White and Purple Illustrative Finance Presentation

DEPRECIATION RATES FOR FY 2024-25

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DEPRECIATION RATES FOR F.Y 2024-25

What do you mean by Depreciation?

The concept of depreciation is used for the purpose of writing off the cost of an asset over its useful life. Depreciation is a mandatory deduction in the profit and loss account of an entity using depreciable assets and the act allows deductions either using the Straight Line method (SLM) or Written Down Value (WDV) method.

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The calculation of depreciation under the WDV method is widely used. However, in case the undertaking is engaged in power generation or its generation and distribution, there is an option to choose the straight line method.

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CONDITIONS TO CLAIM DEPRECIATION?

Conditions to claim depreciation:

i.Assets should be used for business/ profession purposes (active or passive).
ii.Assessee should be owner of such asset (wholly or partly).

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Notes:

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1.

Depreciation is allowed if assessee is beneficial owner.
2.

In case of lease, depreciation is always claimed by lessor whether it is financial lease or operating lease.
3.

In case of Hire Purchase, assessee gets the ownership only after the payment of last installment, but he can claim depreciation from beginning assuming assessee is owner from the beginning.
4.

Depreciation on asset partially owned by the assessee shall be allowed to him of his share in asset.
5.

In case of standby machinery and emergency spares, the depreciation shall be allowed even if they are ready for use & not put to use.
6.

Case law: ICDS ltd (2013) (SC): Depreciation shall be allowed to lessor even though the asset is registered in the name of lessee. As per lease agreements:

i.The lessor is the exclusive owner of vehicle at all points of time.
ii.The lessor is empowered to repossess the vehicle, in case the lessee committed default.
iii.The lessor had a right of inspection of the vehicle at all the times.
iv.At the end of the lease period, the lessee was obliged to return the vehicle to the lessor.

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It can be seen that proof of ownership lies in the lease agreement itself, which clearly points in the favour of the lessor.

 

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CLASSIFICATION OF DEPRECIABLE ASSETS

The depreciable asset can be classified into two categories:

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1.

Intangible Assets.
2.

Tangible Assets

i.Building.
ii.Furniture.
iii.Plant & Machinery.

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RATES OF DEPRECIATION (WDV Method) (Block of Asset System)

The rate of depreciation as per WDV method is as follows:

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S.NO

ASSETS

Rate
1.

Buildings (include roads, bridges, wells and tubewells)

i.Residential use (except hotels)
ii.Other use
iii.Temporary or Wooden Structure

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5%

10%

40%
2.

Furniture & Fittings (include electrical fittings like fans, wires, switches etc.)

.

10%
3.

Plant & Machinery (as per note 1)

Note 1
4.

Intangible Assets

25%

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NOTE 1:

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i.Motor Vehicles

15%
ii.Motor Vehicles (Acquired & put to use between 23.08.19 to 31.03.20)

30%
iii.Motor Vehicles used in Hire Business

30%
iv.Motor Vehicles used in Hire Business (Acquired & put to use between 23.08.19 to 31.03.20)

45%
v.Ships, Vessels, Speed Boats

20%
vi.Aero planes, Aero engines

40%
vii.Computer & Computer Software

40%
viii.Pollution Control Equipment

40%
ix.Windmills & its equipment installed before 01/04/14

15%
x.Windmills & its equipment installed after 01/04/14

40%
xi.Renewable Energy Devices (include E-Vehicles)

40%
xii.Oil Wells

15%
xiii.Books owned by assessee carrying on a profession being annual publication

100%
xiv.Books owned by assessee carrying on a profession not being annual publications

60%

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NOTE 2:

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1.

It is mandatory for all the assessee to claim depreciation.
2.

EPBAX & Mobile phones are not considered as computers as per Income Tax Act, hence depreciation will be levied @ 40%.
3.

Intangible assets includes know-how, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights of similar nature but other than goodwill of business and profession i.e. depreciation is not leviable on business and profession.
4.

Depreciation rate of computer accessories i.e. UPS, Printers, Scanners is also 40% similar to depreciation rates for computers.
5.

Depreciation is allowed only when the asset is actually put to use & not ready to use.
6.

As per Section 49(3) plant includes ships, vehicles, books, scientific apparatus & surgical equipment’s used for business or profession but does not include Tea bushes, livestock, building, furniture.

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METHOD OF DEPRECIATION

There are two methods of depreciation only Written Down Value (WDV) and Straight Line Method (SLM) and can be opted by assessee as follows: –

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TYPE OF ASSESSEE

DEPRECIATION METHOD

Business of Generation or Generation & Distribution of power

They have an option to follow straight line method or written down value method.

All other assessee’s

They have to follow only written down value method

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SYSTEM OF DEPRECIATION

WDV METHOD: For Written Down Value method of depreciation Block of Asset System shall apply.

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SLM METHOD: For Straight Line Method of depreciation Individual asset system shall apply (Power units).

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Note 1: “Group of Assets” having same rate of depreciation within the same class of Assets; Block of Assets = Same rate + same class

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Note 2: Depreciation calculated on Individual asset – Same as aacounts.

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FREQUENTLY ASKED QUESTIONS

Q. Is it Mandatory to deduct depreciation for tax purposes?

A. Depreciation must be deducted compulsorily, regardless of whether the taxpayer has claimed it when computing their total income.

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Q. Can depreciation be claimed on assets used partially for personal purposes?

A. Yes, Depreciation can be claimed on assets used partially for business purposes and partially for personal purposes. However, only the proportion of asset used for purpose of business can be claimed as deduction from total income.

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Q. Are there any assets exempt from Depreciation?

A. Certain assets like Land, Goodwill and assets not used for business purposes are not eligible for depreciation under the Income Tax Act.

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TAX RATES FOR CERTAIN LONG TERM CAPITAL GAINS (LTCG) (112A) & ITS COST OF ACQUISITION

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TAX RATES FOR CERTAIN LONG TERM CAPITAL GAINS (LTCG) (112A) & ITS COST OF ACQUISITION

Section 112A: TAX ON LONG TERM CAPITAL GAINS (LTCG) OF CERTAIN ASSETS

Section 112A was inserted by the Finance Act 2018 to tax long term capital gains from the sale of listed equity shares, units of equity oriented mutual funds and units of business trust. The tax rate of such shares is as follows: –

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1.LONG TERM CAPITAL GAINS (LTCG) on transfer of equity shares or equity oriented units or units of business trust, in excess of Rs. 1,25,000 shall be taxable: –
a.@ 10% (in excess of Rs. 1,00,000) for any transfer which takes place before 23rd July, 2024 and
b.@ 12.5% for nay transfer which takes place on or after 23rd July, 2024 (Amended by Finance Act 24, w.e.f. 23rd July, 2024),

If the following conditions are satisfied:

• SECTURITIES TRANSACTION TAX (STT) paid on acquisition & transfer of Equity Shares.
• SECTURITIES TRANSACTION TAX (STT) paid on transfer of equity oriented units and units of business trust.

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2.LONG TERM CAPITAL GAINS (LTCG) arising from transaction in recognized stock exchange located in an international financial service center (IFSC) would be taxable @ 10%/12.5% where the consideration in foreign currency even though SECTURITIES TRANSACTION TAX (STT) NOT PAID in respect of such transactions.

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3.Deductions u/s VI-A & Rebate u/s 87A are not allowed against Capital Gain referred u/s 112A.

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4.Central Government may notify certain modes of acquisition equity shares where payment of SECTURITIES TRANSACTION TAX (STT) on acquisition would not be applicable. Following are the cases where payment of SECTURITIES TRANSACTION TAX (STT) condition would not be applicable:

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i.

Equity shares acquired before 1/10/2004 eligible for the benefit of Section 112A (as there was no SECTURITIES TRANSACTION TAX (STT) before 01/10/2004).
ii.

Equity shares acquired on or after 01/10/2004 eligible for benefit of Section 112A where SECTURITIES TRANSACTION TAX (STT) were not chargeable but in the following 3 conditions, benefit of Section 112A is not applicable: –

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A.Where Acquisition of existing listed equity shares in a company whose equity shares are not frequently traded in a Recognized Stock Exchange of India is made through a Preferential Issue.

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Provided above clause not applicable if acquisition: –

(i)Approved by Supreme Court (SC), High Court (HC), National Company Law Tribunal (NCLT), Securities & Exchange Board of India (SEBI) or Reserve Board of India (RBI).
(ii)By any Non resident as per Foreign direct investment guidelines.
(iii)By an Investment Fund or Qualified Institutional Buyer.

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B.Acquisition of existing listed equity shares in a company, not entered through a Recognized Stock Exchange of India

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Provided above clause not applicable if acquisition: –

(i)Acquisition through an issue of share by a company other than preferential issue.
(ii)Acquisition which has been approved Supreme Court (SC), High Court (HC), National Company Law Tribunal (NCLT), Securities & Exchange Board of India (SEBI) or Reserve Board of India (RBI).
(iii)Acquisition under Employee Stock option plan.
(iv)By any Non resident as per Foreign direct investment guidelines.
(v)Acquisition under SEBI (Substantial acquisition of Shares and Takeovers) Regulations, 2011.
(vi)Acquisitions from the Government.
(vii)Acquisition by mode of transfer referred to in Section 47 (exempt transfers) or Section 50B (Slump Sale) if the acquisition by the previous owner was not acquired as per specified mode.
(viii)By an Investment Fund or Qualified Institutional Buyer.

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C.Acquisition during the intervening period starting from the date on which the company is delisted and ending on the date immediately before the date on which the company is again listed in Recognized Stock Exchanges.

 

COST OF ACQUISITION

In case of equity shares or unit of equity oriented fund or unit of Business Trust acquired before 01/02/2018 & transferred on or after 01/04/2018, Cost of acquisition will be

Higher of Step 1 & Step 2 where,

Step 1: Cost of acquisition

Step 2: Lower of Fair market value as on 31/01/2018* and Full value of consideration (FVOC)

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Note: Indexation not available for computation of Capital Gains u/s 112A.

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*Computation of Fair market value on 31/01/2018:

(i)

Listed Share/ Units on Recognized Stock Exchange on 31/01/2018:

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Fair market value= Highest price quoted on 31/01/2018.

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Note: If no trading on 31/01/2018 then the highest price of last trading session before 31/01/2018.
(ii)

Units/ Shares not listed on 31/01/2018:

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In case of units: Net Asset Value (NAV) as on 31/01/2018.

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In case of Share not listed on 31/01/2018 but listed on date of transfer: (A*B)/C

Where,

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A= Cost of Acquisition

B= Cost inflation index for Financial Year 17-18 i.e. 272

C= Cost inflation index in which the share was first held by assessee or 01-02, whichever is later.

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Equity Oriented Fund meaning: Fund set up under a scheme of a Mutual Fund or Unit Linked Insurance Policy to which exemption u/s 10(10D) does not apply:

• In a case where fund invests in the units of another fund which is traded on a Recognized Stock Exchange a minimum of 90% of its total proceeds in the unit of such other fund and such other fund also invests a minimum of 90% of its total proceeds in the equity shares of domestic companies listed on a Recognized Stock Exchange; and
• In any other case, a minimum of 65% of the total proceeds of such fund invested in the equity shares of domestic companies listed on a Recognized Stock Exchange.
Orange and Brown Geometric Finance Company Presentation

EXEMPTION U/S 54G & 54GA OF INCOME TAX

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EXEMPTION U/S 54G & 54GA OF INCOME TAX

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SECTION-54G

All the assessee can claim the benefits of exemption u/s 54G, the assessee can claim deduction as mentioned below:

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Conditions for claiming exemption under Section 54G.

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A.

Assessee

All the assessee can claim benefit of deduction u/s 54G.

B.

Transferred Asset

Transfer of plant or machinery or land or building for shifting industrial undertaking from urban area to rural area.

C.

Capital Gain on Transferred Asset

Asset can be long term as well as short term so both Short Term Capital Gain as well as Long Term Capital Gain is covered.

D.

Asset to be Acquired
(a)Purchase/ construction of new plant & machinery, land or building in such rural area, or,
(b)Shifting original assets to that area or,
(c)Incurring notified expense.

E.

Time limit for Purchase or reconstruction

Purchase: The specified assets shall be purchase 1 year before or 3 years after 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)

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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

Fibre Boards (P) ltd. 2015

Advance given for purchase of land, building, plant & machinery amount to utilization of capital gain for purchase and acquisition of new assets, for claim of exemption u/s 54G.

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SECTION-54GA

All the assessee can claim the benefits of exemption u/s 54GA, the assessee can claim deduction as mentioned below:

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A.

Assessee

All the assessee can claim benefit of deduction u/s 54GA.

B.

Transferred Asset

Transfer of plant or machinery or land or building for shifting industrial undertaking from urban area to rural area.

C.

Capital Gain on Transferred Asset

Asset can be long term as well as short term so both Short Term Capital Gain as well as Long Term Capital Gain is covered.

D.

Asset to be Acquired
(a)Purchase/ construction of new as well as old plant & machinery, land or building in such rural area, or,
(b)Shifting original assets to that area or,
(c)Incurring notified expense.

E.

Time limit for Purchase or reconstruction

Purchase: The specified assets shall be purchase 1 year before or 3 years after 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)

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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

Fibre Boards (P) ltd. 2015

Advance given for purchase of land, building, plant & machinery amount to utilization of capital gain for purchase and acquisition of new assets, for claim of exemption u/s 54G.

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NOTE 1: CAPITAL GAIN ACCOUNT SCHEME

1.

Amount: If investment u/s 54G & 54GA 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.
1.

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.
1.

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: Gama Ltd. located within the corporation limit decided in December 2024 to shift its industrial undertaking to non-urban areas. The company sold some of the assets and acquired new assets in the process of shifting the relevant details are as under:

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Particulars

Land

Building

P&M

Furniture

Sale proceeds

8

18

16

3

Indexed cost of Acquisition

4

10

12

2

Cost of Acquisition

4

4

5

2

Cost of assets purchase in July 2025 for the purpose of business in new place

4

7

17

2

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Compute Capital Gains for A.Y 25-26?

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Computation of Capital Gain A.Y 25-26

Particulars

Land

Building

P&M

Furniture

Full Value of Consideration

8

18

16

3

Less: Transfer Expenses

–

–

–

–

Net Consideration

8

18

16

3

Less: COI/ ICOI

(4)

(4)

(5)

(2)

Capital Gain

4

14

11

1

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54G EXEMPTION

Particulars

LTCG

STCG

Capital Gain for Exemption

4

25

Cost of New Assets

3

25

Taxable Capital Gain

1

Nil

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Note 2: The Capital assets refereed in Section 54G are machinery or plant or machinery or land & building or any rights in the building or land. Capital gain arising on transfer of furniture does not qualify for exemption u/s 54G. No exemption is therefore available u/s 54G in respect of investment of Rs. 2 Lakhs in acquiring furniture.

Note 3: In case of Land, Normal Capital gain is calculated but in case of depreciated assets (Building, P&M, Furniture), Section 50 shall apply and as per Section 50 there is always STCG.

Note 4: Total exemption u/s 54G is Rs. 28 lakhs, the exemption should first be exhausted against short term capital gain as the rate of tax in case of short term capital gain is more than in case of long term capital gain.

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The Taxable capital gain would be:

Long term capital gain = 1,00,000 taxable @ 12.5% u/s 112.

Short term capital gain = 1,00,000 taxable @ slab rates.

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EXEMPTION U/S 54F OF INCOME TAX

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EXEMPTION U/S 54F OF INCOME TAX

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Under Section 54F of the Income Tax Act, an Individual or HUF selling an Urban Agricultural land can avail tax exemptions from Capital Gains if the capital gains are invested in purchase of Rural or Urban Agricultural Land.

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

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Conditions for claiming exemption under Section 54F.

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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 Long Term Capital Asset other than Residential House Property.

C.

Capital Gain on Transferred Asset

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

D.

Asset to be Acquired

New asset acquired must be one Residential House property in India only.

E.

Time limit for Purchase or reconstruction

Purchase: The Residential house property must be purchased 1 year before or 2 years after the date of transfer.

Construction: Complete the construction of Residential house property within 3 years from date of transfer.

F.

Deposit Scheme

Capital Gain Account Scheme (Note 1).

G.

Amount of exemption

(A*B)/C Where,

A= Long term Capital Gain.

B= Cost of New Asset/ Deposit amount.

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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.

Lock in Period

If New Asset is transferred within 3 years from date of purchase or construction the exemption claimed earlier shall be withdrawn & shall be treated as Long Term Capital Gain.

I.

Case Laws

Ravinder Kumar Arora 2012 Delhi

Where a house property is registered in Joint names, the exemption u/s 54F can be allowed fully to the co-owner who has paid whole of the purchase consideration, and it will not be restricted to his share in house property.

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Sambandam Udaykumar 2012 Karnataka

Exemption u/s 54F cannot be denied on the ground that the construction was not completed within 3 Years after the date on which transfer took place, on account of pendency of certain finishing work like flooring, electrical fittings, fittings of door shutter etc.

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Gouli Mahadevappa 2013 Karnataka

Where the Stamp Duty Value u/s 50C has been adopted as Full Value of Consideration, the reinvestment made in acquiring a residential property, which is in excess of the actual net sale consideration, can be considered for the purpose of computation of exemption u/s 54F, irrespective of the source of fund of such reinvestment.

J.

Additional Conditions
1.On the date of transfer of Long term capital asset, assessee should not own more than one residential house property.
2.Should not purchase any other house property within 2 years or construct within 3 years after the date of transfer.

If the above conditions are not satisfied then exempt Capital Gain, taxable in Previous Year in which such other residential house is purchased/ constructed.

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NOTE 1: CAPITAL GAIN ACCOUNT SCHEME

1.

Amount: If investment u/s 54F 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: Mr. Ramesh purchased a plot of land in Chennai in June 2005 for Rs. 48 lakhs. On 4th January 2024, the land was sold to Mr. Mukesh for Rs. 105 lakhs and the stamp duty value as on that day was Rs. 150 lakhs. During the Financial Year 2023-24 Mr. Ramesh earned business income of Rs. 25 lakhs.

He Acquired a new residential property for Rs. 130 lakhs by investing the entire sale consideration and business income.

Determine Total Income of Mr. Ramesh for A.Y 24-25

Financial Year

CII

2005-06

117

2023-24

348

.

Computation of total income of Mr. Ramesh for A.Y 24-25

Particulars

Rs. In Lakhs

Rs. In Lakhs

Business Income

.

25.00

Capital Gain

Full value of Consideration (Note 2)

.

150.00

.

Less: Indexed cost of acquisition (Note 3)

(142.77)

.

Less: Exempt u/s 54F (Note 4)

(6.26)

.

Long term capital gain

.

0.97

Total Income

.

25.97

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Note 2: As per Section 50C, the full value of consideration would be higher of :

Particular

Amount in lakhs

110% of Consideration (110% * 105 lakhs)

115.5

Stamp duty Value

150

Full value of consideration (higher of above)

150

.

Note 3: Computation of indexed cost of Acquisition:

Particular

Amount in lakhs

Cost of Acquisition

48

Indexed Cost of Acquisition (48*348)/117

142.77

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Note 4: When the capital gain is assessed on notional basis as per the provisions of Section 50C and the higher value i.e. stamp duty of Rs 150 lakhs under Section 50C has been adopted as Full value of Consideration, the entire amount of Rs. 130 lakhs reinvested in the residential house within the prescribed period should be considered for the purposes of exemption u/s 54F, irrespective of source of fund for such reinvestment.

Exemption u/s 54F = (7.23*130)/150 = 6.26 lakhs.

Blue White Modern Investment Presentation

EXEMPTION U/S 54EC OF INCOME TAX

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EXEMPTION U/S 54EC OF INCOME TAX

When a taxpayer (i.e. all assessee’s) sells long-term immoveable property (land or building or both), they have the option to avail capital gain exemption under Section 54EC by investing in certain Bonds.

Section 54EC bonds, also known as Capital gain bonds, are fixed income instruments which provide capital gain exemption under Section 54EC to the investors.

To be eligible for exemption under Section 54EC, the taxpayer must meet the following conditions:

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Conditions for claiming exemption under Section 54EC.

.

A.

Assessee

All assesse can claim deductions under this Section including Individual, HUF’s, companies, LLP, firms and others.

B.

Transferred Asset

The asset being sold should be a Long Term Capital Asset, which includes land or building or both. The asset is considered as long term if the taxpayer has held it for a minimum of 24 months prior to the sale.

C.

Capital Gain on Transferred Asset

Asset should be long term only, but the capital gain can be short term capital gain as well as long term capital gain.

D.

Asset to be Acquired

Bonds redeemable after 5 Years issued by:

• National Highway Authority of India (NHAI)
• Rural Electrification Corporation Ltd. (RECL)
• Power Finance Corporation Ltd. (PFCL)
• Indian Railway Finance Corporation Ltd. (IRFCL).

Maximum Exemption limit being Rs. 50 Lakhs within prescribed time limit.

E.

Time limit for Purchase or reconstruction

Purchase: The assessee must purchase the capital gain bonds within 6 months from the date of transfer of original asset.

F.

Deposit Scheme

Capital Gain Account Scheme is not applicable under this section.

G.

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

            (whichever is lower)

.

Note:

The exemption is available upto a maximum amount of Rs. 50 lakhs only (if the amount is invested within 6 months)

H.

Locking Period

If the new asset is transferred or converted into money within 5 Years from the date of acquisition, then exempt long term capital will be taxable in the year of transfer/ conversion.

.

NOTE:

If assessee takes any loan or advance on the security of bonds, he shall be deemed to have converted into money on the date on which such loan or advance is taken & Capital Gain exempted earlier shall be taxable.

I.

Case Laws

Hindustan Unilever Ltd 2010

If the assessee has made the payment for purchase of bonds within 6 months from the date of transfers, exemption u/s 54EC cannot be denied merely because the bond was allotted to the assessee after the expiry of six months period.

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V.S. Dempo Company ltd. (2016)(SC)

Section 50 deems the capital gain as Short-Term Capital Gain, it does not change the nature of asset held. Section 54EC requires the nature of Capital Asset to be Long Term Capital Asset and not Long Term Capital Gain. It does not make a distinction between depreciable and non-depreciable assets. Hence, where a depreciable asset was held for period requiring for qualifying as Long Term Capital Asset, Assessee shall be eligible for exemption u/s 54EC irrespective of the fact that the resultant gain is Short Term Capital Gain.

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Example: Mr. Rajat has an immoveable property which is sold at Rs. 70 lakhs in Financial Year 24-25 after a long term period of 42 months from the date of acquisition. The indexed cost of acquisition of the said property is Rs. 46 Lakhs and indexed cost of improvement of the said property is Rs. 10 Lakhs. Calculate the capital gain if: (i) Rs. 15 Lakhs invested in REC bonds with 6 months. (ii) Invested Rs 8 lakhs with 6 months and Rs 10 lakhs after 6 months in NHAI bonds?

.

Calculation of Capital Gain in case Rs. 15 Lakhs invested in REC bonds.

PARTICULARS

AMOUNT

Full Value of Consideration

70,00,000

Less: Transfer Expenses

Nil

Net Consideration

70,00,000

Less: Indexed Cost of Acquisition

46,00,000

Less: Indexed Cost of Improvement

10,00,000

Long Term Capital Gain

14,00,000

Less: Exemption u/s 54EC (NOTE 1)

14,00,000

Taxable Long Term Capital Gain

Nil

.

NOTE 1:

54EC EXEMPTION

Amount invested in REC bonds (within 6 months)

15,00,000

Capital Gain from sale of long term capital asset

14,00,000

54EC exemption lower of above

14,00,000

.

Calculation of Capital Gain in case Rs. 8 Lakhs & Rs. 10 lakhs invested in NHAI bonds.

PARTICULARS

AMOUNT

Full Value of Consideration

70,00,000

Less: Transfer Expenses

Nil

Net Consideration

70,00,000

Less: Indexed Cost of Acquisition

46,00,000

Less: Indexed Cost of Improvement

10,00,000

Long Term Capital Gain

14,00,000

Less: Exemption u/s 54EC (NOTE 2)

8,00,000

Taxable Long Term Capital Gain

6,00,000

.

NOTE 2: In the give case assessee invested Rs.10 lakhs invested in NHAI bonds after 6 months that means it will not be considered for exemption under Section 54EC.

54EC EXEMPTION

Amount invested in REC bonds (within 6 months)

8,00,000

Capital Gain from sale of long term capital asset

14,00,000

54EC exemption lower of above

8,00,000

.

In case if the capital gain bonds are converted into cash before the period of maturity (within 5 years from date of transfer of original asset), then the amount so invested on which tax exemption was claimed, shall be taxable as long term capital gain in the year of conversion.

For Example, in above case if the bonds are transferred before the maturity date, say in the Financial Year 2026-27, then Rs. 14 lakhs and Rs. 8 lakhs as the case may be shall be taxable as long term capital gain in the Financial Year 2026-27.

.

.

.

Cover

EXEMPTION U/S 54B OF INCOME TAX

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.

EXEMPTION U/S 54B OF INCOME TAX

.

Under Section 54B of the Income Tax Act, an Individual or HUF selling an Urban Agricultural land can avail tax exemptions from Capital Gains if the capital gains are invested in purchase of Rural or Urban Agricultural Land.

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

.

Conditions for claiming exemption under Section 54B.

.

A.

Assessee

Only Individual or HUF can claim exemption under this section.

B.

Transferred Asset

Asset sold/ transferred during the previous year must be a Urban Agricultural Land used by Individual or his Parents for agricultural purposes during the 2 years before transfer of such Agricultural Land.

C.

Capital Gain on Transferred Asset

Asset can be both short term as well as long term i.e Assessee can claim exemption against both short term as well as long term capital gain.

D.

Asset to be Acquired

New asset acquired must be Rural Agricultural land or Urban Agricultural land.

E.

Time limit for Purchase or reconstruction

Purchase: The Rural Agricultural land or Urban Agricultural land should be purchase within 2 years from the date of such transfers.

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

Gurnam Singh 2010

Exemption u/s 54B cannot be denied solely on the ground that new agricultural land purchased is not wholly owned by the assessee, as the assessee’s son is a co-owner as per the sale deed.

J.

Notes
1.If assessee acquired new asset as per Rural Agriculture land & if he transfers that land within 3 Years period, then exemption claimed earlier shall not be withdrawn as Rural Agriculture land is not a Capital Asset.
2.Deduction u/s 54B can be for Short Term Capital Gain also. The condition is that land should be used by assessee or his parents for 2 years prior to the date of transfer.

.

NOTE 1: CAPITAL GAIN ACCOUNT SCHEME

1.

Amount: If investment u/s 54B 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.

.

Example: Mr. Rajat Sold his Agriculture Land in April 2025 for Rs. 25,20,000. Since past 10 years the land was used for agriculture purpose. Long term Capital Gain arising on transfer of such land amounted to Rs. 8,40,000. In December 2025 he purchased another agriculture land worth Rs. 10,00,000. The new land was, however sold in April 2026 for Rs. 12,00,000. What will be the amount of taxable Capital Gains in the hands of Mr. Rajat for the Financial Year 2025-26 & 2026-27?

PART 1

Computation of Capital Gains for the Financial Year 2025-26

Particulars

Amount (in Rs.)

Long term capital gain arising on transfer of old land

8,40,000

Less: Exemptions u/s 54B (Note 2)

8,40,000

Taxable long term Capital Gain

Nil

.

NOTE 2:

EXEMTION U/S 54 B WILL BE LOWER OF FOLLOWING

Amount of Capital Gain arising on transfer of agricultural land

8,40,000

Amount Invested in New Agricultural Land

10,00,000

Exemption u/s 54B (lower of above)

8,40,000

.

PART 2:

Computation of Capital Gains for the Financial Year 2025-26

If a taxpayer purchases another agricultural land and claims exemption under Section 54B and subsequently he transfers the new agricultural land within a period of 3 years from the date of its acquisition, then the benefit granted earlier under Section 54B will be withdrawn. The computation will be as follows:

Particulars

Amount (in Rs.)

Full value of consideration (i.e. sales consideration of new agricultural land)

12,00,000

Less: Expenditure incurred wholly and exclusively in connection with transfer of capital asset

Nil

Net Consideration Received

12,00,000

Less: Cost of Acquisition (Note 3)

1,60,000

Short-term Capital Gains on sale of new agricultural land

10,40,000

.

NOTE 3: If the agricultural land is sold before a period of 3 Years from the date of its purchase, then at the time of computation of Capital Gain arising on transfer of the new agricultural land, the amount of Capital Gain claimed as exempt under Section 54B will be deducted from the cost of acquisition of new agricultural land. Applying these provisions, the cost of acquisition of new agriculture land will be computed as follows:

Particulars

Amount (in Rs.)

Cost of Acquisition of new land

10,00,000

Less: Exemption claimed earlier under Section 54B

8,40,000

Cost of new land to be use while computing Capital Gain

1,60,000

.

.

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

.

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.

.

Conditions for claiming exemption under Section 54

.

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.

.

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.

.

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.

.

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.

.

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.

.

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.

.

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

.

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)

.

29,00,000

.

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.

.

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.

.

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.

.

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.

.

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.

.

.

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

.

.

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.

.

.

B: Taxability of Unit Linked Insurance Policy (ULIP)

.

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.

.

.

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.

.

.

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?

.

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

.

.

.

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

.

.

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.

.

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

.

.

.

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).

.

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.

.

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.

.

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

.

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:

.

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

.

.

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.

.

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.

.

.

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.

.

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.

.

.

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.

.

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.

.

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

.

.

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.

.

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.

.

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.

.

NOTES:

.

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.

.

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.

 

.

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

.