Unit 3: Capital gains & other sources
Direct and Indirect Tax Laws notes · PTU syllabus (BBA 622-18)
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Unit summary
Capital gains arise when assets are sold; other sources catch everything else. This unit covers short- and long-term capital gains and their computation, exemption under Section 54, income from other sources, clubbing of income, set-off and carry forward of losses, and deductions under Chapter VI-A (Section 80).
After this unit you can
- Classify capital assets as short-term or long-term and compute capital gains
- Explain exemptions under Section 54
- Explain income from other sources and clubbing provisions
- Apply set-off and carry-forward rules and Section 80 deductions
PTU syllabus topics
- Short-term and long-term capital gains
- exemptions under Section 54
- income from other sources
- clubbing of income
- setting off and carrying forward losses
- deductions under Section 80
Holding period (listed shares)
12 months or less
More than 12 months
Holding period (other assets, broadly)
24 months or less
More than 24 months
Tax treatment
Often at normal or special rates
Concessional rates; exemptions like Section 54
Topic 1
Capital gains (Section 45)
Profit or gain arising from the transfer of a capital asset is taxable as capital gains in the year of transfer.
- Capital asset: property of any kind held by the assessee, excluding stock-in-trade, personal effects (except jewellery, paintings, sculptures), and rural agricultural land.
Listed shares, equity MF units
Held 12 months or less
Held more than 12 months
Other assets (land, building, unlisted shares)
Held 24 months or less
Held more than 24 months
Indexation
Not available
Removed for transfers on or after 23 July 2024 (with a grandfathering option for land/building acquired before that date by individuals/HUFs)
Computation
- 1
Full value of consideration
- 2
Less: expenses on transfer (brokerage, commission)
- 3
Less: cost of acquisition
- 4
Less: cost of improvement
- 5
Capital gain
- 6
Less: exemptions (Sections 54, 54EC, 54F)
Rates (after Finance (No. 2) Act, 2024)
- STCG on listed equity (Section 111A): 20%.
- LTCG on listed equity (Section 112A): 12.5% on gains above ₹1.25 lakh a year.
- Other LTCG (Section 112): 12.5% without indexation.
- Other STCG: normal slab rates.
Example
Land bought in 2018 for ₹20 lakh, sold in 2025 for ₹45 lakh, brokerage ₹50,000. LTCG = 45,00,000 − 50,000 − 20,00,000 = ₹24,50,000 taxed at 12.5%.
Exam tip
Tax rates on capital gains were changed in 2024 — mention the year when you state rates.
Topic 2
Exemption under Section 54 and related sections
- Section 54: LTCG on sale of a residential house by an individual/HUF is exempt if invested in one residential house in India — purchased 1 year before or 2 years after, or constructed within 3 years. Exemption is capped at ₹10 crore. Option of two houses once in a lifetime if gain ≤ ₹2 crore.
- Capital Gains Account Scheme: unused amount deposited in a bank before the due date of filing the return.
- Section 54EC: LTCG on land or building invested in specified bonds (NHAI, REC etc.) within 6 months, up to ₹50 lakh, 5-year lock-in.
- Section 54F: LTCG on any asset other than a house, invested in a residential house — exemption proportionate to net consideration invested.
- Section 54B: transfer of agricultural land used for agriculture, reinvested in agricultural land.
Topic 3
Income from other sources (Section 56)
Residual head — income not taxable under any other head.
- Dividends (taxable in the hands of shareholders).
- Interest on bank deposits, securities, NSC.
- Winnings from lotteries, crossword puzzles, races, card games, online games — taxed at a flat 30% (Section 115BB/115BBJ) with no deductions.
- Gifts: money or property received without consideration exceeding ₹50,000 in a year is taxable — exempt if from relatives, on marriage, by will or inheritance.
- Family pension: deduction of one-third or ₹15,000 (₹25,000 under the new regime), whichever is less.
- Rent from letting machinery or plant.
- Interest on compensation or enhanced compensation (50% deduction).
Topic 4
Clubbing of income (Sections 60–64)
Income of another person is included in the assessee's total income to prevent tax avoidance.
| Section | Situation | Clubbed in hands of |
|---|---|---|
| 60 | Transfer of income without transfer of asset | Transferor |
| 61 | Revocable transfer of assets | Transferor |
| 64(1)(ii) | Remuneration of spouse from a concern where the individual has substantial interest (unless due to technical or professional qualification) | The individual |
| 64(1)(iv) | Income from assets transferred to spouse without adequate consideration | Transferor spouse |
| 64(1)(vi) | Income from assets transferred to son's wife | Transferor |
| 64(1A) | Income of a minor child (exemption ₹1,500 per child) | Parent with higher income |
- Income of a minor from manual work, skill, talent or specialised knowledge, or of a minor suffering from disability, is not clubbed.
Topic 5
Set-off and carry forward of losses (Sections 70–80)
- 1Intra-head set-off (Section 70)
Within the same head
- 2Inter-head set-off (Section 71)
Against other heads
- 3Carry forward
Unabsorbed losses to future years
| Loss | Inter-head set-off | Carry forward | Set off against |
|---|---|---|---|
| House property | Up to ₹2 lakh | 8 years | House property only |
| Business (non-speculative) | Yes, except against salary | 8 years | Business income |
| Speculative business | No | 4 years | Speculative income only |
| STCL | No | 8 years | STCG or LTCG |
| LTCL | No | 8 years | LTCG only |
| Owning race horses | No | 4 years | Same activity |
| Unabsorbed depreciation | Yes (except salary) | Indefinitely | Any head except salary |
- Losses can be carried forward only if the return of loss is filed by the due date (except house property loss and unabsorbed depreciation).
- Loss from lotteries and casual income cannot be set off.
Topic 6
Deductions under Chapter VI-A (Section 80)
| Section | Deduction | Limit |
|---|---|---|
| 80C | LIC, PPF, ELSS, EPF, tuition fees, home-loan principal, NSC | ₹1,50,000 |
| 80CCD(1B) | Additional NPS contribution | ₹50,000 |
| 80CCD(2) | Employer's NPS contribution | 14% of salary (new regime) / 10% (old) |
| 80D | Health insurance premium | ₹25,000 (₹50,000 for senior citizens) + parents |
| 80DD / 80U | Disabled dependant / self | ₹75,000 (₹1,25,000 for severe disability) |
| 80E | Interest on education loan | No limit, 8 years |
| 80G | Donations to approved funds | 50% or 100%, with or without limit |
| 80TTA | Savings bank interest | ₹10,000 |
| 80TTB | Interest for senior citizens | ₹50,000 |
Exam tip
Most Chapter VI-A deductions are available only under the old regime; under the new regime, mainly 80CCD(2) is allowed.
Key terms
- Capital asset
- Property held by an assessee, excluding stock-in-trade and personal effects
- Section 54
- Exemption on LTCG from a residential house reinvested in another house
- Clubbing of income
- Including another person's income in the assessee's total income
- Set-off
- Adjusting a loss against income in the same year
- Carry forward
- Taking unabsorbed losses to future years
Quick revision
- Listed equity: long-term after 12 months; others after 24 months.
- From 23 July 2024: STCG on equity 20%, LTCG 12.5% (equity exempt up to ₹1.25 lakh).
- Section 54: house to house; 54EC: bonds up to ₹50 lakh.
- Gifts above ₹50,000 from non-relatives are taxable.
- Most losses carry forward for 8 years; speculative 4 years.
Important exam questions
Practice questions written to the PTU exam pattern for this unit's syllabus: short answers (Section A style) and long answers (Sections B and C style).
Short-answer questions
- Q1.What is a capital asset?
- Q2.Distinguish STCA and LTCA.
- Q3.State the conditions for exemption under Section 54.
- Q4.Give two examples of income from other sources.
- Q5.What is clubbing of income?
- Q6.Which losses cannot be set off against salary?
Long-answer questions
- Q1.Explain the computation of capital gains with an example.
- Q2.Explain the exemptions available under Sections 54, 54EC and 54F.
- Q3.Explain the provisions of clubbing of income.
- Q4.Discuss the provisions for set-off and carry forward of losses.
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