Method of Computation - Section 48 - Income Tax - Ready Reckoner - Income Tax

Section 48 : Method of Computation of Capital Gains The 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, namely :- ( i ) expenditure incurred wholly and exclusively in connection with such transfer; ( ii ) the cost of acquisition of the asset and the cost of any improvement thereto The cost of acquisition of the asset or the cost of improvement thereto shall not include the deductions claimed on the amount of interest under section 24(b) or under the provisions of Chapter VIA. [Proviso added by the Finance Act, 2023 ]. Deduction from cost of acquisition of a unit of a business trust - The cost of acquisition of a unit of a business trust has to be reduced by any sum received by a unit holder from the business trust with respect to such unit, which is not in the nature of interest and dividend referred to in section 10(23FC) or rental Income referred to in section 10(23FC) and which is not chargeable to tax in the hands of unit holders under section 56(2)(x) and in the hands of business trust u/s 115UA(2). Where transaction of transfer of a unit is not considered as transfer under section 47 and cost of acquisition of such unit is determined under section 49, sum received with respect to such unit before such transaction as well as after such transaction has to be reduced from the cost of acquisition. (iii) in case of value of any money or capital asset received by a specified person from a specified entity referred to in section 45(4), the amount chargeable to income-tax as income of such specified entity under that sub-section which is attributable to the capital asset being transferred by the specified entity, calculated in the prescribed manner [Amendment made by the Finance Act, 2021 ]. Computation of capital gain depends upon the nature of capital asset transferred i.e. short term capital asset or long term capital asset. The tax incidence is higher in the case of short term capital gain as compared to long term capital gain. Computation of SHORT TERM CAPITAL GAIN Full value of consideration Less: expenditure incurred wholly and exclusively in connection with such transfer cost of acquisition cost of improvement From gross short term capital gain deduct the exemption provided by sections 54B , 54D , 54G and 54GA . The balancing amount is Short Term Capital Gain . Computation of LONG TERM CAPITAL GAIN Full value of consideration Less: expenditure incurred wholly and exclusively in connection with such transfer indexed cost of acquisition indexed cost of improvement From the resulting sum deduct the exemption provided by sections 54 , 54B , 54D , 54EC , 54EE , 54F , 54G , 54GA and 54GB . The balancing amount is Long Term Capital Gain . Exceptions First Proviso section 48 : Computation of capital gain in case of non-resident who transferred the shares/debentures of an Indian company which were acquired in foreign currency : 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 shall be computed by converting - a) the cost of acquisition, b) expenditure incurred wholly and exclusively in connection with such transfer and c) 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 the capital gains so computed in such foreign currency shall be reconverted into Indian currency, so, however, that the aforesaid manner of computation of capital gains shall be applicable in respect of capital gains accruing or arising from every reinvestment thereafter in, and sale of, shares in, or debentures of, an Indian company Second Proviso to Section 48 : Cost of Acquisition/ Cost of Improvement to be indexed in case of long term capital asset unless otherwise specified : Where long-term capital gain arises from the transfer [ (which takes place before the 23rd day of July, 2024) Inserted vide Finance (No. 2) Act, 2024 w.e.f. 23.07.2024 ] of a long-term capital asset, ( other than capital gain arising to a non-resident from the transfer of shares in, or debentures of, an Indian company referred to in the first provi so), the provisions of clause ( ii ) of section 48 shall have effect as if for the words cost of acquisition and cost of any improvement , the words indexed cost of acquisition and indexed cost of any improvement had respectively been substituted. This means an amount which bears to the cost of acqiuisition, the same proportion as CII for the year in which the asset is transferred bear to the CII the first year in which the asset was held by the assessee or for the year beginning on 1st April 2001, whichever is later. Indexation of COA/COI not allowed in certain cases : The second proviso shall not apply to the long-term capital gain arising from the transfer of a long-term capital asset, being a bond or debenture other than- (a) capital indexed bonds issued by the Government; or (b) Sovereign Gold Bond issued by the Reserve Bank of India under the Sovereign Gold Bond Scheme, 2015. [ Fourth Proviso to Section 48 ] In case of depreciable assets, unit of a specified mutual fund and marked linked debenture, there will be no indexation and the capital gain will always be short-term capital gains. Third Proviso to Section 48 : First and second provisos not to apply in case of long-term capital asset referred to in section 112A : The first and second provisos shall not apply to the capital gains arising from the transfer of a long-term capital asset being: (i) an equity share in a company; or (ii) a unit of an equity oriented fund; or (iii) a unit of a business trust referred to in section 112A . Rupee Denominated Bond (RDB) Appreciation of rupee against a foreign currency to be ignored at the time of redemption of Rupee Denominated Bond (RDB) In case of an assessee being 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 him, shall be ignored for the purposes of computation of full value of consideration under this section. The benefit of indexation and currency fluctuation would not be applicable to the long-term capital gain arising from the transfer of the following assets referred to in section 112A Equity share in a company on which STT is paid both at the time of acquisition and transfer unit of equity oriented fund or unit of business trust on which STT is paid at the time of transfer. [ Fifth Proviso to Section 48 ] Sixth Proviso to Section 48 : Where shares, debentures or warrants referred to in the proviso to clause ( iii ) of section 47 are transferred under a gift or an irrevocable trust, the market value on the date of such transfer shall be deemed to be the full value of consideration received or accruing as a result of transfer for the purposes of this section. Seventh Proviso to Section 48 : No deduction shall be allowed in computing the income chargeable under the head Capital gains in respect of any sum paid on account of securities transaction tax.