What is the correct sequence to be followed for the following while computing income under the head Capital Gains?

(A) Deduction of indexed cost of acquisition

(B) Determination of full value of consideration

(C) Determination whether the asset is a capital asset or not

(D) Determination whether the transaction is regarded as transfer or not

(E) Exemption under section 54EC in respect of investment in the long-term specified asset

Choose the correct answer from the options given below:

Correct option is D

The correct sequence for computing income under the head "Capital Gains" is as follows:
1. Determination Whether the Asset is a Capital Asset (C):
· Explanation: The first step is to confirm whether the asset qualifies as a "capital asset" as defined under Section 2(14) of the Income Tax Act, 1961. If it is not a capital asset, the income cannot be computed under the head "Capital Gains."
2. Determination Whether the Transaction is a Transfer (D):
· Explanation: After confirming the asset type, it is essential to check whether the transaction constitutes a "transfer" under Section 2(47). If it is not a transfer, capital gains cannot arise.
3. Determination of Full Value of Consideration (B):
· Explanation: Once the transaction is deemed a transfer, the next step is to ascertain the full value of consideration received or accruing due to the transfer. This forms the basis for further computation.
4. Deduction of Indexed Cost of Acquisition (A):
· Explanation: Indexed cost of acquisition and improvement (adjusted for inflation using the Cost Inflation Index) is deducted from the full value of consideration to calculate the capital gain.
5. Exemption Under Section 54EC (E):
· Explanation: Finally, applicable exemptions (such as investment in specified long-term assets like bonds under Section 54EC) are applied to reduce the taxable amount of the capital gain.