Capital Gains

Mode of computation of capital gains

In simple terms the capital gains arising as a result of transfer of a capital asset is computable step wise as under :

Step 1: The expenditure incurred wholly and exclusively in connection with such transfer is to be computed.

step 2 : the cost of acquisition of the asset and the cost of improvement to the asset incurred before its transfer is to be computed.

step 3 : the total of the expenditures referred to in step 1 and step 2 above are required to be reduced from the full value of consideration received or accruing as a result of transfer of the capital asset. The resultant figure is the short term capital gains.

Step 4 : it has been provided in the income tax act that where the capital gain is on account of the transfer of a long term capital asset then instead of the " cost of acquisition " and " cost of improvement " , the indexed cost of acquisition and the indexed cost of improvement are to be substituted. The resultant capital gains is the long term capital gains.

step 5 : From the figure of short term capital gains the exemption provided in sections 54B, 54D, and 54G are deductible if applicable to the transaction. In the case of long term capital gains the exemption provided in sections 54, 54B, 54D, 54EA, 54 EB, 54F and 54G are deductible if applicable to the transaction.