“long-term capital asset”

For capital assets acquired by gift or will, the indexed cost of acquisition under Section 48 is computed with reference to the year the previous owner first held the asset. The period of holding for determining if an asset is long-term also includes the previous owner's holding period, as per Section 2(42A).

The deeming fiction in Section 50, which treats capital gains from depreciable assets as short-term, applies only for the purpose of computing capital gains under that section. For other provisions, such as set-off of losses under Section 74 or deductions under Section 54E/54EC, the asset's original character (long-term or short-term) is to be considered.

The 20% tax rate under Section 112 applies to capital gains arising from the transfer of a depreciable asset, even if it is deemed a short-term capital gain under Section 50, provided the asset was held for more than 36 months. The fiction created by Section 50 for treating such gains as short-term does not alter the long-term nature of the asset for applying the tax rate under Section 112.

The word 'purchase' in Section 54(1) and analogous sections like 54F of the Income-tax Act must be given its common, liberal meaning, including acquisition for a price, payment in kind, adjustment of debt, or other monetary consideration. A transfer of a co-owner's share for consideration qualifies as a 'purchase' for claiming capital gains exemption.

Exemption under Section 54 of the Income-tax Act for capital gains invested in a new residential house is not denied even if the construction of the new house commenced before the sale of the original asset.

For capital gains computation, the date of allotment of a residential unit under a construction scheme is the date of acquisition, not the date of agreement or possession. This applies even if possession is delivered later, as the allotment letter confers the right to hold the property.

A residential house for the purpose of Section 54 of the Income Tax Act can include more than one or plural residential houses, prior to April 1, 2015.

Investment in bonds for Section 54EC deduction made within six months from the date of transfer of the original asset is considered proper, even if made in different financial years.