Capital gains

Capital gains is one of the five heads of income under the Indian Income Tax Act, 1961. The following is a brief explanation of each section under Capital gains:

• Section 45: Chargeability of Capital Gains; This section deals with the chargeability of capital gains to tax. It specifies that any profit or gain arising from the transfer of a capital asset shall be taxable under this head, subject to certain exemptions and deductions.
• Section 48: Mode of Computation of Capital Gains; This section specifies the method for computing the taxable capital gains. It allows for various deductions such as the cost of acquisition, cost of improvement, and expenses incurred in connection with the transfer.
• Section 49: Cost with Reference to Certain Modes of Acquisition; This section deals with the determination of the cost of acquisition of a capital asset acquired by certain modes such as inheritance, gift, or conversion of stock-in-trade into capital asset.
• Section 54 to 54H: Exemptions from Capital Gains; These sections provide for various exemptions from the taxable capital gains, subject to certain conditions. For example, Section 54 allows for exemption from capital gains tax on the sale of a residential property if the proceeds are used to purchase another residential property.
• Section 111A: Taxation of Short-Term Capital Gains on Listed Securities; This section deals with the taxation of short-term capital gains arising from the sale of listed securities, such as shares, units of equity-oriented mutual funds, and business trust units.
• Section 112: Taxation of Long-Term Capital Gains; This section deals with the taxation of long-term capital gains arising from the sale of various types of assets such as shares, units of equity-oriented mutual funds, and immovable property.
• Section 115F to 115-I: Taxation of Non-Residents; These sections deal with the taxation of capital gains arising from the transfer of capital assets by non-residents. The tax rates and other provisions may differ from those applicable to residents.
• Section 115JB: Taxation of Minimum Alternate Tax (MAT); This section deals with the taxation of companies that are not liable to pay any tax or whose tax liability is less than the prescribed MAT. The tax liability is calculated based on a percentage of the book profits of the company, subject to certain adjustments.
• Section 115-O: Taxation of Dividend Distribution Tax (DDT); This section deals with the taxation of DDT, which is the tax paid by companies on the dividends distributed to their shareholders. The tax rate and other provisions are specified under this section.
• Section 115QA to 115QC: Taxation of Buyback of Shares;  These sections deal with the taxation of buyback of shares by companies. The tax implications and provisions related to the buyback are specified under these sections.
• Section 194LBA: Tax Deduction at Source (TDS) on Income from Units of Business Trust; This section deals with the TDS provisions applicable to income received by unit holders from business trusts. The tax rate and other provisions are specified under this section.
• Section 194M: TDS on Payment to Contractors and Professionals; This section deals with the TDS provisions applicable to certain payments made to contractors and professionals. The tax rate and other provisions are specified under this section.

Question:

Mr. X sold a piece of land on 1st January 2022 for Rs. 10,00,000. He had purchased the land on 1st January 2010 for Rs. 5,00,000. He incurred expenses of Rs. 20,000 on transfer of land. Calculate the taxable capital gains for the assessment year 2022-23.

Solution:

The calculation of taxable capital gains from the sale of land is shown. The sale price of the land is Rs. 10,00,000 and the purchase price is Rs. 5,00,000, resulting in long-term capital gains of Rs. 5,00,000. The expenses incurred on the transfer of land are Rs. 20,000, which are deducted from the capital gains, resulting in a total taxable capital gains of Rs. 4,80,000. This amount will be subject to capital gains tax, as per the applicable rates and provisions of the Income Tax Act.