INCOME TAX DIRECT TAX

INCOME FROM CAPITAL GAINS

 Meaning :
Capital gain is the profit earned on sale of capital asset or an investment.

 Chargeability :
1. The existence of Capital Asset
2. The transfer of such asset
3. Profit & gain from transfer of such asset during the previous year.

 Capital Asset:
Capital asset is the property of any kind held by an assessee, whether fixed or circulating, movable or
immovable, tangible or intangible. However, there are certain assets which are excluded from the term
capital asset e.g.
1. Stock in trade
2. Personal effects of the assessee such as wearing apparel, furniture etc.
3. Certain Gold bonds of 1977 & 1980 issued by central government.

 Classification of Capital Assets:

Capital assets are classified into 2 categories on the basis of their holding period viz. short term capital
asset & long term capital asset.

 Short Term Capital Asset:

1. Capital asset being shares in a company, listed securities or unit in UTI if held for not more than 12
months will be treated as short term capital asset and will be computed as short term capital gain.

2. Capital asset being Unlisted securities or Land or building or both (Immovable property) if held
for not more than 24 months will be treated as short term capital asset and will be computed as short
term capital gain.

3. Unit of debt oriented fund or other capital asset held for not more than 36 months will be treated
as short term capital asset and will be computed as short term capital gain.

 Long Term Capital Asset:

 Capital asset being shares in a company, listed securities or unit in UTI if held for more than 12
months will be treated as Long term capital asset and will be computed as Long term capital gain.

 Capital asset being Unlisted securities or Land or building or both (Immovable property) if held for
more than 24 months will be treated as Long term capital asset and will be computed as Long term
capital gain.

 Unit of debt oriented fund or other capital asset held for more than 36 months will be treated as
Long term capital asset and will be computed as Long term capital gain.

 Computation of Short Term Capital Gain

Step 1 : Find out full value of consideration
Step 2 : Deduct from Step 1 Expenditure incurred for transfer of capital asset, cost of Acquisition,
Cost of improvement.

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Step 3 : The balance is the taxable short term capital gain / loss
Format for Computation of Short Term Capital Gain
Steps Particulars Amount Amount
1 Full Value of Consideration XXX
2 Less :
Cost of Transfer XX
Cost of Acquisition XX
Cost of Improvement XX XXX
3 Short Term Capital Gain / Loss XXX

 Computation of Long Term Capital Gain

( in case of Long Term Capital Gain the Cost of Acquisition & Cost of Improvement shall be indexed as
per Cost Inflation Index)
Step 1 : Find out full value of consideration
Step 2 : Deduct from Step 1 Expenditure incurred for transfer of capital asset, Indexed cost of
Acquisition, Indexed Cost of improvement.
Step 3 : The balance is the taxable short term capital gain / loss

Format for Computation of Short Term Capital Gain

Steps Particulars Amount Amount
1 Full Value of Consideration XXX
2 Less :
Cost of Transfer XX
Indexed Cost of Acquisition XX
Indexed Cost of Improvement XX XXX
3 Long Term Capital Gain / Loss XXX

 Full Value of Consideration:

Full Value of consideration is the value received by the transferor in lieu of the asset transferred i.e.,
money or moneys worth.

 Cost of Transfer :
Expenditure incurred for transfer of capital asset such as,
1. Commission or Brokerage
2. Stamp duty
3. Registration Charges
4. Other legal expenses, travelling expenses, etc.

 Cost of Acquisition :
Cost of Acquisition is the value at which an asset is acquired by the assessee and included any amount
spent towards acquiring the title of the property.

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 Cost of Improvement :
Cost of improvement is the expenditure incurred for addition or alternation of capital asset after the date of
acquisition.
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 Computing Indexed Cost of Acquisition and Cost of Improvement

Indexed Cost of Acquisition = COA x Cost inflation index for the year of transfer of the asset
Cost inflation index for year of Acquisition or for 2001-2002
whichever is later

Indexed Cost of Improvement = COI x Cost inflation index for the year of transfer of the asset
Cost inflation index for year improvement

 Cost Inflation Index

Financial Year Cost Inflation Index Financial Year Cost Inflation Index
2001-02 100 2013-14 220
2002-03 105 2014-15 240
2003-04 109 2015-16 254
2004-05 113 2016-17 264
2005-06 117 2017-18 272
2006-07 122 2018-19 280
2007-08 129 2019-20 289
2008-09 137 2020-21 301
2009-10 148 2021-22 317
2010-11 167 2022-23 331
2011-12 184 2023-24 348
2012-13 200 2024-25 363

EXEMPTION u/s 54 For Purchase of New House Property

 Where the Capital Gains exceed Rs.2 Crore ONE RESIDENTIAL HOUSE in India.

 Where the Capital Gains Does Not Exceed Rs.2 Crore TWO RESIDENTIAL HOUSE in India.

NOTE:
1. Purchased within 1 year Before or 2 Years After Date of Transfer.
OR
2. Constructed within Period of 3 years after the Date of Transfer.

Exemption u/s 54EC for Invested in NHAI or REC Bond.

1. The Investment should be made within 6 months from the Date of Transfer.
2. Maximum Investment Should be Rs.50 Lakhs.
3. The Investment Should be for Minimum Period of 5 years.

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QUESTIONS
Q.1 Mr. Gavaskar purchased a Residential house on 1.6.1999 for Rs. 2,00,000. He incurred expenses of
Rs. 1,50,000 towards cost of improvement on 2.7.2003 on this house. The fair market value of the
house on 1.4.2001 was Rs. 5,50,000. He sold the house on 10.10.2024 for Rs. 50,00,000.You are
required to compute his income from capital gain for the Assessment year 2025-26

Q.2 Mr. Kamlesh purchased a house property for Rs. 1,00,000 on 27 August, 1998. He made the following
additions/alterations to the house property.
Cost of construction of 1st floor in Financial Year 2003-04 Rs. 13,00,000
nd
Cost of construction of 2 floor in Financial Year 2010-11 Rs. 14,00,000
Fair Market Value of the property on 1-4-2001 was Rs. 15,00,000. He sold the property on 20th October,
2024 for Rs.1,95,00,000. He paid the brokerage of Rs. 55,000 for the sale transaction.
Compute the Capital gain of Mr. Kamlesh chargeable of tax for the Assessment Year 2025-26.

Q.3 Mr. Parag purchased a residential flat on 02/05/2023 for Rs.10,00,000. He paid on same day the stamp
duty registration charges of Rs.48,750 on purchase of flat. He sold the said flat on 17/03/2025 for
Rs.12,00,000. Compute the Capital gain for A.Y 2025-26.

Q.4 Mr. Dinesh Kamble purchased a House property for Rs. 1,25,000 on 16th August 1991. He made the
following addition to the House Property. Cost of Construction of 1st Floor in Financial Year 2005-06
Rs. 12,25,000. The Fair Market Value of the property on 1-4-2001 was Rs.1 3,50,000. He sold the
property on 15th September 2024 for Rs. 95 lakhs. He paid the brokerage of Rs. 25,000 for the sale
transactions. Compute the capital gain of Mr. Dinesh Kamble chargeable to tax for Assessment Year
2025-26.

Q.5 Mr. C purchased a house in May 1975 for Rs. 1,06,000. The following expenses were incurred by him
on additions to the house.
Particulars Rs.
st
Cost of construction of 1 Floor in 1982-83 3,10,000
Cost of construction of 2nd Floor in 2002--03 7,35,000
Reconstruction of property in 2012-13 5,50,000
Fair Market Value of the house on 1st April, 2001 was 8,50,000. The property was sold for Rs70,00,000
in August, 2024. Expenses incurred on transfer was Rs. 50,000. Compute the taxable Capital Gains in
the hands of Mr. C for the Assessment year 2025-26.

Q.6 Shri Ram Narain owns a residential house which he purchased on 25-6-1998 for Rs. 1,50,000. He
incurred expenses of Rs. 1,50,000.towards cost of Improvement on 20-8-2003 on this residential house.
The fair market value of the house on 1-4-2001 was Rs. 8,00,000.
He sold this house on 12-12-2024 for Rs. 99,00,000.
He purchased a new residential house for Rs. 25,00,000 on 20-3-2025.
Compute the capital gain chargeable to tax for Assessment Year 2025-26.

Q.7 Mr. Vinod Mohite purchased a Residential house on 1.8.1986 for Rs. 2,50,000. He incurred expenses
of Rs. 3,80,000 towards cost of improvement on 2.9.2006 on this house. The fair market value of the
house on 1.4.2001 was Rs. 27,00,000. He sold the house on 10.10.2024 for Rs. 1,25,00,000. He
purchased a new Residential house for Rs. 30,00,000 on 15.1.2025.You are required to compute his
income from capital gain for the Assessment year 2025-26.

Q.8 Mr. Martin Sold his residential house property on 8-6-2024 for Rs 85 Lakhs which was purchased by
him for 20 lakhs on 5-5-2005. He paid 1 lakhs as brokerage for the sale of Said property. He bought

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another house property on 25-12-2024 for Rs 10 lakhs. He deposited Rs 10 lakhs on 10-11-2024 in the
capital gain Bond of National Highway Authority of India (NHAI).Compute Income under the head
“capital gain” for A.Y. 2025-26 as per income Tax Act 1961.

Q.9 Mr. Jayesh Karnik acquired residential property on 1-3-1992 for Rs 2,00,000. Additional information
pertaining to property was as follows:
1) Fair Market value as on 1-4-2001 was Rs 2,40,000.
2) Cost of Improvement made by him
Financial Year Rs
1994-95 50,000
2006-07 1,20,000
2015-16 4,00,000
2016-17 3,80,000
3) He sold residential property on 25-1-2025 for Rs 1,80,00,000.
4) He acquired new residential house for Rs 58,00,000 on 19-03-2025.
5) He also Invested 15,00,000 in Rural Electrification Corporation (REC) Bonds on 20-3-2025.
6) Expenses on Transfer amounted to Rs 75,000.
Compute Taxable Long Term Capital gain assessment year 2025-26.

Q.10 Mr. Rajesh provides the following particular of assets transferred by him during the previous year
ended 31st March 2025. You are required to compute his income form capital gains chargeable to tax
for Assessment year 2025-26.
A residential house in Madurai was purchased on 12th December,2001 at a cost of Rs 18,00,000.
He incurred expenses on improvement of Rs 3,00,000 on the above house during the financial year
2009-10. He sold the above house on 16th March,2025 for Rs 1,21,00,000.
He incurred transfer of expenses of Rs 1,00,000 on the sale transaction.
He purchased 5 year bonds issued by Rural Electrification Corporation (REC) for Rs 50,00,000 on 26th
March,2025.

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