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Computation of Capital Gains

Computation of Capital Gains

Full Value of Consideration

This is the amount for which a capital asset is transferred. It may be in money or money’s worth or a combination of both.

Where the transfer is by way of exchange of one asset for another, Fair Market Value of the asset received is the Full Value of Consideration. Where the consideration for the transfer is partly in cash and partly in kind, Fair Marker Value of the kind portion and cash consideration together constitute Full Value of Consideration.

Where the capital asset transferred is land or buildings or both, if the full value of consideration received or accruing is less than the value adopted or assessed by Stamp Valuation Authority the value adopted by such authority would be taken as the full value of consideration.

If an assessee does not dispute such valuation by the Stamp Valuation Authority, but claims before the assessing officer that it is more than Fair Market Value, assessing officer may refer the case to the valuation officer. If the Fair Market Value (FMV) given by the valuation officer is less than the value for stamp duty purpose, the FMV would be taken as the full value of consideration. If FMV is more than the value for stamp duty purpose, the value for stamp duty purpose would be taken as the full value of consideration.

Where shares, debentures or warrants allotted by a company to its employees under Employees’ Stock Option Plan or Scheme are transferred under a gift or an irrevocable trust, the market value on the date of transfer would be the full value of consideration.

Cost of Acquisition

Cost of acquisition of an asset is the sum total of amount spent for acquiring the asset.

Where the asset was purchased, the cost of acquisition is the price paid. Where the asset was acquired by way of exchange for another asset, the cost of acquisition is the Fair Market Value of that other asset as on the date of exchange.

Any expenditure incurred in connection with such purchase, exchange or other transaction eg. brokerage paid, registration charges and legal expenses etc.., also forms part of cost of acquisition.

If advance is received against agreement to transfer a particular asset and it is retained by the tax payer or forfeited for other party’s failure to complete the transaction, such advance is to be deducted from the cost of acquisition.

Computation of Capital Gains

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