Simplified Laws Guide to Taxation and Legal Concern
Generally revenue receipts are taxable under Income Tax Act. However, capital receipts from the transfer of a capital asset are taxable as capital gain tax. Does that mean gains from sale of all assets are taxable? Not really. The Act has clearly defined the meaning of capital asset. Let’s understand the inclusions and exclusions in the definition of capital assets.
The following are not a capital asset:
- Stock-in-Trade or Inventory – Any stock-in-trade (inventory), consumable stores or raw materials held for the purpose of business or profession is not a capital asset.
- Motor Car or furniture at home – Personal effects, i.e., movable property, including wearing apparel, furniture at home, motor car or any other vehicle held for personal use are not a capital asset.
- Agricultural Land – situated in India other than lands situated in urban areas are exempt from capital gain tax.
- Gold Bonds are not capital assets – Gold Bonds issued by the Central government are not capital assets. It is not necessary that the assessee should be the initial subscriber to the Gold Bonds. Similarly, Special Bearer Bonds, 1991 and Gold Deposit Bonds, 1999 are also not considered as capital assets.
The following are capital assets –
- All assets other than mentioned above in point 1 to 4, are considered as capital asset, including site/plot, flat, house, commercial building, plant and machinery, equipment, etc. Some of the assets used at home/personal use which are specifically covered as capital asset are given in point 6 and 7
- Jewellery, Sculptures, Painting or drawings – These items are called capital asset and hence gain from its sale are subject to capital gain tax. Jewellery includes ornaments made of gold, silver, platinum or any other precious metal, precious and semi-precious stones whether kept loose or embedded in jewellery, furniture, wearing apparel, utensils or any other article.
- Gold or silver articles used for Puja – Gold and silver articles used for puja are treated as capital asset and the gain from such sale is taxable
Transfer of capital Asset – We have understood about the capital assets. The profit or gain on transfer of capital asset is taxable. Now let us examine the definition of ‘Transfer of capital asset’.
Transfer includes sale, exchange or relinquishment of the asset or the extinguishment of any rights therein or the compulsory acquisition thereof under any law. So, transfer means
- A sale takes place when title in the property is transferred for a price.
- An exchange involves the transfer of property by one person to another and reciprocally the transfer of property by that other person to the first person. Thus, there must be a mutual transfer of ownership of one thing for the ownership of another.
- Relinquishment of a capital asset arises when the owner surrenders his rights in a property in favor of another person.
- Extinguishment of any right in the asset
Transfer also includes –
- Distribution of capital asset on dissolution of a firm – is chargeable to tax, as it amounts to transfer.
- compulsory acquisition of a capital asset is also considered as ‘transfer’
- Any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract is also considered as transfer. (Like property transaction through Joint Development Agreement)
Transfer does not include –
- Transfer of assets under WILL or a Gift – If any capital asset is transferred under a Will or a gift, there is no transfer for the purpose of capital gains.
- Family partition/ settlement – Where a family settlement is arrived in order to avoid continuous friction and to have peace among the family members then such bona fide realignment of interest among the family members does not amount to transfer.
Thought for the day
Forgive others not because they deserve forgiveness, but because you deserve peace.
