COMPUTATION OF CAPITAL GAINS — SPECIAL CASES Section 45(1A)

COMPUTATION OF CAPITAL GAINS — SPECIAL CASES-Section 45(1A)


TAXABILITY OF INSURANCE COMPENSATION IN RESEPCT OF CAPITAL ASSETS,

Applicability of Section 45(1A)

Section 45(1A) applies if both the conditions listed below are fulfilled:

      Capital asset has been destroyed, damaged, etc on account of the following reasons:

Ø  Flood, typhoon, hurricane, cyclone, earthquake, etc; or

Ø  Riot or civil disturbance; or

Ø  Accidental fire or explosion; or

Ø  Action by on enemy or action taken in combating an enemy (whether with or without declaration of war).


      Money or any other asset has been received from an insurance company as compensation under an insurance policy.


Full Value of Consideration

The value of money/Fair Market Value of any other asset received shall be deemed to be the full value of consideration and capital gains shall be computed accordingly.


Year of Taxability of Capital Gains

Capital gains shall be computed in the year in which the asset has been destroyed, damaged, etc but they shall be taxable in the year in which money or any other asset has been received from the insurance company.



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