Question

Under which of the following circumstances may 'capital gains' arise?

1. When there is an increase in the sells of a product

2. When there is a natural increase in the value of the property.

3. When you purchase a painting and there is a growth in its value due to an increase in its popularity.

Select the correct answer using the codes given below:

1. 1 only
2. 2 and 3 only   
3. 2 only
4. 1, 2 and 3

Answer 1

Correct Answer - Option 2 : 2 and 3 only   

The correct answer is 2 and 3 only

• Any profit or gain that arises from the sale of a ‘capital asset’ is a capital gain.
• Capital gains tax is a tax imposed on gains derived from the disposition of capital assets.
• This gain or profit is charged to tax in the year in which the transfer of the capital asset takes place.
•  'Capital Gains' arise when,
  • When there is a natural increase in the value of the property.
  • When you purchase a painting and there is a growth in its value due to an increase in its popularity.
  • Hence statement 2 and 3 are correct.

• The following are not included under capital assets –
  • Any stock, consumables or raw materials that are held for the purpose of business or profession.
  • Goods such as clothes or furniture or paintings which are held for personal use.
  • Land or there is natural increase in property.
  • Special bearer bonds were issued in 1991.
  • Gold bonuses issued by the Central Government.
  • Gold deposit bonds.
  • When there is an increase in the sells of a product. Hence statement 1 is not correct.