Stop at the first gate that resolves the question - do not skip ahead to a rate table before Gates 1–3 confirm there is a chargeable capital gain at all.
| Gate - question to answer | Primary source | Escalate if… | ✓ | |
|---|---|---|---|---|
| 1 | Is the asset a "capital asset" - or specifically excluded (personal effects, rural agricultural land, specified gold/deposit bonds)? | Sec. 2(22) - definitions and exclusions (a)–(e). | Asset type is novel or the rural/urban land population-distance test is borderline. | |
| 2 | Has a "transfer" occurred - sale, exchange, extinguishment, compulsory acquisition, or a deemed transfer? | Sec. 2(109)(a)–(h) - definition of transfer. | The event is a restructuring, JDA, or possession-only transaction where timing is contested. | |
| 3 | Does a non-transfer exclusion or conditional deferral apply (intra-group, amalgamation, demerger)? | Sec. 70(1) (exclusions); Sec. 71 (conditional clawback, 8-year window). | A Sec. 70(1)(c)/(d) or demerger condition may have been breached - clawback timing is counter-intuitive (charged in the year of the original transfer for the intra-group case). | |
| 4 | Which head applies - capital gains, or business income? | Frequency, holding intent, funding source, and organisation of activity (no single statutory test - a facts-and-circumstances analysis). | The taxpayer trades in the same asset class as its ordinary business, or funding is leveraged/short-term. | |
| 5 | What is the holding period, the applicable rate section, and does a re-investment exemption apply? | Sec. 2(101)/2(67) (holding period); Sec. 196/197/198 (rates); Sec. 82–89 (exemptions). | The asset falls under a special always-short-term rule (Sec. 76 - MLDs, specified MF units, unlisted bonds) or a rate boundary is within days. |
Jumping straight to "what's the tax rate" is the most common analytical error. Gates 1–3 establish whether there is a chargeable capital gain at all before Gate 4 even asks which head applies, and Gate 5 only computes the rate once the head and holding period are settled.
Profits or gains arising from the transfer of a capital asset are chargeable under "Capital gains," save as otherwise provided in Sec. 82–89.
Computed by deducting transfer expenditure and cost of acquisition/improvement from the full value of consideration.
The single time concept replacing the 1961 Act's "previous year"/"assessment year" split.