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Capital Gains
The profit on sale of capital asset is treated as capital gains. The capital assets (which are not held as stock-in-trade) are Shares, Debentures, Government securities, Bonds, Units of UTI and Mutual Funds, Immovable property etc.

The capital gains are segregated into long-term capital gains and short- term capital gains in following manner: -

Capital AssetShort-termLong-term
Equity shares, and listed securities Units of Unit Trust of India or Mutual FundsIf held for a period not exceeding 12 months from the date of acquisition.Capital asset which is not a short-term capital assets is long-term capital asset
All other investments and immovable property.If held for a period not exceeding 36 months from the date of acquisition.Capital asset which is not a short-term capital assets is long-term capital asset

For NRIs the tax provisions to compute and pay the capital gains tax are as under:

I. Computation of capital gains in foreign exchange( in the case of shares and debentures of Indian company acquired in foreign currency)
II. Computation of capital gains in rupees (in the case of other assets)
III. Computation of capital gains under special provisions in respect of Specified Assets.


The mode of Computing Capital Gains is as under :
SALE PROCEEDS OF ASSETS XXXX
LESS: COST OF ACQUISITION OF ASSET/
INDEXED COST OF ACQUISITION XXX
CAPITAL GAINS XXXX

Note:
1. Cost of acquisition:
Cost of acquisition in case of long term capital assets other than Specified Assets means Indexed Cost of Acquisition.
2. Indexed Cost of Acquisition:
For long term capital assets other than Debentures and Bonds (except capital index bonds issued by the Government), the Cost of acquisition means Indexed Cost of Acquisition The system helps you to claim higher cost than actual cost of acquisition. The term "indexed cost of acquisition" is the amount which bears, to the cost of acquisition, the same proportion as cost inflation index for the year in which the assest 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 April 1,1981,whichever is later.

Re-investment of capital gains :
Under Normal Provisions: UNDER POINTS I & II ABOVE)
NRIs are entitled to claim exemption from capital gains tax if they reinvests (within 6 months of sale) long-term capital gains into following assets:

1. Residential house property [Section 54F].
2. Bonds of National Bank for Agricultural and Rural Development (NABARD) / National Highway Authority of India (NHAI)/ Rural Electrification Corporation Limited (RECL)/National Housing Bank (NHB)/Small Industries Development Bank of India (SIDBI) (in case of sale of any long term capital asset.) section 54EC]
3. Eligible public issues of equity shares by Indian companies (in case of sale of listed securities) section 54ED].

UNDER SPECIAL PROVISIONS:(under point III above)
As per section 115F(a), long term capital gains from sale of specified assets would be exempt if, within six months, the net consideration is reinvested in any specified asset or savings certificate notified under section 10(4B). If only a proportion is reinvested, proportionate exemption is available.

If the new asset is three years and if it is transferred within a period of three years, the capital gain which was exempted will be liable to be taxed in the year of such transfer of the new asset [section 115F(2)].

SET-OFF OF GAINS AGAINST LOSSES:
When NRI has incurred loss on sale of shares and later when he sells other shares where he has capital gains, in such a case the NRI is eligible to claim set off provided both the transactions are in the same year i.e. during April- March financial year. In this case, NRI can apply for tax exemption certificate prior to the sale of shares of second lot where he has capital gains to ensure set - off and Nil or lower deduction of tax.



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