposes during the preceding 2 years by Individual or his parents or by such HUF.

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Section 45(5): Capital Gain in case of Joint Development Agreement (JDA):

In case of Individual or HUF, who entered into a Joint Development Agreement for the development of project, the capital gain on transfer of Land or Building or Both, shall be taxable in the year in which certificate of completion (CC) of the whole or part of the project issued by Competent Authority.

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NOTES:

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S.NO

EXPLANATION
1.

Year of Transfer: Year in which possession of immoveable property is transfer in JDA.
2.

Year of Tax: Year in which Certificate of Completion issued by competent authority.
3.

Full Value of Consideration: SDV on the date of issue of Certificate of Completion of his share in project + money received.

Above provision does not apply if assessee transfer his share in project on or before the date of issue of completion of certificate and capital gain will be taxable in the year in which transfer took place i.e. possession transfer in JDA.

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Tax Forms and Their Purpose Presentation in Blue Orange Yellow Bold Modern Style

SECTION 50B: SLUMP SALE

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SECTION 50B: SLUMP SALE

Slump sale means transfer of entire undertaking or division for lumpsum consideration without assigning value/ selling price of individual asset.

1.Computation of Capital gain under slump sale?

Calculation of Capital Gain: –

Computation of Capital Gain

Rs.

Full value of consideration (FMV as per rule 11UAE)

xxx

Less: Transfer Expenses

xxx

Net Consideration

xxx

Less: Cost of Acquisition (Net worth of undertaking)

(Indexation not allowed on Cost of Acquisition)

 

xxx

STCG/ LTCG

xxx

.

.

NOTES:

NOTE NO.

EXPLANATION

1.     

Computation of Net worth = Assets minus liabilities

 

Assets

Rs.

Depreciable Asset

WDV as per Income Tax

Other Assets

Book Value

Less: Liabilities

(Book value)

Net Worth

xxx

 

 

2.     

Revaluation of assets shall be ignored.

3.     

If net worth becomes negative, then cost of acquisition will be Nil.

4.     

For computing net worth,

·       If asset (on which deduction u/s 35AD was claimed) – value shall be taken as Nil.

·       Value of self-generated goodwill – value shall be taken as Nil.

5.     

No Profit under PGBP shall arise even if stock is transferred in slump sale.

6.     

Nature of Capital Gain

·       If undertaking is held for more than 3 Years – LTCG.

·       If undertaking is held for 3 Year or less – STCG.

7.     

Assessee to furnish a CA Report upto date of Audit u/s 44AB indicating the computation of the net worth and certifying that the net worth has been correctly arrived.

8.     

“Tax Savy” restructuring plans to avoid tax if transferee is Indian Company.

·       Transfer undertaking after acquiring 100% shares of transferee to not attract capital gain (Section 47(iv)).

·       Transfer undertaking by way of demerger rather than slump sale (Section 47(vib)).

9.     

Rule 11UAE: Fair Market Value (FMV) on the date of transfer (slump sale) shall be higher of FMV-1 or FMV-2.

·       FMV-1: Fair Market Value of undertaking transferred.

·       FMV-2: Fair Market Value of consideration received.

 

FMV-1: A+B+C+D-L, Where,

 

A

Book Value of all the assets (except jewellery, artistic work, shares, securities, and immoveable property) as reduced by the following amount:

·       Income-tax paid after reducing income-tax refund (if any).

·       Unamortized amount of deferred expenditure.

B

Fair Market Value of jewellery and artistic work (based on registered valuer report).

C

Fair Market Value of shares and securities.

D

Stamp Duty Value of Immoveable property.

L

Book value of liabilities, but excluding the following:

·       Paid up equity share capital.

·       Dividend amount set apart where such dividend has not been declared in AGM before the date of transfer.

·       Reserves and surplus, other than depreciation reserve.

·       Provision for tax, other than income-tax paid after reducing income-tax refund (if any), to the extent of the excess over the tax payable with reference to the book profits.

·       Provision for unascertained liabilities.

·       Contingent liabilities other than arrears of dividends of cumulative preference shares.

FMV-2: E+F+G+H, Where,

 

E

Monetary Consideration.

F

Fair Market Value (FMV) of non-monetary consideration (assets for which valuation rules prescribed).

G

Open market value price of non-monetary assets for which valuation rules not prescribed (valuer report).

H

Stamp Duty Value (SDV) of immoveable property.

 

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EXAMPLE:

.

PQR ltd has two units- one engaged in manufacture of computer hardware and the other involved in developing software. As a restructuring drive, the company has decided to sell its software unit as a going concern by way of slump sale for Rs. 385 lakhs to a new company called S ltd. in which it holds 74% of equity shares.

.

The Balance Sheet of PQR ltd. as on 31st March 2025 being the date on which software unit has been transferred, is given here under: –

Balance Sheet as on 31.03.2025

LIABILITIES

Rs. In Lakhs

ASSETS

Rs. In Lakhs

Paid up share capital

300

Fixed Assets:

 

General Reserves

150

Hardware Unit

170

Share Premium

50

Software Unit

200

Revaluation Reserve

120

Debtors:

 

Current Liabilities:

 

Hardware Unit

140

Hardware Unit

40

Software Unit

110

Software Unit

90

Inventories:

 

 

 

Hardware Unit

95

 

 

Software Unit

35

Total

750

Total

750

.

.

Following additional information is furnished by the management:

1.The software unit is in existence since May 2015.
2.Fixed Assets of software unit include Land which was purchased ar Rs. 40 lakhs in the year 2009 and revalued at Rs. 60 lakhs as on March 31, 2025. The stamp duty value as on 31.03.2025 is Rs. 55 lakhs.
3.Fixed assets of software division mirrored at Rs. 140 lakhs (200 lakhs minus Land value 60 lakhs) is written down value of depreciable assets as per books of accounts. However, the written down value of these assets under Section 43(6) of the Income Tax Act is Rs. 90 lakhs.

Calculate the Capital Gain from slump sale to PQR?

.

Computation of Capital Gains

Particulars

Amt (Rs. In lakhs)

Full vale of consideration (Note: 1)

385

Less: Transfer Expenses

Nil

Net Consideration

385

Less: Cost of Acquisition (Net Worth: Note 2)

(185)

Long Term Capital Gain

200

.

.

NOTE 1: Calculation of Full value of Consideration.

Particulars

 

Amt (Rs. In Lakhs)

Fair Market Value of the capital assets transferred by way of slump sale land, being an immoveable property i.e. SDV on date of sale (A)

 

55

Other Fixed Assets (Furniture and Plant & Machinery) (Book value as appearing in books of accounts) (B)

 

140

Debtors (Book value as appearing in books of accounts) (C)

 

110

Inventories (Book value as appearing in books of accounts) (D)

 

35

A+B+C+D

 

340

Less: Liabilities of software unit (750 – 40)

Excluding:

              i.          Paid up share capital.      300

            ii.          General reserve.              150

          iii.          Share Premium.            20

          iv.          Revaluation reserve.     120

710

 

 

 

620

 

 

 

 

 

90

Fair Market Value of the capital assets transferred by way of slump sale (A+B+C+D-L) (FMV-1)

 

250

Fair Market Value of the consideration received (FMV-2)

 

385

Full Value of Consideration (Higher of FMV-1 or FMV-2)

 

385

.

      

NOTE 2: Computation of Net-worth of Software Unit:

PARTICULARS

Amount (Rs. In lakhs)

Depreciable Assets (WDV as per Income Tax Act)

90

Land

40

Debtors

110

Inventory

35

Total Assets

275

Less: Current Liability

(90)

Net-worth

185

.

Blue White and Teal Modern Tax Strategies Finance Presentation

SECTION 47: CETRAIN TRANSFER NOT REGARDED AS TRANSFER (EXEMPT TRANSFER)

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SECTION 47: CETRAIN TRANSFER NOT REGARDED AS TRANSFER (EXEMPT TRANSFER)

.

1.Introduction to Section 47.

Section 47 of the Income Tax Act is a necessary provision that exempts certain transactions from being classified as transfers. This is important as under the Act, any profit or gains arising from transferring a capital asset shall be chargeable to capital gain tax. Section 47 helps avoid capital gain tax in many instances by excluding certain transactions from this definition, mitigating the burden of tax for certain transactions.

.

.

2.Provisions to Section 47.

Following Transactions are not regarded as transfers. Therefore, no Capital Gain will arise.

.

1)Partition of HUF (47(i))

Distribution of Capital Asset on the partial or total partition of HUF.

.

2)Transfer under gift, will, irrevocable trust (47(ii))

Transfer of Capital asset by Individual or HUF under gift, will, irrevocable trust will not be considered as transfer.

.

NOTES:

This clause shall not apply to gift, or an irrevocable trust of share, debenture or warrants allotted by company to employees under ESOPS.

.

As per sixth proviso to Section 48 – Fair Market Value (FMV) on date of transfer (date of gift or irrevocable trust) shall be treated as Full Value of Consideration (FVOC) of such shares, debentures, or warrants.

.

3)Transfer by Holding Company to its Subsidiary Company or Vice Versa (47(iv)/ 47(v))

Transfer of a Capital Asset by holding company to its subsidiary company or subsidiary company to its holding company provided the following conditions are satisfied:

S.NO

CONDITION

1.     

Holding company holds 100% shareholding of subsidiary company.

2.     

Transferee company should be Indian Company.

NOTE: This exemption is not allowed if capital asset is transferred as stock in trade.

.

Section 47A: Withdrawal of Exemption

In case of clause (iv) & (v) of Section 47 (Holding company to Subsidiary company) and (Subsidiary company to Holding company), if within 8 years from the date of transfer;

.

• Such asset is converted in stock in trade by transferee company or
• Holding company cease to hold 100% share capital of subsidiary company.

Then, exemption claimed earlier shall be withdrawn & tax shall be charged to Transferor company in the Previous year in which transfer took place.

In above cases:

S.NO

EXPLANATION

1.     

Cost of Acquisition will be cost to previous owner (Section 49(1)).

2.     

Cost of Improvement done by previous owner & present owner shall be considered.

3.     

Period of Holding of previous owner shall also be considered

4.     

Indexed cost of Acquisition as per Manjula J. Shah (Bombay H.C.) will be:

 

(A*B)/C, where A, B & C means;

A

Cost of Acquisition of previous owner

B

Cost inflation index of the year of transfer

C

Cost inflation index in which asset is first held by Previous owner.

5.     

Benefit of Fair Market Value (FMV) as on 01/04/2001 is also available to present owner.

.

.

.

4)Transfer under Amalgamation

Transfer of any capital asset by Amalgamating company to Amalgamated company

If amalgamating company is an Indian Company (Section 47(vi)).

Transfer of shares in Indian company or shares of foreign company which derives its value from shares of Indian company by Amalgamating foreign company to Amalgamated foreign company

a)   If atleast 25% of shareholding of Amalgamating foreign company continue in Amalgamated foreign company.

b)   Such transfer does not attract tax in the country in which amalgamating company is incorporated (Section 47(via) & 47(viab).

Transfer under scheme of amalgamation of Banking company with Banking institution

As per section 45(7) of Banking Regulation, 1949 (Section 47(viaa))

Surrender of shares in Amalgamating company by shareholders of Amalgamating company to Amalgamated company

a)   Consideration will be only allotment of share in Amalgamated company except when amalgamated company is itself the shareholder.

b)   Amalgamated company is an Indian company.

.

.

.

5)Transfer under Demerger

Transfer of any capital asset by Demerged company to resulting company

If resulting company is an Indian company (Section 47(vib)).

Transfer of shares in Indian company or share of a foreign company which derives its value from share of Indian company by demerged foreign company to resulting foreign company

a) If shareholders holding atleast 75% of value of shares in demerged company continue in resulting company

b) such transfer does not attract tax in the country in which demerged company is incorporated (Section 47(vic) & 47(vid)).

Issue of shares by resulting company to shareholder of demerged company

Here shareholder received shares of resulting company is not treated as transfer of shares in demerged company (Section 47(vid)).

.

.

6)Transfer in case of Non-Resident

Bond/ GDR referred u/s 115AC outside India

By one non-resident to another non-resident, outside India (Section 47(viia)).

Rupee denominated bond of an Indian company

By one non-resident to another non-resident, outside India (Section 47(viiaa)).

Govt. securities carrying periodic payment of interest

By one non-resident to another non-resident outside India through an intermediary dealing in settlement of securities (Section 47(viib).

Bonds or GDR referred u/s 115AC or derivates or rupee denominated bond of Indian company or other notified securities

By non-resident on a Recognized Stock Exchange located in any IFSC & where the consideration is paid or payable in foreign currency (Section 47(viiab)).

.

7)Conversion of Entities:

Conversion of Sole Proprietor into company (Section 47(xiv))

      i.          All assets & liabilities transfer to company.

   ii.          Sole proprietor becomes shareholder.

 iii.          Consideration to sole proprietor shall only be allotment of shares in the company.

 iv.          His shareholding in company should be atleast 50% during 5 years from the date of conversion.

Conversion of Firm into company or conversion of Stock exchange as AOP/ BOI into recognized stock exchange as company (Section 47(xiii))

      i.          All assets & liabilities transfer to company.

   ii.          All Partners/ members becomes shareholder in proportion of their capital standing as on last date of succession.

 iii.          Consideration to partners/ members shall only be allotment of shares in the company.

 iv.          Total voting power of partners/ members in the company should be atleast 50% during 5 years from the date of succession.

    v.          The corporatization of Recognized Stock Exchange (RSE) in India is carried out as per Corporatization scheme approved by SEBI.

 

Transfer of membership rights for acquisition of shares & trading right in that RSE

Cost of Acquisition of equity shares allotted will be cost to acquire membership.

Cost of Acquisition of trading rights will be Nil.

Period of holding shall be reckoned from date of his membership in RSE.

Conversion of Unlisted Public Company/ Private Company into LLP (Section 47(xiiib))

      i.          All assets & liabilities transfer to LLP.

   ii.          All shareholders become Partners and their capital contribution & PSR are in proportion of their shareholding.

 iii.          Consideration to shareholder will only be share in profit & capital.

 iv.          Total PSR in LLP of shareholders should be atleast 50% during 5 years from the date of conversion.

    v.          No amount is paid directly/ indirectly to any partner from accumulated profit balance standing on conversion date for 3 years from date of conversion.

 vi.          Total T.O/ G.R. of company should be upto Rs. 60 lakhs in last 3 Financial years preceding the year of conversion.

vii.          Total assets of the company should be upto Rs. 5 crores in last 3 Financial years preceding the year of conversion.  

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Section 47A(3)(4): Violation of above conditions:

If any condition of Section 47(xiii)/ 47(xiv)/ 47(xiiib) is violated, the exemption claimed by the proprietor/ firm/ company will be taxable in the hands of successor company/ LLP in the year of violation.

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8)Conversion of securities:

Conversion of Bond, debenture, debenture stock, deposit certificates of a company into shares or debentures of same company (Section 47(x))

Cost of Acquisition of shares/ debentures received on conversion will be cost of that part of bond, debenture, deposit certificate which is so converted.

Period of Holding of share/ debenture shall also include the period for which bond, debenture, deposit certificates held by the assessee.

Conversion of Preference share of a company into Equity share of same company (Section 47(xb))

Cost of Acquisition of equity share received on conversion will be cost of that part of preference share which is so converted.

Period of Holding of equity share shall also include the period for which preference shares held by the assessee.

Conversion of Gold into Electronic Gold Receipt (EGR) issued by a vault manager, or conversion of Electronic Gold Receipt into Gold (Section 47(viid)

Cost of Acquisition of current asset received on conversion will be cost of earlier asset which is so converted.

Period of Holding of earliest asset shall also include the period for which current asset held by the assessee.

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9)Transfer of Sovereign Gold Bond issued by RBI under Sovereign Gold Bond Scheme 2015, by way of redemption by the assessee being an Individual (Section 47(xviic)).

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10)Stock lending scheme: any transfer in a scheme for lending any securities under an agreement between the assessee and borrower of such securities as per SEBI or RBI guidelines (Section 47(xv)).
11)Transfer of work of art, scientific, archaeological, manuscript, books, photographs or print to government, University, National Museum or art gallery or archives, any public notified museum (Section 47(ix)).
12)Transfer of capital asset under reversed mortgage under a scheme made and notified by Central Government (Section 47(xvi)).

.

.

13)Transfer of share of SPV to a Business trust in exchange of units of the trust (Section 47(xvii)).

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14)Transfer of capital asset in a business reorganization, by the predecessor co-operative bank to successor or to the converted banking company (Section 47(vica)).

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15)Transfer of capital asset by India Infrastructure Finance Company Limited to an institution established for financing the infrastructure and development, set up under an Act of parliament and notified by the Central Government (Section 47(viiae).

.

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16)Transfer of shares by a shareholder, in a business reorganization, if the transfer is made in consideration of the allotment to him of any share or shares in the successor co-operative bank or to the converted banking company (Section 47(vicb).

.

17)Transfer of capital asset, under a plan approved by the central government, by a public sector company (PSC) to another PSC notified by Central Government or to the Central Government or to a State Government.

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18)Any transfer, by a Mutual Fund unit holder of units, held by him in the consolidating scheme of MF, made in consideration of the allotment to him of units in consolidating scheme of the MF. Provided the consolidation should be of two or more schemes of equity-oriented fund or of two or more schemes of a fund other than equity-oriented scheme (Section 47(xviii)).

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19)Any transfer of interest in a joint venture, held by a public sector company, in exchange of shares of a company incorporated outside India by the government of a foreign state, in accordance with the laws of that foreign state (JV means business entity as may be notified by the CG).

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Estimation Educational Presentation in a Blue Lined Style

COMPUTATION OF CAPITAL GAIN & ITS PROVISIONS

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.

COMPUTATION OF CAPITAL GAIN & ITS PROVISIONS

1.Computation of Capital Gain u/s 48?

Capital Gain can be computed as follows:

Particular

Amount

Full value of consideration (FVOC)

xxx

Less: Expenses incurred in connection of Transfer

xxx

Net Consideration

xxx

Less: Cost of Acquisition (COA)

xxx

Less: Cost of Improvement (COI)

xxx

Capital Gain

xxx

.

 

Proviso added by FA -23: Provided that the Cost of Acquisition or Cost of Improvement shall not include the deduction claimed in respect of interest u/s 24(b) or under the provisions of Chapter VI-A.

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2.Proviso to Section 48?

First proviso to Section 48: Capital gain in case of Non-Resident:

S.NO

EXPLANATION

1.     

It is applicable to Non-resident assessee including Foreign Company;

2.     

Assets being share & debenture of Indian Company;

3.     

Such asset acquired in foreign currency by way of purchase or reinvestment;

4.     

Capital gain then be calculated in foreign currency & after that it shall be reconverted into Indian currency.

 

Rule 115A: Method of Conversion

Cost of Acquisition

Average of Telegraphic Transfer buying rate (TTBR) & Telegraphic Transfer selling rate (TTSR) on date of Acquisition

Full value of consideration & Transfer expenses

Average of Telegraphic Transfer buying rate (TTBR) & Telegraphic Transfer selling rate (TTSR) on date of transfer.

Capital Gain into Indian currency

Telegraphic transfer buying rate (TTBR) on the date of transfer.

 

 

NOTES:

               i.          Assessee should be Non-resident in the year of sale.

            ii.          Index benefit not available where first proviso applies.

.

.

Second proviso (exception) to Section 48: Indexation (not applicable w.e.f. 23rd July 2024):

In case of long-term capital asset, Cost of acquisition & Cost of indexation should be indexed:

.

INDEXED COST OF ACQUISITION:

(A*B)/C, where:

A

Cost of Acquisition.

B

Cost inflation index of the year of transfer.

C

Cost inflation index for the first year in which asset was held by assessee or for the year 01-02, whichever is later.

.

.

INDEXED COST OF IMPROVEMENT:

(A*B)/C, where:

A

Cost of Improvement.

B

Cost inflation index of the year of transfer.

C

Cost inflation index for the year in which the improvement to the asset took place.

.

.

COST INFLATION INDEX (CII)

COST INFLATION INDEX (CII)

F.Y.

CII

F.Y.

CII

F.Y.

CII

2001-02

100

2009-10

148

2017-18

272

2002-03

105

2010-11

167

2018-19

280

2003-04

109

2011-12

184

2019-20

289

2004-05

113

2012-13

200

2020-21

301

2005-06

117

2013-14

220

2021-22

317

2006-07

122

2014-15

240

2022-23

331

2007-08

129

2015-16

254

2023-24

348

2008-09

137

2016-17

264

2024-25

363

.

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NOTE: From 23rd July 2024, indexation benefits are not available on transfer of long-term capital assets, regardless of holding period.

.

Third proviso to Section 48:

First and second proviso “NOT APPLICABLE” for computation of Long-Term Capital Gain (LTCG) referred u/s 112A.

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Fourth proviso to Section 48: No indexation in case of Debentures & Bonds

Index benefit not allowed in case of bonds & debentures except Capital Indexation Bonds and Sovereign Gold Bonds issued by RBI.

As per Section 47, No capital gain will arise in case of Individual on redemption of Sovereign Gold Bonds issued by RBI.

TRANSFER OF SOVERIGN GOLD BONDS

 

Individual

If redeemed on maturity then, no Capital Gain will arise due to Section 47

If redeemed before maturity Capital Gain will arise with benefit of Indexation.

Others

Capital gain applicable on transfer on or before maturity and index benefit is also available.

.

Fifth proviso to Section 48: Foreign Exchange Fluctuation gain on Rupee denominated bond in case of Non-resident.

Any gain arising on rupee appreciation against foreign currency at the time of redemption of Rupee Denominated Bonds (Rupee denominated Bonds) of Indian company, shall be ignored for the purpose of computation of full value of consideration.

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Sixth proviso to Section 48: Certain transfers not considered as transfer (will discuss in next blog).

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Seventh proviso to Section 48: Security Transaction Tax (STT) not Allowed:

Security Transaction Tax paid on sale/ purchase of shares/ units shall not be allowed under capital gain.

.

If it is paid at time of sale: Not treated as transfer expense.

.

If it is paid at time of purchase: Not added to cost of acquisition.

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3.Cost of Acquisition and Improvement?

Cost of Acquisition (COA)

.

INTANGIBLE ASSETS/ RIGHTS/ LICENSE:

Cost of Acquisition in the following cases will be:

.

If Self-Generated = Always Nil.

If Purchase = Purchase Price.

S.NO

ASSETS

1.     

Goodwill or any other intangible asset of Business or Profession,

2.     

Trademark or Brand name associate with a Business or Profession,

3.     

Right to manufacture, produce, process any article or things (patent & copyright),

4.     

Right to carry on any Business or Profession,

5.     

Tenancy rights, Loom hours, Route permits or any other rights.

NOTES:

              i.          Benefit of Fair market value as on 01/04/2001 is not available in case of above assets.

            ii.          Capital gain on transfer of self-generated goodwill of a profession or self-generated trademark/ brand name associated with a profession, is not chargeable to tax upto A.Y 20-21.

         iii.          In case of Goodwill, in respect of which depreciation has been claimed upto P.Y 19-20, the cost of acquisition would be purchase price as reduced by depreciation claimed by the assessee.

.

.

BONUS SHARE & SECURITY:

.

If acquired before 01/04/2001: Fair Market Value (FMV) as on 01/04/2001.

.

If acquired after 01/04/2001: Nil.

.

Period of holding in case of shares & securities: From allotment date till the date of transfer.

NOTE: If Section 112A apply & Bonus shares allotted before 01/02/2018 then cost of acquisition is Fair Market Value (FMV) as on 31/01/2018.

.

BONUS SHARE & SECURITY:

.

If acquired by shareholders: Cost of acquisition will be amount paid to the company & Period of Holding will be from allotment date till date of transfer.

.

Renouncement of Right by Shareholder: Capital gain will be applicable and will be calculated as below:

Full value of consideration

xxx

Less: Cost of Acquisition

Nil

Short term capital gain

xxx

.

.

Period of holding will be offer date to renouncement date.

.

In hands of purchaser of right:

.

Cost of acquisition: Amount paid to Company for shares + Amount paid for purchase of right.

.

Period of Holding: From date of allotment of shares till date of transfer.

.

Cost of Improvement (COI)

.

1.     

In case of goodwill or any other intangible asset of business, patent, copyright, right to carry on any business or profession or any other right – Always Nil.

2.     

In case of any other assets capital expenses incurred on improvement on or before 01/04/2001 is to be ignored and any improvement done after 01/04/2001 shall be taken into account.

.

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CAPITAL ASSETS AND ITS TYPES

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CAPITAL ASSETS AND ITS TYPES

Any profit and gain arising from Transfer of a Capital Asset shall be chargeable under the head Capital Gain in the P.Y. in which transfer took place.

1.What do you mean by Capital Asset?

Capital Assets means: –

 

S.NO

Capital Asset Means:

1.     

Property of any kind held by assessee, whether or not connected with business or profession.

2.     

Any Securities held by a Foreign Institutional Investor (FII),

But capital Asset does not include (excludes):

                                       i.          Stock in trade (RM/ WIP/ FG).

               ii.          Moveable personal asset (used by assessee or dependent family member for personal purpose). But excludes: Jewellery, Drawings, Paintings, Sculpture, Archaeological Collection, or Any other art of work.

                              iii.          Rural Agriculture land in India.

                       iv.          Gold Deposit Bonds, 1999 or Deposit certificates issued under the Gold Monetisation Scheme, 2015 (Interest on this instrument also exempt u/s 10(15)).

3.     

ULIP’s to which exemption u/s 10(10D) does not apply due to fourth and fifth proviso thereof.

.

NOTES:

NOTE NO.

EXPLANATION

1.     

Asset used for personal purpose of assessee: –

·      T.V, Car, Mobile etc. – Not a Capital Asset – Capital Gain not Applicable.

·      Jewellery, Drawings, Paintings – Capital Asset – Capital Gain is Applicable.

2.     

Gold Utensils, Silver Bars, Silver Coins were held not be considered as Personal Effect – Capital Gain Applicable (Maharaja Rana Hemanth Singh).

3.     

Silver Utensils held to be Personal Effect – No Capital Gain (Benarshilal Kataruka).

4.     

Car used in business is  to be treated as Capital Asset.

5.     

Jewellery means:

               i.          Ornaments made of gold, silver, platinum or other precious metal or alloy containing such metals.

              ii.          Precious stones whether or not set in any furniture, utensil or other article.

6.     

Rural area:

Rural area means which is not an urban area.

 

Urban area:

Urban area means:

                         i.          Any area (municipality, cantonment board etc.) which has a population of 10,000 or more.

             ii.          In the following area within the distance, measured aerially.

Shortest distance from area referred in point (i)

Population according to last census

Upto 2 Kms

> 10,000 upto 1,00,000

Upto 6 Kms

> 1,00,000 upto 10,00,000

Upto 8 Kms

>10,00,000.

7.     

“Property” also includes any rights in relation to an Indian Company including right of management or control or any other right whatsoever.

.

.

2.What do you mean by Transfer as per Section 2(47)?

Transfer includes:

S.NO

TRANSFER INCLUDES

1.     

The Sale, exchange, or relinquishment of the asset, or

2.     

The extinguishment of any right there in, or

3.     

Compulsory Acquisition there of under any law, or

4.     

Conversion of capital asset into stock in trade, or

5.     

Allowing the Possession of any immoveable property to be taken or retained in part performance of a contract.

6.     

Any transactions (like becoming a member of or acquiring shares in a Co. operative society) which has the effect of transferring or enabling the enjoyment of immoveable property.

7.     

The redemption of Zero-coupon bonds (ZCB).

NOTE:

“Transfer also includes disposing of or parting with an asset or interest therein or creating any interest in any asset in any manner whatsoever either directly or indirectly, absolutely or conditionally voluntarily or involuntarily by way of an agreement or otherwise.

.

.

3.Types of Capital Assets?

There are two types of Capital Assets which are classified as Long term capital asset and Short term capital asset. The Long term and short term capital asset are classified on the basis of Period of Holding which can be classified as follows:

Capital Asset

Period of Holding

Upto 22/07/2024

From 23/07/2024

Part: A

·      Security (other than unit*) listed in recognized stock exchange of India.

·      Unit of UTI

·      Unit of Equity oriented Mutual Fund

·      Zero Coupon Bonds

 

 

1 YEAR

 

 

1 YEAR

Part: B

·      Unlisted shares (shares not covered above)

·      Immoveable Property.

 

 

2 Years

 

 

2 years

Part: C

·      Any other Assets

3 Years

2 Years

* “other than unit” is omitted w.e.f. from 23rd July 2024, so now in case of listed units Period of Holding 1 Year will be applicable from 23rd July 2024. (E.g. Listed Business trust units).

If any asset held for more than 1/2/3 years, then it is treated as Long Term Capital Gain otherwise Short Term Capital Gain.

.

.

4.Tax Rates before and after budget 2024?

PRODUCT

TAX ON STCG

TAX ON LTCG

BEFORE

AFTER

BEFORE

AFTER

 

Listed equity shares.

(STT Paid)

 

15%

 

20%

 

10% on gains above Rs 1 Lakhs

 

12.5% on gains above Rs 1.25 Lakhs

 

Unlisted equity shares

 

Slab Rate

 

Slab rate

 

20% with indexation

 

12.5% without indexation

 

 

Listed Preference shares

 

Slab Rate

 

Slab rate

 

20% with indexation or 10% without indexation.

 

12.5% without indexation

Unlisted preference shares

 

Slab Rate

 

Slab rate

 

20% with indexation

 

12.5% without indexation

 

Equity Mutual Funds (stt paid)

 

15%

 

20%

 

10% on gains above Rs 1 Lakhs

 

12.5% on gains above Rs 1.25 Lakhs

 

Equity Mutual Funds ( if stt not paid)

 

 

Slab Rate

 

 

Slab rate

 

 

20% with indexation

 

 

12.5% without indexation

 

 

Sovereign Gold Bonds (listed)*

 

 

Slab Rate

 

 

Slab rate

 

20% with indexation or 10% without indexation.

 

12.5% without indexation

 

Any bonds listed

 

Slab Rate

 

Slab Rate

 

10% without indexation

12.5% without indexation

Specified Mutual Fund (debt)

Slab Rate

Slab Rate

20% with indexation

12.5% without indexation

Other Mutal Funds (gold funds, overseas funds)

 

 

Slab Rate

 

 

Slab Rate

 

 

20% with indexation

 

 

12.5% without indexation

.

* if sovereign gold bonds (SGB) are held till maturity then it is exempt from long term capital gains (lock-in period is of 8 Years).

Estimate the Answers of Calculations Presentation in Colourful Hand Drawn Style

DEDUCTION U/S 10AA

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DEDUCTION U/S 10AA

To promote exports and attract foreign investment, the Government of India introduced Section 10AA under the Foreign Policy Act. It become fully functional in 2006, after which tax concessions were offered to specific businesses. On fulfilling certain conditions, Section 10AA of the Income Tax Act allows new businesses or units offering services in Special Economic Zones (SEZ’s) to enjoy Income Tax exemptions and holidays.

.

1.Eligibility criteria for Section 10AA deductions?

Entrepreneur, firms, companies, individuals and other categories of assessee can claim a deduction under Section 10AA. However, to claim a deduction under this Section, SEZ units need to meet the following conditions or criteria:

S.NO

CONDITIONS

1.     

The deduction is available only to businesses which are newly set up in an SEZ. Existing businesses moving into an SEZ or expanding their operations are not eligible unless it involves setting up a completely new unit.

2.     

The entity must earn revenue from the export of goods or services. The tax benefits are computed precisely on the profits derived from such exports.

3.     

The unit shall not be formed by splitting up or by reconstruction of an existing business, unless prescribed under the Act. It shall not be formed by transferring used plant & machinery; however, if the value of used assets does not exceed 20% of the total plant & machinery used in the unit, the said conditions can be relaxed.

4.     

The incentives under this section are available to businesses who have taken necessary approval upto 31.03.2020 and begins manufacturing or production of articles or things or providing services upto 31.03.2021.

5.     

For claiming the deductions, businesses shall maintain proper documentation and file their return with details of export turnover, total turnover, and a report from Chartered Accountant certifying compliance with the conditions of Section 10AA.

6.     

Applicable to an undertaking which begins to manufacture or to produce article or things or computer software in any SEZ.

.

.

2.Deduction u/s 10AA?

Deduction u/s 10AA is as follows:

AMOUNT OF DEDUCTION

For First 5 Assessment Years

100% of export profits

For next 5 Assessment Years

50% of export profits

For next 5 Assessment Year

Amount debited to P&L a/c & credited to SEZ reinvestment allowance reserve a/c.

OR

50% of Export profits.

Whichever is lower.

.

.

NOTES:

NOTE NO.

EXPLANTAION

1.     

Export Profit:

 

(PGBP of unit located in SEZ * Export Turnover)/ Total Turnover.

2.     

Export Turnover:

 

Export turnover means the consideration in respect of exports brought into India in convertible foreign currency within 6 months from the end of P.Y or time permitted by the RBI.

3.     

Sales amount deemed to have been received in India if such amount is credited to a separate A/c maintained by assessee outside India with approval of RBI.

4.     

Amount credited to SEZ Re-investment allowance reserves A/c shall be utilized for acquiring new plant & machinery & put to use within 3 years from the end of P.Y. in which such reserved was created. If the amount is mis-utilized or un-utilized, then deduction claimed earlier shall be taxable as PGBP.

5.     

Deemed Income:

 

               i.          If reserves has been utilized for non-specified purpose: of the year in which wrongly utilized.

            ii.          If reserves has not been utilized till the expiry of time limit: of the year immediately following the period of 3 years.

6.     

Export turnover does not include freight, telecommunication charges, Insurance, or expenses for providing service outside India. Further export turnover shall not include cash compensatory support, Duty drawback and profit on sale of import entitlement license.

7.     

Total turnover shall not include freight, telecommunication charges, Insurance, or expenses for providing service outside India. Further it shall not include cash compensatory support, Duty drawback and profit on sale of import entitlement license. Total turnover includes export turnover and domestic turnover, and it further includes even that portion of export turnover which is not received in convertible foreign exchange.

8.     

Deduction u/s 10AA available after claiming deduction u/s VI-A from gross total income.

9.     

Assessee shall obtain a report from a CA and furnish it before the due date specified u/s 44AB.

10.                    

Deduction u/s 10AA not available if it is formed by splitting up/ reconstruction of existing business:

 

Exceptions: In case of software industry, development of technical manpower from existing units to SEZ unit shall not be treated as splitting up of business provided:

 

               i.          Technical manpower transferred to SEZ unit is upto 50% of the total manpower delayed in SEZ unit in the first year of business, or

            ii.          Net additions of technical manpower employed in all units atleast 50% or more of technical manpower in SEZ unit in such P.Y

11.                    

Plant & Machinery used should be new: –

 

Exception:

 

               i.          20% of the total value of Plant & Machinery used in the undertaking can be second hand.

            ii.          Plant & Machinery imported from outside India for the first time shall be treated as new Plant & Machinery.

.

.

Circular No. 1/2013 dated 17/01/2013.

.

S.NO

EXPLANATION

1.     

It is clarified that the software developed outside abroad at client place would be eligible for 10AA pursuant to a contact between client and SEZ unit.

2.     

It is further clarified that the profits earned as a result of deployment of technical manpower at client place abroad specifically for software development shall be eligible for 10AA pursuant to a contact between client and SEZ unit.

3.     

It is clarified that in case of change in ownership deduction shall be available during the unexpired period at applicable rates subject to fulfilment of prescribed conditions.

4.     

It has been clarified that the tax holiday should not be denied merely on ground of physical relocation of an eligible SEZ unit from one place to another SEZ unit.

.

Maroon and Beige Minimalist Special Gift & Flower Presentation

TAXATION OF GIFTS

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.

TAXATION OF GIFTS

1.What is gift Tax in India?

The Indian Government introduced the tax on gifts in April 1958, and the Gift Tax Act regulates it. The said Act was introduced to impose taxation on the exchange of gifts under requisite circumstances.

.

Essentially, gifts here represent anything in the form of cash, bank cheques, demand drafts, and other valuables. According to 2017’s amended law, any gift received by an individual or individuals is now taxed at the hands of receiver as ‘Income from other sources. Notably such gifts are taxed at regular rates (Slab Rates).

.

2.Taxation of Gift?

Taxation of Gift in India is as Follows: –

S.NO

EXPLANATION

1.     

Any gift received by employee from employer due to employee – employer relationship it is always taxable (even if received on marriage) under income from salary.

2.     

Any gift/ benefit/ perquisite/ arising from Business or Profession is always taxable under the head PGBP.

.

.

Other Gifts u/s 56(2)(x)

Any gift received or asset acquired for low consideration by any person: –

S.NO

EXPLANATION
1.

Money (without consideration):

If the aggregate amount received by any person during the P.Y exceeds Rs. 50,000 then the whole amount of gift is taxable.

.

Example: Mr. Karan receives cash gift of Rs. 20,000 each from his 3 friends on the occasion of his Birthday, is the money received taxable?

.

Since the total amount of cash gift received exceeds Rs. 50,000 (20,000*3 = 60,000), the entire amount i.e. Rs. 60,000 is taxable.
1.

Moveable Property (without consideration):

If any moveable property received by any person without any consideration during the P.Y and the Fair Market Value (FMV) of such property exceeds Rs. 50,000 then the entire Fair Market Value shall be taxable.

.

Example: Mr. Mohan receives gold chain worth Rs. 80,000 from his girlfriend, is this gift taxable?

.

Yes, since the moveable property’s Fair Market Value exceeds Rs. 50,000, the entire amount i.e. Rs. 80,000 will be taxable in hands of Mr. Mohan.
1.

Moveable Property (Inadequate consideration):

If any moveable property received by any person during the P.Y for inadequate consideration and the Fair Market Value (FMV) of such property less consideration paid exceeds Rs. 50,000 then the difference between Fair Market Value & consideration paid shall be taxable.

.

Example: Mr. Kunal received a painting worth Rs. 1.2 lakhs from his friend for Rs. 30,000 only, is the difference taxable?

.

Yes, since the FMV less consideration paid is greater than Rs. 50,000, the difference is taxable in hands of Mr. Kunal (Rs. 1,20,000 – Rs. 30,000 = 90,000).
1.

Immoveable Property (without consideration):

If any immoveable property received by any person without any consideration during the P.Y and the Stamp Duty Value (SDV) of such property exceeds Rs. 50,000 then the entire Stamp Duty Value shall be taxable.

.

Example: Mr. Nayan receives Land worth Rs. 2,50,000 (SDV) from his girlfriend, is this gift taxable?

.

Yes, since the immoveable property’s Stamp Duty Value exceeds Rs. 50,000, the entire amount i.e. Rs. 2,50,000 will be taxable in hands of Mr. Nayan.
1.

Immoveable Property (Inadequate consideration):

If any immoveable property received by any person during the P.Y for inadequate consideration and the Stamp Duty Value (SDV) of such property less consideration paid exceeds Rs. 50,000 plus Stamp Duty Value (SDV) is more than 110% of the consideration then the difference between Stamp Duty Value & consideration paid shall be taxable.

.

Example: Mr. Kunal received a Bungalow worth Rs. 1.2 crores (SDV) from his friend for Rs. 20 lakhs only, is the difference taxable?

.

Yes, Since the SDV of the more than 110% of the consideration paid (110% * 20 lakhs < 1.2 crores) & the difference between Stamp Duty Value and consideration paid is more than Rs. 50,000 the entire difference i.e. Rs. 1.2 crores – 20 lakhs = Rs. 1 crore is taxable in hands of Mr. Kunal.

.

.

Any property received as gift or acquired for low consideration other than above, Section 56(2)(x) will not be applicable so it will not be taxable.

.

NOTE 1: What do you mean by Immoveable Property?

S.NO

IMMOVEABLE PROPERTY MEANS:
1.

Shares & Securities.
1.

Jewellery.
1.

Painting.
1.

Archaeological collection.
1.

Sculptures.
1.

Bullion.
1.

Drawing.
1.

Virtual Digital Assets (VDA).
1.

Any other work of art.

.

.

NOTE 2: What do you mean by Moveable Property?

.

S.NO

MOVEABLE PROPERTY MEANS:
1.

Land.
1.

Buildings.
1.

Land or building both.

NOTE 3: If Assessee is not satisfied with the Stamp Duty Value of the Property, then his case may be transferred to Valuation Officer.

.

NOTE 4: Section 56(2)(x) applicable only if it is in the nature of capital asset of the recipient, it is stock in trade then Section 56(2)(x) will not be applicable.

.

NOTE 5: If any person receiving any asset as gift or acquires for inadequate consideration & he is already assessed u/s 56(2)(x) on FMV/ SDV the cost of acquisition of such asset shall be FMV/ SDV which was considered under IFOS u/s 56(2)(x). When Cost of acquisition is computed as per Section 49(4), the period of holding of the previous owner shall not be included in the period of holding.

.

If the gifts are received from certain people or on special occasions as mentioned below, then tax will on gift will not be levied: –

.

S.NO

EXPLANATION (Money/ Property not taxable if it is received)
1.

On the occasion of Marriage.
1.

From any Relatives.
1.

Under will or by way of Inheritance.
1.

In contemplation of Death.
1.

From any Hospital or medical institution.
1.

From any University or education institute.
1.

From or by any Trust registered u/s 12AA/12AB.
1.

From any Local Authority u/s 10(20).
1.

From an Individual by a trust created solely for the benefit of the relative of the individual.
1.

By any Fund, Trust, Hospital, Medical Institute, University, Education Institute referred u/s 10(23C).
1.

Certain exempt transfers as per Section 47 Clause (i), (iv), (v), (vi), (via), (viaa), (vib), (vie), (vica), (vicb), (vid), (vii), (viiac), (viiad), (viiae), (viiaf).

.

NOTE 6: Definition of Relative as per Income Tax Act?

.

S.NO

Relative as per Income Tax means (in case of Individual):
1.

Spouse of the Individual.
1.

Brother or Sister of the Individual.
1.

Brother or Sister of the spouse of the Individual.
1.

Brother or Sister of either of the parents of the individual.
1.

Any lineal ascendant or descendant of the Individual.
1.

Any lineal ascendant or descendant of spouse of the Individual.
1.

Spouse of the person referred in point 2-6 above.

.

In case of HUF any member of the HUF is a relative of HUF.

.

NOTE 7: CBDT Notification No. 40/2020 – Section 56(2)(x) not applicable in following cases:

.

S.NO

EXPLANATION
1.

Immoveable Property received by resident of unauthorized colony in National Capital Territory of Delhi, where Central Government has regularized transactions of such property for conferring or recognizing right of ownership/ transfer/ mortgage in favour of such resident based on latest Power of Attorney, Sale Agreement, Will, Possession etc. including evidencing payment of consideration.
1.

Receipt of unquoted shares of company and its subsidiary and subsidiary of such subsidiary by a shareholder where NCLT on application by Central Government has suspended the Board of Directors and appointed newly directors nominated by the Central Government and the shares so received are pursuant to resolution plan approved by NCLT after providing the PCIT/ CIT an opportunity of being heard.
1.

Equity shares of Yes Bank received by an investor as per Yes Bank Ltd. Reconstruction scheme, 2020
1.

Equity shares, of the public sector company, received by a person from the Central Government under strategic disinvestment.

.

NOTE 8: Amendment by Finance Act 2022 w.e.f. A.Y 20-21

.

S.NO

Amendment (Section 56(2)(x) not taxable in following cases, Money received: –)
1.

By Individual, from any person, for expenses actually incurred on treatment of Covid-19 related illness of him or any family member.
1.

By Family member of deceased person, within 12 months of death (death due to Covid -19 illness): –

i.From the employer of the deceased person (without any limit); or
ii.From any other person or persons upto Rs. 10 Lakhs.

NOTES:

i.Family means spouse, children and dependent relative (parent, brother, sister).
ii.Death should be within 6 months from the date of testing covid positive.
White and Turquoise Gradient Stock Market Presentation

TAXATION IN CASE OF BUY BACK

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TAXATION IN CASE OF BUY BACK

1.What do you mean by Buy-back of shares?

Share or stock buyback is the price where companies decide to purchase their own shares from their existing shareholders either through a tender-offer or through an open market. In such a situation, the price of concerning shares is higher than the prevailing market price.

.

2.Taxation in case of shares or other specified securities (other than shares of domestic company)?

In the hands of company: There is NO TAXtreatment in hands of company.

.

In the hands of shareholder:As per Section 46A, Capital Gain is applicable in hands of shareholder.

.

Computation of capital gain

Particulars

Rs.

Full value of consideration (Buy Back Price)

xxx

Less: Cost of acquisition/ indexed cost of acquisition

xxx

Short term capital gain/ Long term capital gain

xxx

.

Period of Holding: Date of acquisition till date of Buy Back.

.

NOTE (amendment w.e.f. 01/10/2024):

Where Shareholders received consideration and it is treated as deemed dividend u/s 2(22)(f) then, full value of consideration shall be treated as NIL while calculating Capital Gain.

.

3.Taxability in case of shares of domestic company (Buyback till 30th Sep. 2024)?

In hands of Company:

As per Section 115QA, Domestic company shall pay tax @ 23.296% (20%+12%+4%) on distributed income which shall be calculated as below:

.

Distributed Income = Buyback price – Issue Price (including premium).

.

NOTE:

Company is required to pay tax within 14 days from the date of distribution. Interest @ 1% p.m. or part of the month applicable form 15th day. Assessee will be treated as assessee in default if tax not paid.

.

Rule 40BB- Buy Back Rules for calculation of Issue Price

S.NO

Case

Issue Price
1.

Shares issued by a company on its subscription

Amount actually received by the company (including Premium)

E.g.

Tata ltd issued 10,000 shares on 10/07/2006 for Rs. 70 per share. Face value of the share was Rs. 10: In this case Issue Price will be Rs. 70.
1.

Where prior to buy back, the company has returned any sum out of amount received.

Amount received by the company as reduced by the sum so returned.

If company paid DDT u/s 115-O on returned amount, then it shall not be reduced

E.g.

Suppose in above example company paid Rs. 5 on 15/08/2015 then the issue price will be Rs. 65 and if DDT was paid on those Rs. 5 then the issue price will be Rs. 70.
1.

Shares issued under ESOP or as a part of sweat equity
• FMV OF SHARES; or
• Amount credited to share capital & premium.

whichever is lower.

.

E.g.

Kamal Ltd. issued 10,000 ESOPS at Rs. 40 per share (FV 10). FMV of shares is Rs. 70 per share. In this case issue price will be Rs. 70 lower of FMV or amount credited to share capital & premium account.
1.

Shares are issued under a scheme of amalgamation, in lieu of share or share of an amalgamating company

Amount received by the amalgamating company in respect of such shares

E.g.

CCL ltd. issued 10,000 shares at Rs. 70 per share. CCL ltd amalgamated with DCL ltd and DCL ltd issued 20,000 shares to shareholders of CCL ltd.

In this case Issue Price will be = 7,00,000/20,000 = Rs. 35 per share
1.

In case of Demerger, shares issued by resulting company

Amount received by demerged company in respect of original shares to be divided in ratio of net book value of the assets transferred in a demerger bears to the net worth of the demerged company immediately before such demerger.
1.

In case of demerger, in hands of demerged company

Amount received shall be reduced by the amount determined in point 5 above.

E.g.

Burger ltd have 2 divisions Burger & Beverages. Burger Ltd. issued 10,000 shares at Rs. 70 per share in P.Y 01-02. Burger Ltd demerged and transfer beverage division to Beverages Ltd. in P.Y 19-20. At time of demerger net worth of Burger Ltd was Rs. 500 crores. Net assets transferred to Beverages Ltd. is Rs. 200 crores. Beverages ltd issued 20,000 shares of F.V Rs. 10 to shares of Burger Ltd.

.

Shares of Beverages Ltd.: Rs. (7,00,000*200cr/500cr)/20,000 = Rs. 140 per share.

Shares of Burger ltd.: (Rs. 7,00,000- Rs. 2,80,000)/ 10,000 = Rs. 42 per share.
1.

Shares allotted or issued as a part of consideration for acquisition of any assets or settlement of liability

Amount received = A/B.

A: a) FMV of asset/ liab.

b) Amount credited to share capital & security premium account

Whichever is lower.

B: No. of shares issued as a part of consideration.

.

NOTE:

Where both shares and money is given the FMV of assets shall be considered only to the portion of consideration paid by shares.

E.g.

Karun Ltd. acquired assets in lieu of issue of 10,000 shares. FMV of assets is Rs. 5,00,000. In this case issue price will be Rs. 50.
1.

Shares issued or allotted on succession or conversion of firm into a company or succession of sole proprietary concern by the company

Amoun received = (A-B)/C

A= Book value of assets in B/S as reduced by TDS, TCS, Adv. Tax (except refund) & unamortized amount of deferred expenditure.

.

B= Book value of liabilities in the B/S as reduced by capital, reserves and surpluses, provisions for unascertained liabilities and contingent liabilities

.

C= Number of shares issued on conversion.
1.

Bonus shares issued without consideration

.

Nil
1.

Shares issued on conversion of preference shares, bond or debentures, debenture stock or deposit certificate.

Amount received by the company in respect of the instrument so converted.

.

.

.

E.g.

KB ltd. issued 10,000 bonds for Rs. 1000 per bond in F.Y 14-15. On 18/04/23 bonds convertible into shares and company allotted 2,00,000 shares in lieu of bonds.

In this case Issue Price= 1crore/ 2 lakhs = Rs. 50.
1.

Shares held in D-MAT Form, and which cannot be distinctly identified

Amount received for issue of shares on the basis FIFO method.
1.

In any other case

Face value of the shares.

.

Example for point 8 above.

Business of Mr. Rahul is transfer of Rahul Pvt. Ltd. and the company allotted 1,00,000 shares to Mr. Rahul (F.V Rs.10). Statement of Liabilities and assets as on date of succession is as follows:

LIABILITES

ASSETS

Particulars

Rs.

Particulars

Rs.

Capital

25,30,000

Building

17,00,000

Provision for tax

(Excess by Rs. 20,000)

 

 

 

2,30,000

Goodwill

 

 

 

 

 10,00,000

Loan

4,70,000

Furniture

4,00,000

Other liab.

1,20,000

TDS/ TCS

2,00,000

 

 

Advance tax

50,000

TOTAL

33,50,000

TOTAL

33,50,000

.

.

Building transferred at Rs. 24,00,000. Calculate issue price of shares allotted to Mr. Rahul.

.

Issue Price of shares = (A-B)/C; 25,50,000/1,00,000= 25.50/share.

A= Book value of assets

Building

17,00,000

Goodwill

10,00,000

Furniture

4,00,000

IT Refund (2,50,000- 2,10,000)

40,000

B= Book value of Liabilities

Loan

(4,70,000)

Other Liabilities

(1,20,000)

Net Assets

(25,50,000)

.

 

.

In hands of Shareholders:

The amount received by shareholders on Buyback of shares shall be exempt u/s 10(34A) i.e. no tax treatment in hands of shareholders.

.

4.Taxability in case of shares of domestic company (Buyback w.e.f. 01st Oct. 2024)?

In the hands of Company:

There is No Tax treatment in hands of company.

.

In the hands of shareholders:

Section 2(22)(f): Any payment by company on buy back of shares shall be treated as deemed dividend in hands of shareholders and it is taxable under Income from other sources as per normal tax rate.

.

Buy back is treated as extinguishment of rights so Capital gain is applicable as per Section 46A in the hands of shareholder.

.

Computation of Capital Gain

Particulars

Rs.

Full value of consideration (buy back price)

Always Nil

Less: Cost of acquisition of shares

(xxx)

STCL/ LTCL

(xxx)

.

.

Example: Mr. Kunal acquired 1,000 shares of Ril Ltd. @ Rs. 50 per share during P.Y 2020-21. Ril ltd buy back shares 300 shares @ 120 per share on 10/12/2024. Mr. Kunal sold 700 shares on 15/07/2025 @ Rs. 200 per share, Discuss tax treatment in hands of Mr. Kunal

.

During the P.Y 24-25. Rs. 36,000 (300 Shares * 120) is treated as deemed dividend in hands of Mr. Kunal as per Section 2(22)(f) & it is taxable under IFOS.

.

Computation of capital gain on buy back.

Particulars

Rs.

Full value of consideration

Always Nil

Less: cost of acquisition (300 shares *50)

(15,000)

LTCL (it can be set off against any other ltcg of c/f for next 8 years)

 

 

(15,000)

.

.

Computation of Capital gain on sale of 700 shares

Particulars

Rs.

Full value of consideration

1,40,000

Less: Cost of acquisitions (700 shares * 50 shares)

 

(35,000)

LTCG

1,05,000

LTCL B/F

(15,000)

LTCG

90,000

 

.