Advance tax is payable on capital gain Income also


Advance tax is payable on capital gain Income also


[Query 1]

As the share market is at an all time high, I may book some profit in coming days on shares & mutual funds. I have few queries as under:

  1. Whether I can claim the profit arising from sale by investing the amount in capital gain bonds as I don’t wish to invest in house property?


  1. If I decide not to invest (as capital gain tax is meager @10%) then please guide as to whether I am liable to pay advance tax?  It may happen that some capital gain may arise after 15th Whether I will be liable to pay the advance tax even if the capital gain income is earned after 15thDecember or I will be required to consider the same for payment of the 3rd installment of advance tax of 15th March? Whether interest is applicable even if the advance tax is not paid in respect of capital gain income? Can interest be exempt if the income arises after the due date of advance tax payment? Whether agricultural income is also to be considered for arriving at the figure of advance tax payment?


  1. Whether I can claim the loss as few shares like Videocon, optocircuit got delisted?




  1. Investment in Capital Gain Bonds:
    Capital gain exemption under section 54EC by way of investment in the REC/PFC/IRFC bonds U/s 54EC is available only if the capital gain arises from transfer of land or building.  It is not available in respect of gain arising from transfer of shares/mutual funds.
  2. Liability of Advance Tax Payment:
    i) Taxpayers have to pay the tax in advance in four installments i.e., on or before 15th June (15%), 15th Sept (45%), 15th Dec (75%) & 15th March (100%). Though minor variation is allowed, still taxpayers must ensure the payment of tax in required installment so as to avoid the interest for default on such payment.
    ii) Advance tax is payable on all types of income including the amount of capital gain, lottery/puzzle winning income, etc.
    However it is normally not possible to estimate few of the incomes, such as:
    a) Capital Gain Income;
    b) Winning from lotteries, crossword puzzles; etc.
    c) First time income under the head “Income from Business & Profession”;
    d) Dividend Income.
    In such cases where income of above nature is arising then it would be fine if the advance income tax is paid in subsequent installments (i.e., no interest is applicable for the installment which has already expired). If such income is accruing after the last date of payment of the last installment of advance tax (i.e., 15th March) then the entire advance tax needs to be paid on or before 31st March. One may note that interest cannot be waived off in general even if unanticipated or sudden income has arisen in the hands of the taxpayers.
    iii) Resident Senior citizens not having any income taxable under the head “Income from Business or Profession” are given immunity from payment of Advance tax.
  3. Loss on account of the delisting of Shares:
    As per the income tax laws, one can earn capital gain income or can incur capital loss only when the capital asset is “Transferred”.  Just because the shares got delisted or not tradable on the stock exchanges and their saleable value has become zero from an investor’s perspective does not mean that it can be claimed as loss. Unless and until there is a “Transfer” of shares, profit or loss cannot arise in the hands of the investor. In short, “Transfer” is the primary condition for recognizing any income/loss under the head “Capital Gain”.
    All cases where shares got delisted and don’t have any saleable value or lack tradability can be sold through off market transactions to anyone (say at Rs. 1) to claim the benefit of loss/diminution in the value of the investment.


[However, the above mechanism is subject to a reservation. Section 50CA of the Income Tax Act provides that where the consideration received or accruing as a result of the transfer of unquoted share is less than its fair market value (FMV) then the capital gain income is required to be computed by taking the FMV. The mode of calculation of FMV is prescribed by the CBDT and the same may not be easily accessible to the taxpayers in majority of cases of delisting. Similar transaction is subject to tax in the hands of the buyer as well [U/s 56(2)(x)] if the shares are purchased below its FMV. To this extent, the transaction of transferring the shares at nominal price as suggested above would be subject to tax litigation & disputes. It would be better if CBDT provides specific immunity from Section 50CA [under Rule 11 UAD] for such categories of companies wherein the FMV may not be easily accessible / available to the general investor].


[Views expressed are the personal view of the author. Readers are advised to seek professional advice before taking any decisions. Readers may forward their feedback & queries at Other articles & response to queries are available at]