Chapter 4: Capital Gains & Corporate Reorganizations
1. Rationalized Holding Periods & Tax Rates (Post-Finance Act)
| Asset Classification | STCA Period | LTCA Period | Applicable Tax Rates |
|---|---|---|---|
| Listed Equity Shares, Units of Equity MF, UTI, Zero Coupon Bonds | $\le$ 12 Months | > 12 Months | • STCG u/s 111A: 20% (increased from 15%) • LTCG u/s 112A: 12.5% in excess of ₹ 1,25,000 |
| Unlisted Shares & All Immovable Properties (Land/Building) | $\le$ 24 Months | > 24 Months | • STCG: Normal slab rates / 30% • LTCG u/s 112: 12.5% without indexation |
| All Other Assets (Jewellery, Debt MFs, Paintings) | $\le$ 24 Months | > 24 Months | • LTCG: 12.5% • Specified Debt MFs (acquired post 1-4-23): Always STCG u/s 50AA |
Grandfathering Rule for Property Acquired before 23 July 2024:
For resident individuals/HUFs transferring land/building acquired before 23-07-2024, tax payable is the LOWER of:
(a) Tax @ 12.5% without indexation, OR
(b) Tax @ 20% with indexation benefit!
For resident individuals/HUFs transferring land/building acquired before 23-07-2024, tax payable is the LOWER of:
(a) Tax @ 12.5% without indexation, OR
(b) Tax @ 20% with indexation benefit!
2. Slump Sale Architecture (Section 50B)
| Step | Item | Statutory Valuation Rule |
|---|---|---|
| Step 1 | Full Value of Consideration (FVC) | Higher of: (a) Actual Consideration agreed, or (b) FMV of undertaking computed under Rule 11AAE (FMV1 vs FMV2). |
| Step 2 | Cost of Acquisition (Net Worth) | • Depreciable assets: Aggregate WDV u/s 43(6). • Non-depreciable assets: Book value. • Revaluation of assets: Completely ignored. • Less: Total outside liabilities at book value. |
| Step 3 | Nature of Capital Gain | If undertaking held $\le$ 36 months: STCG. If held > 36 months: LTCG (No indexation). |
3. Stamp Duty Valuation Safe Harbor (Sec 50C, 43CA, 56(2)(x))
Where the Stamp Duty Value (SDV) does not exceed 110% of the actual sale consideration, the actual consideration is adopted as the Full Value of Consideration.
Safe Harbor Test:
If $ ext{SDV} \le 1.10 imes ext{Actual Consideration} \implies ext{Full Value of Consideration} = ext{Actual Consideration}$.
If $ ext{SDV} > 1.10 imes ext{Actual Consideration} \implies ext{Full Value of Consideration} = ext{Stamp Duty Value (SDV)}$.
Date of Agreement Rule: SDV on the date of agreement can be taken IF at least part of the consideration was received by banking channel (A/c payee cheque, DD, ECS) on or before agreement date.
If $ ext{SDV} \le 1.10 imes ext{Actual Consideration} \implies ext{Full Value of Consideration} = ext{Actual Consideration}$.
If $ ext{SDV} > 1.10 imes ext{Actual Consideration} \implies ext{Full Value of Consideration} = ext{Stamp Duty Value (SDV)}$.
Date of Agreement Rule: SDV on the date of agreement can be taken IF at least part of the consideration was received by banking channel (A/c payee cheque, DD, ECS) on or before agreement date.
4. Master Capital Gains Exemption Table
| Section | Eligible Assessee | Asset Transferred | New Asset to be Acquired | Investment Time Limit & Ceiling |
|---|---|---|---|---|
| Sec 54 | Individual / HUF | Long-Term Residential House | One Residential House in India (Two if CG $\le$ ₹ 2 Cr, once in lifetime) | Purchase: 1 yr before / 2 yrs after; Construct: 3 yrs after. Max cap: ₹ 10 Crores. |
| Sec 54EC | Any Assessee | Long-Term Land or Building | Bonds of NHAI / REC / PFC / IRFC | Within 6 months from transfer date. Max cap: ₹ 50 Lakhs. |
| Sec 54F | Individual / HUF | Any Long-Term Asset (other than residential house) | One Residential House in India | Purchase: 1 yr before / 2 yrs after; Construct: 3 yrs. Exemption = $ ext{LTCG} imes rac{ ext{Amount Invested}}{ ext{Net Consideration}}$. Max cap on investment: ₹ 10 Crores. |
5. Critical Exam Pitfalls
Trap 1: Sec 54EC Bonds 6-Month Deadline!
Investment must strictly be made within 6 months from the date of transfer. If transfer takes place on 31st January, investment must be made on or before 31st July (not end of financial year)!
Investment must strictly be made within 6 months from the date of transfer. If transfer takes place on 31st January, investment must be made on or before 31st July (not end of financial year)!
Trap 2: Depreciable Assets Capital Gains (Section 50)!
Capital gains on depreciable assets are ALWAYS treated as Short-Term Capital Gains, regardless of the period of holding of the asset.
Capital gains on depreciable assets are ALWAYS treated as Short-Term Capital Gains, regardless of the period of holding of the asset.