Destruction of capital assets and Insurance Compensation received

As per section 45(1A),

If any insurance claim received on destruction of asset then profit or gain arriving from it will be Charged under income from capital gains.

If no insurance claim received then not taxable

 

Destruction due to following causes are covered

    (a) National calamities like flood, earthquake etc.

    (b) Accidental fire or explosion

    (c) Riots or civil disturbance,

    (d) Action of enemy

             or

         Action taken in fighting with the enemy

Note:-

The period of holding and indexation  is calculated till the destruction of assets,

however it is taxable when insurance claim received.

Note

If Stock Insurance and on loss of stock insurance compensation received then this section not applicable as capital asset does not include stock in trade.

Question 1

Suppose Person had Purchased Building for Rs 15 lacs on 10/05/2010.On 15 June 2014,it got damaged due to fire.Insurance Compensation was received on 10 April 2015 of Rs 20 lacs

Indexation Rate for 2010-11,2014-15 and 2015-16 are 711,1024 and 1081

-a-

Capital Gain is taxable in year Compensation Received i.e. 2015-16

However,Period of Holding will be calculated from 10/05/2010 till 15 June 2014

Since it is used for more than 36 months i.e. it is a long term Capital asset

ICOA=500000*1024/711=2160338

FVC=Insurance Compensation Received=2000000

ICOA=2160338

Short Term Capital Loss=160338

-ea-

 Q2 Solve Q1 assuming it is used for Business as Office Building.It is the only building in block

Q3

Solve Q1 assuming it is Stock in Trade which was damaged and not building?