Section 48 - Computation of Capital Gains

The income chargeable under the head Capital Gains shall be calculated as under:

Full Value of Consideration (FVOC) received or accruing as a result of transfer

Less: Expenditure incurred wholly and exclusively in connection with such transfer (Transfer Expenses)

Less: Cost of Acquisition (COA) of the asset

Less: Cost of Improvement (COI) of the asset

Less: Amount referred to in section 45(4)                                                                                                                                   

• First proviso to section 48: Capital Gains in case of non-residents
• Assessee who is a non-resident and capital gains arises on transfer of shares or debentures in an Indian company then Capital Gains shall be computed by converting COA, Transfer Expenses and FVOC in the same currency as was initially used in purchase of such shares or debentures. The capital gains so computed in foreign currency shall be reconverted into Indian currency.
• Rule 115A of the Income Tax Rules prescribes the method of conversion 
• COA : Average of TTBR* and TTSR** on the date of acquisition.
• Transfer Expenses : Average of TTBR* and TTSR** on the date of transfer.
• FVOC : Average of TTBR* and TTSR** on the date of transfer.
• Capital Gains : TTBR* on the date of transfer.

• Second proviso to section 48 : Indexation
• This proviso is not applicable in case of first proviso.
• Where capital gains arises on transfer of long term capital asset, then for calculating capital gains Indexed COA and Indexed COI shall be considered instead of COA and COI respectively.
• Indexed COA :

 

• Indexed COI :

• Third proviso to section 48 :
• The 1st and 2nd proviso shall not be applicable in case of transfer of a capital asset being equity share of a company or unit of an equity oriented fund or a unit of a business trust as referred to in section 112A. In simple terms, indexation benefit is not available in case of income chargeable to tax u/s 112A.

• Fourth proviso to section 48 :
• Indexation benefit not available in case of capital gains arising on transfer of bonds or debentures. 
• Benefit of indexation is available in case of capital indexed bonds issued by CG or Sovereign Gold Bond issued by the RBI.

• Fifth proviso to section 48 :
• In case of a non-resident assessee, any gains arising on account of appreciation of rupee against a foreign currency at the time of redemption of rupee denominated bonds of an Indian company held by him, shall be ignored for the purposes of computation of FVOC.
• The above proviso was amended to substitute the word 'held' in place of the word 'subscribed' to include the secondary holders of such bonds in the purview of this benefit.

• Sixth proviso to section 48 :
• FVOC in case of ESOP share shall be the market value of such shares on the date of transfer.

• Seventh proviso to section 48 :
• No deduction shall be allowed for any sum paid on account of STT while computing the income chargeable under the head Capital Gains.

*TTBR : Telegraphic transfer buying rate 

**TTSR : Telegraphic transfer selling rate

CII : Cost Inflation Index