Under which of the following circumstances may ‘capital gains arise?

1. When there is an increase in the sales of a product
2. When there is a natural increase in the value of the property owned
3. When you purchase a painting and there is a growth in its value due to increase in its popularity

Select the correct answer using the codes given below:

[UPSC Civil Services Exam – 2012 Prelims]

(a) 1 only

(b) 2 and 3 only

(c) 2 only

(d) 1, 2 and 3

Answer: (b)        

Explanation:

• Any profit or gain that arises from the sale of a ‘capital asset’ is a capital gain.
• Capital gains tax is a tax imposed on gains derived from the disposition of capital assets.
• This gain or profit is charged to tax in the year in which the transfer of the capital asset takes place.
• ‘Capital Gains’ arise when,
  • When there is a natural increase in the value of the property.
  • When you purchase a painting and there is a growth in its value due to an increase in its popularity.
• Hence statement 2 and 3 are correct.