Section 67: capital gains

The basic charge

Section 67(1) charges to income-tax, under the head "Capital gains," any profits or gains arising from the transfer of a capital asset effected in a tax year, treating them as income of the tax year in which the transfer took place - subject to the exceptions in Sections 82 to 89 (the reinvestment/rollover exemption provisions).

Insurance receipts for damaged or destroyed assets

Where a person receives money or other assets under an insurance policy because a capital asset was damaged or destroyed by flood, typhoon, hurricane, cyclone, earthquake or other natural convulsion; riot or civil disturbance; accidental fire or explosion; or enemy action (including action taken in combating an enemy), the resulting profits or gains are chargeable as capital gains of the year of receipt, with the money value or fair market value of the assets received on that date treated as the full value of consideration under Section 72 (Section 67(2)-(4)).

ULIP proceeds, conversion to stock-in-trade, and dematerialised securities

• Amounts (including bonus) received under a unit linked insurance policy that does not qualify for the Schedule II (Table Sl. No. 2) exemption are chargeable as capital gains in the year of receipt, computed in the prescribed manner (Section 67(5)).
• When a capital asset is converted into, or treated as, stock-in-trade of a business, the resulting profit is taxed in the year the stock-in-trade is actually sold or transferred, using the asset's fair market value on the date of conversion as the deemed consideration (Section 67(6)).
• Profits from a depository's transfer of a person's beneficial interest in dematerialised securities are taxed as the beneficial owner's income (not the depository's) in the year of transfer, with cost of acquisition and holding period determined on a first-in-first-out basis (Section 67(7)-(8)).

Contribution of a capital asset to a firm, AOP or BOI

If a person transfers a capital asset to a firm, AOP or BOI (not a company or co-operative society) in which they are or become a partner/member - whether by way of capital contribution or otherwise - the resulting profit or gain is taxed as the transferor's income in the year of transfer, with the amount recorded in the entity's books as the value of the asset deemed to be the full value of consideration (Section 67(9)).

Money or assets received on reconstitution of a firm/entity

Section 67(10)-(11) taxes a specified person who receives money or a capital asset (or both) from a specified entity on that entity's reconstitution, as capital gains income of the specified entity itself, computed by the formula A = B + C − D, where B is the money received, C is the fair market value of any asset received, and D is the balance in the specified person's capital account (excluding revaluation gains and self-generated goodwill/assets) at the time of reconstitution. If the computed value is negative, it is treated as zero.

Enhanced compensation on compulsory acquisition

Where compensation for a compulsory acquisition (or a Central Government/RBI-approved consideration) is later enhanced by a court, tribunal or authority, Section 67(12)-(13) taxes: the original compensation as capital gains of the year first received; the enhancement as capital gains of the year the additional amount is received; any interim-order compensation as income of the year the final order is made; and requires recomputation if the amount is later reduced. The cost of acquisition/improvement for the enhanced portion is taken as nil.

Joint development agreements (land/building)

For an individual or HUF that transfers land or building (or both) under a registered "specified agreement" with a developer, Section 67(14)-(16) taxes the resulting capital gains in the year the completion certificate for the project (or relevant part) is issued by the competent authority - not the year of the agreement - using the stamp duty value of the assessee's share on that date (plus any cash/cheque consideration received) as the full value of consideration. If the assessee transfers their share before the completion certificate is issued, this deferral does not apply and normal timing rules govern instead.

Old Section 80CCB unit repurchase

Section 67(17)-(18) treats the difference between the repurchase price of units under the old Section 80CCB(2) of the Income-tax Act, 1961 and the capital value invested in those units as capital gains, taxable in the year of repurchase or plan termination.

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