TREATMENT OF CAPITAL GAINS IN CASE OF AMOUNT RECEIVED FROM INSURANCE COMPANY

Where any person receives any money or other assets from an insurance company on Account of damage of any Capital Asset as a result of:-

•     Flood, Typhoon, hurricane, cyclone, earthquake or other convulsion of Nature or
• Riots or civil disturbance or
• Accidental fire or Explosion or
• Action by an enemy

Then any Profits or Gains arising Shall be chargeable to Capital Gains and shall be deemed to be the income of such person for the previous year in which such money or other asset was received.

For the purposes of section 48, value of any money or the fair market value of other assets on the date of such receipt shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of such capital assets.

If any Insurance money is received next year, the capital gain will arise in the next year but the cost of acquisition is to be indexed i.e. Cost Of Inflation Index(CII) of the year of transfer to be taken when the asset is destroyed.

Note: Insurance Money for loss of Raw Material is a normal trading receipt as Raw material is not a Capital Asset.

This Article has been Shared by Student of ICAI Palak Aggarwal. She Can be reached at aggarwal.palak2809@gmail.com

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