Online CA Services | EXCEPTIONS TO SECTION 45(1)

EXCEPTIONS TO SECTION 45(1)

EXCEPTION TO SECTION 45(1):

As per Section 45(1), Capital Gain is chargeable to tax in the year of transfer, but in the following cases Capital Gain is not taxable in the year of transfer:

Section 45(1A): Insurance claims for Damage or Destruction of Capital Asset:

Normally Capital Gain is taxed in the year of transfer but in case of destruction of Capital Asset, Capital Gain will be taxable in the year in which insurance claim is received.

Capital Asset is destroyed due to fire, flood, earthquake, tsunami, riot, civil disturbance, enemy action or any other calamity and insurance claim is received the capital gain is applicable. Hence, if no claim received, no capital gain will arise.

Computation of Capital Gain 45(1A)

Particulars	Amount (in Rs.)
Full value of consideration (Insurance Claim)	xxx
Less: Cost of Acquisition/ indexed cost of acquisition	xxx
Less: Cost of improvement/ indexed cost of improvement	xxx
STCG/ LTCG	xxx

Section 45(2): Conversion of Capital Asset into Stock in Trade:

Conversion of Capital Asset into stock-in-trade is treated as transfer, capital gain shall arise where an assessee converts capital asset into stock-in-trade.

Capital Gain shall be taxable in the year in which such stock-in-trade is sold.

Capital Gain	Rs.	PGBP	Rs.
Full value of consideration (FMV on date of conversion)	xxx	Sale Price of stock in trade	xxx
(-) Cost of acquisition/ Indexed cost of acquisition	xxx	(-) Fair Market Value of Asset as on date of transfer	xxx
(-) Cost of improvement/ indexed cost of improvement	xxx
STCG/LTCG	xxx	PGBP	xxx

NOTES:

	If any part of stock-in-trade is sold, then only part capital gain shall arise in the year in which part stock-in-trade is sold.
	In case of conversion of capital asset into stock and subsequent sale of stock, period of 6 months shall be calculated from the date of sale of stock for the purpose of exemption u/s 54EC.

Section 45(2A): Transfer in Securities held in D-MAT:

Capital Gain is applicable in hands of beneficial owner (i.e. shareholder). The Cost of Acquisition and period of holding shall be determined on the basis of First-in-First-out (FIFO) method.

NOTES:

	The date of transfer & period of holding does not change even when securities held in D-MAT form.
	FIFO method applied only for D-MAT securities & not for physical securities.
	If investor held multiple D-MAT accounts the FIFO applied account wise.
	In D-MAT, of old physical stock is dematerialized, under FIFO method, the basis for determining the movement out of the A/c is the date of entry into A/c.

Section 45(3): Capital Gain on transfer of capital asset by a partner/ member to Firm/ AOP/ BOI:

The profits or gains arising from transfer of a Capital Asset by a person to a firm or a AOP or a BOI in which he is or becomes a partner or member, by way of capital contribution or otherwise, shall be his income of the year in which such transfer took place and for the purpose of Section 48, full value of consideration will be the amount recorded in the books of accounts of the Firm/AOP/BOI as the value of capital asset.

Section 45(4): Capital Gain on transfer of capital asset by a Firm/ AOP/ BOI to partner/member:

Where a Partner receives during the Previous Year any money or capital asset or both from a firm in connection with the reconstitution, then any profits or gains arising from such receipt shall be chargeable to tax as income of firm under the head “Capital Gains” in the Previous Year in which assets received by partner.

Computation of Capital Gain 45(4)

Particulars	Amount (in Rs.)
Value of money on date of receipts (B)	xxx
Add: Fair Market Value (FMV) of Capital Assets on date of receipt (C)	xxx
TOTAL	xxx
Less: Partner capital account balance at the time of reconstruction (D)	xxx
Capital Gain	xxx

Section 45(5): Compensation on compulsory acquisition under any law:

Normally Capital Gain is taxed in the Year of transfer but in case of compulsory acquisition of Capital Asset, Capital Gain will be taxable in the year in which compensation is received.

FOR INTIAL COMPENSATION	Rs.	FOR ENCHANCED COMPENSATION	Rs.
Full value on consideration (Initial Compensation)	xxx	Full value of consideration (enhanced compensation)	xxx
(-) Cost of acquisition/ indexed acquisition	xxx	(-) Litigation expenses	xxx
(-) Cost of Improvement/ indexed improvement.	xxx
STCG/ LTCG	xxx	STCG/ LTCG	xxx

NOTES:

S.NO	EXPLANATION
	In case of initial compensation, it will be taxable in the year in which first installment is received.
	In case of enhanced compensation, it will be taxable as and when received.
	If any enhance compensation is received due to the interim order of any court, then such compensation shall not be taxable in the year of receipt but shall be taxable in the year in which final order is passed by such court or other authority.
	Any interest received on late compensation shall be taxable under IFOS in the year of receipt & 50% deduction will be allowed u/s 57.
	If compensation is reduced by any court or authority the rectification has to be made to give effect of the same.
	Nature of capital gain of Enhanced Compensation will be same as that of Initial Compensation.
	If due to death of transferor, the enhanced compensation is received by any other person. In that case, the enhanced compensation will be taxable under Capital Gains of such other person.
	Any Capital Gains arising to an Individual or HUF on compulsory acquisition of urban agriculture land shall be exempt from tax provided such land has been used for agricultural purposes during the preceding 2 years by Individual or his parents or by such HUF.

Section 45(5A): Capital Gain in case of Joint Development Agreement (JDA):

In case of Individual or HUF, who entered into a Joint Development Agreement for the development of project, the capital gain on transfer of Land or Building or Both, shall be taxable in the year in which certificate of completion (CC) of the whole or part of the project issued by Competent Authority.

NOTES:

S.NO	EXPLANATION
	Year of Transfer: Year in which possession of immoveable property is transfer in JDA.
	Year of Tax: Year in which Certificate of Completion issued by competent authority.
	Full Value of Consideration: SDV on the date of issue of Certificate of Completion of his share in project + money received.
Above provision does not apply if assessee transfer his share in project on or before the date of issue of completion of certificate and capital gain will be taxable in the year in which transfer took place i.e. possession transfer in JDA.

EXCEPTIONS TO SECTION 45(1)

EXCEPTIONS TO SECTION 45(1)

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