Section 72 — Mode of computation of capital gains
Old Act equivalent: Section 48 of IT Act 1961 Sub-part: E.—Capital gains
Statutory Text
(1) Income chargeable under the head “Capital gains” shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset, the following amounts:— (a) expenditure incurred wholly and exclusively in connection with such transfer; and thereto. (2) For the purposes of item B of the formula in section 197(3), the provisions of any improvement” had respectively been substituted. (3) In computing the income chargeable under the head “Capital gains”, the following amounts shall not be allowed as a deduction:— (a) the interest claimed as deduction under section 22(1)(b) or under Chapter VIII; (b) any sum paid as securities transaction tax under Chapter VII of the Finance (No. 2) Act, 2004 (23 of 2004). (4) If a unit holder receives any amount from a business trust with respect to a unit not chargeable to tax under section 92(2)(k) or 223(2), then,— and (b) if the transaction of transfer of a unit is not considered as transfer section 73, the amount received with respect to such unit before as well (5) In case of value of any money or capital asset received by a specified person from a specified entity, as referred to in section 67(10), the specified entity, in addition to deductions under sub-section (1), shall also be entitled to a deduction calculated in such manner, as may be prescribed for computing the amount chargeable to income-tax in its hands under that sub-section which is attributable to the transfer of such capital asset. (6) In the case of an assessee, who is a non-resident, capital gains arising from the transfer of a capital asset being shares in, or debentures of, an Indian company (other than equity shares referred to in section 198) shall be computed— exclusively in connection with such transfer and the full value of the consideration received or accruing as a result of the transfer of the capital asset into the same foreign currency as was initially utilised in the purchase of the shares or debentures; and (b) the capital gains so computed in such foreign currency shall be reconverted into Indian currency, so, however, that the said manner of computation of capital gains shall be applicable in respect of capital gains accruing or arising from every re-investment thereafter in, and sale of, shares in, or debentures of, an Indian company. (7) In the case of an assessee who is a non-resident, any gains arising on account of appreciation of rupee against a foreign currency at the time of redemption of rupee denominated bond of an Indian company held by the assessee, shall be ignored for computing the full value of consideration under this section. (8) For the purposes of this section,— (a) “Cost Inflation Index”, in relation to a tax year, means such Index as the Central Government may, having regard to 75% of average rise in the Consumer Price Index (urban) for the immediately preceding tax year to such tax year, by notification, specify, in this behalf; of acquisition, the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the first year in which the asset was held by the assessee or for the year beginning on 1st April, 2001, whichever is later; (c) “indexed cost of any improvement” means an amount which bears to the cost of improvement, the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the year in which the improvement to the asset took place; and (d) the conversion of Indian currency into foreign currency and the reconversion of foreign currency into Indian currency shall be at such rate of exchange as may be prescribed in this behalf. Cost with reference to certain modes of acquisition.
Sub-sections
Sub-section (1)
Income chargeable under the head “Capital gains” shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset, the following amounts:— (a) expenditure incurred wholly and exclusively in connection with such transfer; and thereto.
Sub-section (2)
For the purposes of item B of the formula in section 197(3), the provisions of any improvement” had respectively been substituted.
Sub-section (3)
In computing the income chargeable under the head “Capital gains”, the following amounts shall not be allowed as a deduction:— (a) the interest claimed as deduction under section 22(1)(b) or under Chapter VIII; (b) any sum paid as securities transaction tax under Chapter VII of the Finance (No. 2) Act, 2004 (23 of 2004).
Sub-section (4)
If a unit holder receives any amount from a business trust with respect to a unit not chargeable to tax under section 92(2)(k) or 223(2), then,— and (b) if the transaction of transfer of a unit is not considered as transfer section 73, the amount received with respect to such unit before as well
Sub-section (5)
In case of value of any money or capital asset received by a specified person from a specified entity, as referred to in section 67(10), the specified entity, in addition to deductions under sub-section (1), shall also be entitled to a deduction calculated in such manner, as may be prescribed for computing the amount chargeable to income-tax in its hands under that sub-section which is attributable to the transfer of such capital asset.
Sub-section (6)
In the case of an assessee, who is a non-resident, capital gains arising from the transfer of a capital asset being shares in, or debentures of, an Indian company (other than equity shares referred to in section 198) shall be computed— exclusively in connection with such transfer and the full value of the consideration received or accruing as a result of the transfer of the capital asset into the same foreign currency as was initially utilised in the purchase of the shares or debentures; and (b) the capital gains so computed in such foreign currency shall be reconverted into Indian currency, so, however, that the said manner of computation of capital gains shall be applicable in respect of capital gains accruing or arising from every re-investment thereafter in, and sale of, shares in, or debentures of, an Indian company.
Sub-section (7)
In the case of an assessee who is a non-resident, any gains arising on account of appreciation of rupee against a foreign currency at the time of redemption of rupee denominated bond of an Indian company held by the assessee, shall be ignored for computing the full value of consideration under this section.
Sub-section (8)
For the purposes of this section,— (a) “Cost Inflation Index”, in relation to a tax year, means such Index as the Central Government may, having regard to 75% of average rise in the Consumer Price Index (urban) for the immediately preceding tax year to such tax year, by notification, specify, in this behalf; of acquisition, the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the first year in which the asset was held by the assessee or for the year beginning on 1st April, 2001, whichever is later; (c) “indexed cost of any improvement” means an amount which bears to the cost of improvement, the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the year in which the improvement to the asset took place; and (d) the conversion of Indian currency into foreign currency and the reconversion of foreign currency into Indian currency shall be at such rate of exchange as may be prescribed in this behalf. Cost with reference to certain modes of acquisition.
Provisos
None.
Explanations
None.
Tables
Table 1:
(b) the cost of acquisition of the asset and the cost of any improvement
Table 2:
sub-section (1) shall have effect as if for the words “cost of acquisition” and “cost
Table 3:
of any improvement”, the words “indexed cost of acquisition” and “indexed cost of
Table 4:
that is not in the nature of income under Schedule V (Table: Sl. No. 3 or 4) and is
Table 5:
(a) such amount shall be reduced from the cost of acquisition of such unit;
Table 6:
under section 70 and cost of acquisition of such unit is determined under
Table 7:
as after such transaction, shall be reduced from the cost of acquisition.
Table 8:
(a) by converting the cost of acquisition, expenditure incurred wholly and
Table 9:
(b) “indexed cost of acquisition” means an amount which bears to the cost
Key Structure
- Applies to: All assessees; special rules for non-residents (sub-sections 6 and 7) and unit holders of business trusts (sub-section 4).
- Asset type: All capital assets; specific provisions for shares and debentures of Indian companies (non-resident), rupee denominated bonds (non-resident), units of business trusts, and assets received from specified entities under section 67(10).
- Conditions: Capital gains computed by deducting from full value of consideration: (a) expenditure incurred wholly and exclusively in connection with transfer, and (b) cost of acquisition and cost of improvement; for long-term assets, indexed cost of acquisition and indexed cost of improvement replace actual cost.
- Time limits: Cost Inflation Index base year is 1st April, 2001 or the first year the asset was held by the assessee, whichever is later.
- Monetary limits: None specified in this section.
- Exceptions: Interest claimed as deduction under section 22(1)(b) or Chapter VIII not allowable; securities transaction tax paid under Finance (No. 2) Act, 2004 not deductible; for non-residents, computation must be done by converting to original foreign currency and reconverting to Indian currency; rupee appreciation gains on rupee denominated bonds ignored for non-residents.
Cross-References
- s067-charging — section 67(10) governs specified person receiving money or capital asset from specified entity, with additional deduction under sub-section (5).
- s070-exempt-transfers — section 70 referenced for determining whether transfer of business trust unit is exempt.
- s073-cost-acquisition — sections 72 and 73 work together; indexed cost of acquisition and cost of improvement defined here replace cost determined under section 73.
- s197 — section 197(3) formula item B references indexed cost computation under sub-section (2).
- s198 — non-resident computation under sub-section (6) excludes equity shares referred to in section 198.
- Section 22(1)(b) (not yet ingested) — interest deduction disallowed from capital gains computation.
- Section 92(2)(k) and 92(2)(m) (not yet ingested) — business trust distributions and property valuations referenced in sub-sections (4) and (5).
- Section 223(2) (not yet ingested) — referenced for business trust unit holder distributions.
Amendment Notes
None noted from the extracted pages.