Very Short Questions and Answers
1. Define capital gain.
Capital gains (or losses) are any profits or gains (losses) arising from the disposal or transfer of capital assets. Technically, it is the excess of selling price over the cost (purchase) price of capital assets.
2. List out any three assets included under non-business chargeable assets.
Non-business assets included under non-business chargeable assets are:
(a) land (all types)
(b) building (except some residential buildings) and
(c) securities (all types)
3. Differentiate between business assets and non-business chargeable assets.
Business assets are those assets that are used in business. They are non-depreciable and non-resalable assets of a business. A piece of land used in a business is a business asset.
Non-business chargeable assets, on the other hand, refer to land, buildings, and securities not used in a business.
4. List out any four examples of non-taxable assets.
The examples of non-taxable assets are:
- (a) Personal vehicles.
- (b) Jewellery
- (c) Household goods
- (d) Gains on foreign exchange
5. List out any four items of outgoings in capital gains taxation.
Four items of outgoings in capital gains taxation are as follows:
- Cost of acquisition of an asset.
- Brokerage or registration fees are incurred at the time of purchase.
- Repair and improvement cost.
- Expenses incurred during disposal.
6. Point out any two situations when an asset is said to have been disposed off.
An asset is said to have been disposed of when:
- When the person parts with ownership of the asset.
- When the asset is merged with another asset or liability.
7. Which of the following assets are considered non-business chargeable assets?
a) Business asset.
b) A private building of an individual that has been owned continuously for 5 years and lived by the individual for 2 years.
c) Interest in the retirement of the fund.
d) Land, house, and land or building of an individual disposed of in less than thirty lakh.
Solutions
a) No
b) Yes
c)No
d) No
8. Stall an appropriate type or classification of the following assets.
a) Computer held for resale.
b) Furniture used in the business by a furniture dealer.
c) Household goods.
d) Land used in a business
e) A building of an individual disposed of at Rs 25 lakh
Solutions:
a) Trading stock
b) Depreciable asset
c) Non-taxable asset
d) Business asset
e) Non-taxable asset
Short Questions and Answers
1. State in brief how the term non-business chargeable asset, is defined in Income Tax Act, 2058.
Non-business chargeable asset refers to land, building, an interest in an entity or securities. However, it excludes the following assets: Business assets, depreciable assets, or trading stock.
A private building of an individual that has been owned continuously for ten years or more and lived by the individual continuously or intermittently for a total of ten years or more.
Interest in a retirement fund of a beneficiary.
Land, house, and land or building of an individual disposed of off in less than three million (thirty lakh) rupees [Private building’ refers to building and the land occupied or ‘one ropani land’ whichever is lower] or
The asset of an individual that is disposed of by way of any type of transfer other than sales and purchases made within three generations.
The transfer of ownership within three generations of an individual by virtue of partition in the family or gift to descendent or ascendant does not come under the purview of chargeable assets.
2. Briefly describe the provision related to capital gains taxation.
According to Income Tax Act, 2058, the following assets and liabilities attract tax on capital gains.
- Depreciable assets
- Business assets
- Non-business chargeable assets
In respect of depreciable assets: The capital gains (losses) arise when the block gets dissolved. The block gets dissolved when all assets in the block are disposed of. The capital gains or losses are included in the business or investment heading and accordingly taxed at a normal rate.
In respect of business assets: Net gains from the disposal of business assets are included in business income and taxed at a normal rate.
In respect of non-business chargeable assets: Net gains from the disposal of nonbusiness chargeable assets are included in investment income. If the taxpayer is an individual, he gets an exemption limit and the balance is taxed at a flat rate of 10%. If the taxpayer is an entity, it pays tax at a normal rate.
3. Calculate net capital gains from the following details:
|
Land Shares Net loss on sale of shares was Rs 40,000
|
Total Outgoings | Total Incomings |
| Rs 10,50,000
90,000
|
Rs 1500,000
285,000
|
SOLUTION
Calculation of net capital gains
| Particulars
|
Rs.
|
| Gain on sale of land (Rs 15,00,000 -10,50,000)
Net gain on sale of shares (Rs 285,000-90,000 – 40,000) Net capital gain |
450,000
155,000 |
| Rs 605,000
|
4. Calculate the tax liability of Mr. X from the following details:
Gain on sale of building Rs 13,90,000 (Non-business chargeable)
SOLUTION
| Particulars | Rs |
| First Rs 350,000 (assumed single)
Balance Rs 10,40,000 @ 5%
Total tax liability
|
Nil
52,000 |
| 52,000 |