Chapter 3 - Income From Capital Gains - Notes

Income from Capital Gains
Section 45(1): Charging Section

As per Section 45, any profits or gains arising from the transfer of a capital asset effected in the
previous year will be chargeable to income-tax under the head ‘Capital Gains’. Such capital gains will
be deemed to be the income of the previous year in which the transfer took place.
Therefore, following conditions must be satisfied for taxability of Capital Gains:
1. There must be a Capital Asset

2. The capital asset must have been transferred
3. Such transfer must have taken place during the previous year
4. The transfer of such capital asset must give rise to profits or gains (includes loss also)
5. Such capital gains should not be exempt from tax u/s 54, 54B, 54D, 54EC, 54F, 54G, 54GA,
54GB and 54H.
Section 2(14): Meaning of Capital Asset

As per Section 2(14), a capital asset means:
1. property of any kind held by an assessee, whether or not connected with his business or
profession;
2. any securities held by a Foreign Institutional Investor which has invested in such securities in
accordance with the SEBI regulations.
However, it does not include:
1. Stock-in-Trade (Raw Materials/WIP/Finished Goods)

2. Moveable Personal Asset (Effect), except Jewelry, Drawing, Painting, Sculpture,
Archaeological Collections, or any other work of art
3. Rural Agricultural Land in India
4. Gold Bonds, 1999 or Deposit Certificate issued under Gold Monetization Scheme, 2015
[Interest on these bonds is also exempt].
CA NISHANT KUMAR 1
Meaning of Urban Area
• Kilometers are measured aerially.

• Population according to last census.
• Rural Area means area which is not urban area.
CA NISHANT KUMAR 2
Section 2(47): Meaning of Transfer
Transfer includes:
1. Sale of Capital Asset

2. Exchange of Capital Asset
3. Relinquishment of Capital Asset, or Extinguishment of Right in Capital Asset
4. Conversion of Capital Asset into SIT
5. Compulsory Acquisition of Capital Assets
6. Allowing possession of Immovable property
7. Transfer of Shares of any Co-Operative Society
8. Redemption of Zero Coupon Bonds (ZCB)
CA NISHANT KUMAR 3
Types of Capital Asset
S. No. Period of Holding for Considering

LTCA
1. House Property 2 Years
2. Jewelry 3 Years
3. Shares of Bajaj Finance Ltd. (Listed in BSE) 1 Year
4. Listed Preference Shares of Adani Ltd. 1 Year
5. Shares of Sorting Hat Technologies Pvt. Ltd. 2 Years
(Unlisted)
6. Unlisted Units of UTI 1 Year
7. Debt Oriented units of Kotak Mutual Fund listed in 3 Year
BSE
8. Shares of Facebook Inc. listed in Stock Exchange in 2 Years
USA
CA NISHANT KUMAR 4
Section 48: Computation of Capital Gains
In case of STCA In case of LTCA
Particulars ₹ Particulars ₹
Full Value of Consideration (FVOC) xxx Full Value of Consideration (FVOC) xxx
Less: Transfer Expenses xxx Less: Transfer Expenses xxx
Net Consideration xxx Net Consideration xxx
Less: Cost of Acquisition (COA) xxx Less: Indexed Cost of Acquisition (ICOA) xxx
Less: Cost of Improvement (COI) xxx Less: Indexed Cost of Improvement (ICOI) xxx
STCG xxx LTCG xxx
Notes:
1. Indexed Cost of Acquisition

𝐼𝑛𝑑𝑒𝑥 𝑜𝑓 𝑡ℎ𝑒 𝑌𝑒𝑎𝑟 𝑜𝑓 𝑇𝑟𝑎𝑛𝑠𝑓𝑒𝑟
𝐼𝑛𝑑𝑒𝑥𝑒𝑑 𝐶𝑂𝐴 = 𝐶𝑂𝐴 ×
𝐼𝑛𝑑𝑒𝑥 𝑜𝑓 𝑡ℎ𝑒 𝑌𝑒𝑎𝑟 𝑜𝑓 𝐴𝑐𝑞𝑢𝑖𝑠𝑖𝑡𝑖𝑜𝑛
2. Indexed Cost of Improvement
𝐼𝑛𝑑𝑒𝑥𝑒𝑑 𝐶𝑂𝐼 = 𝐶𝑂𝐼 ×
𝐼𝑛𝑑𝑒𝑥 𝑜𝑓 𝑡ℎ𝑒 𝑌𝑒𝑎𝑟 𝑜𝑓 𝐼𝑚𝑝𝑟𝑜𝑣𝑒𝑚𝑒𝑛𝑡
3. Any property acquired before 01-04-2001:
Cost of Acquisition
a. Cost of Asset
b. FMV as on 01-04-2001
Whichever is higher
Note:
Amendment by Finance Act, 2020
FMV as on 01-04-2001 cannot be more than SDV as on 01-04-2001 if SDV is available as on 01-
04-2001.
4. Improvement done before 01-04-2001 → IGNORED
5. Cost Inflation Index (CII)
F.Y. CII F.Y. CII F.Y. CII
01-02 100 02-03 105 03-04 109
04-05 113 05-06 117 06-07 122
07-08 129 08-09 137 09-10 148
10-11 167 11-12 184 12-13 200
13-14 220 14-15 240 15-16 254
16-17 264 17-18 272 18-19 280
19-20 289 20-21 301 21-22 317
F.Y. 22-23 331
Question 1
Compute the capital gains for assessment year 2023-24 in the following case: Mr. NISH10, a property
dealer, sells a commercial plot of land on 01-03-2023 for ₹150 lakhs which was acquired by him on 01-
08-2019 for ₹25,50,000 for selling offices constructed therein. He had incurred land development
charges of ₹10,50,000 on 01-10-2019. He incurred ₹60,000 for selling the plot of land.
Solution
CA NISHANT KUMAR 5
Commercial plot of land acquired by property dealer NISH10 for his business purpose is in the nature
of stock-in-trade for him. Therefore, it is not a capital asset and hence, no capital gains will arise.
Question 2
Compute the capital gains for assessment year 2023-24 in the following case: Mr. NISH10 sells his
personal motorcar on 11-04-2022 for ₹4,55,000 which was acquired on 31-1-2019 for ₹7,50,000. The
expenses on transfer are 2% of selling price.
Solution
It’s a personal effect.
Question 3
Compute the capital gains for assessment year 2023-24 in the following case: Mr. NISH10 sells his
personal residential house on 01-04-2023 for ₹96,70,000, which was acquired by him on 01-10-2009
for ₹30,00,000. The expenses on transfer were ₹50,000.
Solution
Sold in F.Y. 2023-24.
Question 4
Compute the capital gains for assessment year 2023-24 in the following case: Mr. NISH10 sells an
agricultural land situated in rural area on 01-01-2023 for ₹11,50,000. The population of municipality
under which the village is covered is 9,800. The land was acquired on 01-03-2003 for ₹1,50,000.
Solution
Rural Agricultural Land is exempt.
Question 5
Compute the capital gains for assessment year 2023-24 in the following case: Mrs. Priya sells her gold
bracelet on 01-05-2022 for ₹7,00,000, which was acquired for ₹50,000 on 01-03-2006. A diamond was
fitted onto that bracelet on 01-04-2008 for ₹20,000.
Solution
Computation of Capital Gain of Mrs. Priya for A.Y. 2023-24

Particulars ₹
Full Value of Consideration 7,00,000
Less: Transfer Expenses -
Net Consideration 7,00,000
Less: Indexed Cost of Acquisition (₹50,000 × 331/117) 1,41,453
Less: Indexed Cost of Improvement (₹20,000 × 331/137) 48,321 1,89,774
Long Term Capital Gain 5,10,226
CA NISHANT KUMAR 6
Question 6
NISH10 owns a capital asset which was purchased by him on 01-05-1999 for ₹5,00,000. The market
value of the said asset as on 01-04-2001 was ₹3,00,000. The said asset was sold for ₹20,00,000 on 30-
01-2023. Expense incurred on transfer amounted to ₹5,000. Compute capital gain for A.Y. 2023-24
(Cost inflation index for F.Y. 2001-02 = 100 and 2022-23 = 331)
Solution
Computation of Capital Gain of NISH10 for A.Y. 2023-24

Particulars ₹
Less: Transfer Expenses 5,000
Less: Indexed Cost of Acquisition (₹5,00,000 × 331/100) 16,55,000
Question 7
NISH10 owns shares of unlisted company which was purchased by him on 15-10-2022 for ₹5,00,000.
The said asset was sold for ₹6,80,000 on 30-01-2023. Expense incurred on transfer amounted to
₹5,000. Compute the capital gain for the assessment year 2023-24.
Solution

Particulars ₹
Less: Cost of Acquisition 5,00,000
Short Term Capital Gain 1,75,000
Question 8
NISH10 owns shares of unlisted company which was purchased by him on 15-10-2017 for ₹5,00,000.
The said asset was sold for ₹6,75,000 on 30-01-2023. Expense incurred on transfer amounted to
₹5,000. Compute the capital gain for the assessment year 2023-24. (Cost inflation index for F.Y. 2017-
18 = 272 and 2022-23 = 331)
Solution

Particulars ₹
Long Term Capital Gain 61,544
Question 9
CA NISHANT KUMAR 7
NISH10 owns a commercial property which was purchased by him on 15-10-2017 for ₹10,00,000. The
said asset was sold for ₹17,75,000 on 30-01-2023. Expense incurred on transfer amounted to ₹5,000.
Compute the capital gain for the assessment year 2023-24 (Cost inflation index for F.Y. 2017-18 = 272
and 2022-23 = 331)
Solution

Particulars ₹
Question 10
NISH10 owns a capital asset which was purchased by him on 01-05-1989 for ₹5,00,000. The fair market
value as on 01-04-2001 is ₹18,00,000. The said asset was sold for ₹1,00,00,000 during financial year
2022-23. Expense incurred on transfer amounted to ₹15,000. Compute the capital gain for the
assessment year 2023-24. (Cost inflation index for F.Y. 2001-02 = 100 and 2022-23 = 331)
Solution

Particulars ₹
Full Value of Consideration 1,00,00,000
Question 11
NISH10 purchased a property during 2004-05 for ₹5,50,000. He spent ₹4,00,000 on Improvement
during 2005-06. The property was sold for ₹60 lakhs during the P.Y. 2022-23 (Brokerage 3%). Compute
Capital Gains. (CII for F.Y. 2004-05 = 113, F.Y. 2005-06 = 117, F.Y. 2022-23 = 331)
Solution

Particulars ₹
Less: Transfer Expenses 1,80,000
Less: Indexed Cost of Improvement (₹4,00,000 × 331/117) 11,31,624 27,42,686
Question 12
CA NISHANT KUMAR 8
NISH10 purchases a house property for ₹1,07,000 on April 15, 1984. The following expenses are
incurred by him for making addition/alteration to the house property.
Particulars ₹
(a) Cost of construction of first floor in 1992-93 5,00,000
(b) Cost of construction of the second floor in 2003-04 6,10,000
(c) Reconstruction of the property in 2009-10 7,50,000
Fair market value of the property on April 1, 2001 is ₹5,50,000. The house property is sold by Mr. C on
August 10, 2022 for ₹79,00,000 (expenses incurred on transfer: ₹50,000). Compute the capital gain
for the assessment year 2023-24. (Cost Inflation Index for F.Y. 2001-02 = 100; F.Y. 2003-04 = 109; F.Y.
2009-10 = 148; F.Y. 2022-23 = 331)
Solution

Particulars ₹
Less: Indexed Cost of Improvement (2003-04) (₹610000 × 331/109) 18,52,385
Less: (Second Floor)
Less: Indexed Cost of Improvement (2009-10) (₹7,50,000 × 331/148) 16,77,365 53,50,250
Less: (Reconstruction of Property)
Question 13
NISH10 acquired a House Property for ₹8,00,000 in P.Y. 82-83 and he paid stamp duty at the time of
acquisition is ₹1,70,000. FMV of property as on 01-04-2001 is ₹17,00,000. He made the following
improvements:
P.Y. 96-97 4,00,000

P.Y. 12-13 8,00,000
P.Y. 20-21 7,50,000
He transferred the property on 14-02-2023 for ₹1,50,00,000 and paid commission at the time of
transfer @ 3%. Compute Capital Gains. (Cost Inflation Index for F.Y. 2012-13 = 200; F.Y. 2020-21 = 301;
F.Y. 2022-23 = 331)
Solution

Particulars ₹
Net Consideration 1,45,50,000
Less: Indexed Cost of Improvement (2012-13) (₹8,00,000 × 331/200) 13,24,000
Less: Indexed Cost of Improvement (2020-21) (₹7,50,000 × 331/301) 8,24,751 77,75,751
CA NISHANT KUMAR 9
Question 14
NISH10 purchases a house property for ₹16,00,000 on 30th June, 1994. The following expenses were
incurred by him for making addition/alteration to the house property:
₹
Cost of construction of first floor in 1995-1996 4,00,000
Cost of construction of second floor in 2002-03 10,50,000
Alteration/reconstruction of the property in 2006-07 11,25,000
Fair market value of the property on 1st April, 2001 22,00,000
st
Stamp duty value of the property as on 1 April, 2001 20,00,000
The house property is sold by him on 15th June, 2022 for ₹1,50,00,000 (expenses incurred on transfer
₹1,00,000). Compute the amount of capital gains chargeable to tax for the assessment year 2023-24.
[Cost inflation indices: F.Y. 2001-02: 100; F.Y. 2002-03: 105; F.Y. 2006-07: 122 and F.Y. 2022-23: 331]
Solution

Particulars ₹
Less: Indexed Cost of Acquisition 66,20,000
Less: (₹20,00,000 × 331/100)
Less: Indexed Cost of Improvement (2002-03) 33,10,000
Less: (₹10,50,000 × 331/105)
Less: Indexed Cost of Improvement (2006-07) 30,52,254
Less: (₹11,25,000 × 331/122) 1,29,82,254
Section 45(2): Conversion of Capital Asset into Stock in Trade

Normally, Year of Tax = Year of Transfer, but in case of conversion of capital asset into stock in trade,
transfer takes place in the year of conversion, but tax is paid in the year in which stock is sold. In this
case, income is computed as follows:
Capital Gain PGBP

FVOC (FMV as on Date of Conversion) xxx Sale value of Stock xxx
Less: Transfer Expenses xxx Less: FMV as on date of conversion xxx
Net Consideration xxx PGBP xxx
Less: COA/ICOA xxx
Less: COI/ICOI xxx
ST/LTCG xxx
Question 15 – ICAI SM – Question 2
Aarav converts his plot of land purchased in July, 2004 for ₹80,000 into stock-in-trade on 31st March,
2022. The fair market value as on 31.3.2022 was ₹3,00,000. The stock-in-trade was sold for ₹3,25,000
in the month of January, 2023. Find out the taxable income, if any, and if so under which head of
income and for which Assessment Year? (Cost Inflation Index: F.Y. 2004-05:113; F.Y. 2021-22: 317)
CA NISHANT KUMAR 10
Solution
Conversion of a capital asset into stock-in-trade is a transfer within the meaning of section 2(47) in
the previous year in which the asset is so converted. However, the capital gains will be charged to tax
only in the year in which the stock-in-trade is sold.
The cost inflation index of the financial year in which the conversion took place should be considered
for computing indexed cost of acquisition. Further, the fair market value on the date of conversion
would be deemed to be the full value of consideration for transfer of the asset as per section 45(2).
The sale price less the fair market value on the date of conversion would be treated as the business
income of the year in which the stock-in-trade is sold.
Therefore, in this problem, both capital gains and business income would be charged to tax in the A.Y.
2023-24.
Computation of Capital Gain

Particulars ₹
FVOC (FMV as on Date of Conversion) 3,00,000
Less: ICOA (₹80000 × 317/113) 2,24,425
Computation of PGBP
Particulars ₹
Sale Value of Stock 3,25,000
Less: FMV as on Date of Conversion 3,00,000
PGBP 25,000
Question 16
Preeti purchased a land at a cost of ₹10 lakhs in the Financial Year 1982-83 and held the same as her
Capital Asset till 31st March, 2010. Preeti started her real estate business on 1st April, 2010 and
converted the said land into Stock-in-Trade of her business on the said date, when the fair market
value of the land was ₹150 lakhs. FMV of land as on 01-04-2001 is 9.3 lacs.
She constructed 20 flats of equal size, quality, and dimension. Cost of construction of each flat is ₹8
lakhs. Construction was completed in December, 2022. She sold 15 flats at ₹20 lakhs per flat between
January, 2023 and March, 2023. The remaining 5 flats were held in Stock as on 31st March, 2023.
Compute the amount of chargeable Capital Gain and Business Income in the hands of Preeti arising
from the transactions for A.Y. 2023-24 indicating clearly the reasons for treatment for each item. (Cost
Inflation Index for F.Y. 2010-11 = 167; F.Y. 2022-23 = 331)
Solution
Mrs. Preeti
Particulars ₹
FVOC (FMV as on date of conversion) 1,50,00,000
CA NISHANT KUMAR 11
Less: ICOA (₹10,00,000 × 167/100) 16,70,000
LTCG 1,33,30,000
Capital Gains taxable in P.Y. 2022-23 (A.Y. 2023-24) 99,97,500
Mrs. Preeti
Particulars ₹
Sale Value of Flats (15 Flats × ₹20 Lakhs) 3,00,00,000
Less: FMV of Land [₹150 Lakhs × (15/20)] 1,12,50,000
Less: Cost of Construction of Flats (15 × ₹8,00,000) 1,20,00,000 2,32,50,000
PGBP 67,50,000
Section 45(5): Compulsory Acquisition of Capital Asset

Normally, year of tax = year of transfer, but in case of compulsory acquisition of capital asset, transfer
takes place in the year in which the asset is compulsorily acquired but tax is paid in the year in which
compensation is received.
Part A: Initial Compensation Part B: Enhanced Compensation

Computation of Capital Gain Computation of Capital Gain
FVOC Initial Compensation FVOC Additional Compensation
Less: COA/ICOA xxx Less: Legal/Litigation Charges
Less: COI/ICOI xxx ST/LTCG xxx
ST/LTCG xxx
Question 17
NISH10 purchased a house in the F.Y. 2001-2002 costing ₹4,00,000. In the P.Y. 2015-16, it was
compulsorily acquired by the Government. Government paid compensation to NISH10 ₹50,00,000 in
the P.Y. 2022-23. NISH10 was not happy with the compensation, so he filed for enhanced
compensation. NISH10 won the case and was given an additional compensation of ₹10,00,000 in the
P.Y. 24-25. Legal Expenses incurred for filing the case were ₹50,000. (CII for F.Y. 2015-16 = 254)
Solution
Computation of Capital Gain for P.Y. 22-23 A.Y. 23-24

Particulars ₹
FVOC 50,00,000
Less: ICOA (₹4,00,000 × 254/100) 10,16,000
LTCG 39,84,000
Computation of Capital Gain for P.Y. 24-25 A.Y. 25-26

Particulars ₹
FVOC 10,00,000
Less: Legal Expenses 50,000
LTCG 9,50,000
CA NISHANT KUMAR 12
Note: The period of holding of the asset is used to determine the type of capital gain - long term or
short term. Since the asset under consideration was a long term asset, all the considerations, whether
initial or enhanced will be taxed as long term capital gains only.
Compensation Received in Instalments

1. Initial Compensation: If it is received in instalments, then total initial compensation is taxable
in the year in which the first instalment is received.
2. Additional Compensation/Enhanced Compensation: If it is received in instalments, then it is
taxable as and when received (jab milega, tab taxable hoga).
Note: If interest is received on late compensation, then such interest is taxable under Income from
Other Sources in the year in which it is received.
Taxable Amount = Interest Received × 50% (Standard Deduction 50%)
Question 18
The house property of NISH10 is compulsorily acquired by the Government on February 14, 2010. The
Government awarded ₹20,00,000 in the first instance (out of which ₹20,000 is received on April 15,
2022 and the balance ₹19,80,000 is received on June 10, 2023). NISH10 purchased the house in 2001-
02 for ₹4,00,000. On the appeal of NISH10, the high court increased the compensation to ₹25,50,000
(Expenditure in court’s proceedings ₹15,000). The additional compensation of ₹5,50,000 is received
on May 14, 2024. Find out the capital gain chargeable to tax.
Solution
Mr. NISH10 - P.Y. 22-23 A.Y. 23-24

Computation of Capital Gains (Initial Compensation)
Particulars ₹
FVOC 20,00,000
Less: ICOA (₹4,00,000 × 148/100) 5,92,000
LTCG 14,08,000
Mr. NISH10 - P.Y. 24-25 A.Y. 25-26

Computation of Capital Gains (Initial Compensation)
Particulars ₹
FVOC 5,50,000
Less: Litigation Charges 15,000
LTCG 5,35,000
Important Note: If any enhanced compensation is received due to interim order of any court, then
such compensation shall be taxable in the year in which final order is passed.
Question 19
CA NISHANT KUMAR 13
For an ongoing case for enhanced compensation, the court awarded compensation of ₹5,00,000 by
an interim order on the P.Y. 2017-18. Final order was passed in the P.Y. 2022-23, wherein the court
decided that the enhanced compensation should be ₹12,00,000. The remaining ₹7,00,000 was
received by the assessee in the P.Y. 2024-25. Discuss.
Solution
• The ₹5,00,000 that was received in the P.Y. 2017-18 shall be taxed in the P.Y. 2022-23, i.e., the
year in which the final order was passed.
• The remaining amount ₹7,00,000 that was received in the P.Y. 2024-25 shall be taxed in the
P.Y. 2024-25 only. This is because the enhanced compensation is always charged to tax “as
and when received”.
• The ₹5,00,000 was not taxed in the P.Y. 2017-18 because it was awarded due to an interim
order, and not final order.
Note: As per CBDT clarification, if the compensation received is exempted as per Section 96 of the
Right to Fair Compensation and Transparency in the Land Acquisition, Rehabilitation and Resettlement
Act, 2013 (RFCTLARR), then such compensation is exempted under Income Tax also.
Section 45(1A): Destruction/Damage of Capital Asset

Normally, destruction is not treated as transfer but if destruction/damage of capital asset is due to
following four reasons, then it is treated as transfer if assessee receives insurance claim:
1. Natural Calamity, e.g., Floods, Tsunami

2. Riot
3. Enemy attack
4. Fire
In above cases, asset is transferred in the year of destruction, but income is deemed to be of the year
in which insurance claim is received.
Particulars ₹
FVOC (Insurance Claim Received) (Money/FMV of Asset Received) xxx
Less: Transfer Expenses xxx
Net Consideration xxx
Less: COA/ICOA xxx
Less: COI/ICOI xxx
ST/LTCG xxx
Question 20
Mr. NISH10 acquired a House Property for ₹4,00,000 in P.Y. 02-23. During the P.Y. 17-18, House
Property got destroyed due to fire. FMV as on that was ₹40,00,000. Mr. NISH10 received insurance
claim of ₹38,00,000 from insurance company on 10th January, 2023. Compute capital gains. (CII for
F.Y. 2017-18 = 272; F.Y. 2002-03 = 105)
Solution
Computation of Capital Gain of Mr. NISH10 for P.Y. 2022-23

Particulars ₹
FVOC (Insurance Claim Received) 38,00,000
CA NISHANT KUMAR 14
Less: ICOA (₹4,00,000 × 272/105) 10,36,190
LTCG 27,63,810
Notes:
1. Insurance Premium paid is not allowed as deduction.

2. In case no money is received from Insurance Company, the destruction or damage is not
treated as transfer.
Section 45(5A): Immovable Property Transfer in Joint Development

Agreement (JDA)
• The definition of transfer includes a transaction where the possession of immovable property
is given in execution of part performance of a contract.
• Consider the following situation: A owns a land. B is a builder who wants to develop some real
estate project on A’s land. Now, B would need to purchase A’s land, and given some
consideration to A. As a consideration, B promises to give A, a share in the real estate project
which he would develop, and maybe some extra consideration in cash.
• This kind of an agreement is known as a Joint Development Agreement.
• In such a case, even though the land has been transferred to the builder by the owner
(assessee) at a certain point of time, but consideration for that will be received only when the
real estate project is complete.
• In such cases, capital gains income is deemed to be the income of the year in which the
certificate of completion for the whole or part of the project is issued by the competent
authority.
• Certain conditions are to be satisfied for the provisions of Section 45(5A) to be applicable:
o The assessee, i.e., land/building owner is an Individual or an HUF.
o The assessee has entered into a “specified agreement” with a builder/joint developer
for development of housing project.
“Specified Agreement” means the registered agreement in which a person owing land
or building or both, agrees to allow another person to develop a real estate project
on such land or building or both, in consideration of a share, being land or building or
both in such project, whether with or without payment of part of the consideration in
cash.
o If the above two conditions are satisfied, capital gain shall be taxable in the hands of
owner of land/building as income of the previous year in which the certificate of
completion for the whole or part of the project is issued by the competent authority.
o Full Value of Consideration = SDV of the share of owner on the date of issuing
completion certificate + monetary consideration.
o However, if the owner of land/building transfers his share in the project to any other
person on or before the date of issue of said certificate of completion, the capital
gains (as determined under general provisions of the Act) shall be deemed to be the
income of the previous year in which such transfer took place and shall be computed
as per the provisions of the Act without considering the above special provisions of
Section 45(5A)
CA NISHANT KUMAR 15
Normally, capital gain is taxable in the year of transfer, but in the following 4 cases, capital gain is
taxable in some other year:
Section Particulars Year of Transfer Year of Tax

45(2) Conversion of Capital Asset Year of Conversion Year in which Stock is sold
into Stock-in-Trade
45(5) Compulsory Acquisition of Year of Compulsory Year in which compensation is
Capital Asset Acquisition received
45(1A) Destruction of Capital Asset Year of Destruction Year in which Insurance Claim
is received
45(5A) Asset transfer in JDA Year is which possession Year in which completion
is transferred certificate is received
CA NISHANT KUMAR 16
Special Case 1: Section 50C – Stamp Duty Value shall be treated as Full
Value of Consideration
What is Stamp Duty?

When you buy a house, you must pay two things to get the ownership of the house registered to your
name – Registration Charges, and Stamp Duty. Stamp Duty is a fee, levied by the State Government.
It is generally 5-7% of the property’s market value. The seller of the house property would earn Capital
Gains and pay tax on it to the Central Government and the buyer of the house property would pay
Stamp Duty to the State Government. To evade taxes, people started buying and selling the properties
with black money, thus showing very little transaction value.
Example: I buy a house, the market value of which is ₹5,00,00,000. I pay ₹1,00,00,000 in white, and
₹4,00,00,000 in cash. Then I tell the government that I bought the house for only ₹1,00,00,000. This
way, I’ll have to pay Stamp Duty only on ₹1,00,00,000, and the seller of the property would treat
₹1,00,00,000 as his full value of consideration, thereby reducing the capital gain tax liability.
What is Stamp Duty Value?

To prevent this evasion of tax, Government came up with the concept of Stamp Duty Value. Stamp
duty value means any value adopted by any authority of the Central Government or a State
Government for the purpose of payment of stamp duty for the immovable property. Now, when the
seller sells the property at a value less than Stamp Duty Value, Central Government considers stamp
duty value only as the full value of consideration for the purpose of computation of capital gains.
Similarly, when the buyer buys a property at a value less than the Stamp Duty Value, the State
Government levies stamp duty on the stamp duty value only. However, during covid times, there were
genuine problems, so, the government came up with an amendment which provided that if the stamp
duty value is more than 110% of the sale consideration, only then, SDV will be considered to be the
FVOC, otherwise, actual sale consideration would be considered to be the FVOC.
In case of immovable property held as Capital Asset

If SDV > 110% of Sale Consideration, then such SDV shall be treated as FVOC.
Question 21
Case I Case II Case III Case IV

Selling Price 1,00,000 1,00,000 1,00,000 50,00,000
Stamp Duty Value 1,08,000 1,14,000 1,10,000 57,00,000
Full Value of Consideration 1,00,000 1,14,000 1,00,000 57,00,000
Notes:
1. If assessee is not satisfied with SDV, and he thinks that SDV is more than Market Value, then
his case may be transferred to a Valuation Officer by the Assessing Officer.
2. If the value determined by Valuation Officer is more than SDV, then value of VO shall be
ignored, and SDV is treated as FVOC.
3. If value determined by VO is less than SDV, then value of VO shall be treated as FVOC.
CA NISHANT KUMAR 17
Question 22
Mr. NISH10 acquired a House Property for ₹3,00,000. FMV of property as on 01-04-2001 is ₹10,00,000.
He sold the property to Mr. NISHSC on 10-12-2022 for ₹50,00,000. Mr. NISHSC paid stamp duty at the
time of registration of property ₹5,00,000, i.e., @8%. Compute capital gains in the hands of NISH10
for P.Y. 22-23. Assume that NISH10 paid commission to the broker at the time of sale 1%.
Solution

Particulars ₹
FVOC
Higher of:
Selling Price 50,00,000
Stamp Duty Value (₹5,00,000 ÷ 8%) 62,50,000 62,50,000
Less: ICOA (₹10,00,000 × 331/100) 33,10,000
LTCG 28,90,000
SDV on the Date of Registration or Agreement?

In a case where the date of agreement is different from the date of registration, stamp duty value on
the date of agreement can be considered provided the whole or part of the consideration is paid by
way of account payee cheque/bank draft or by way of ECS through bank account or through such
other electronic mode as may be prescribed, on or before the date of agreement.
Electronic Mode: Credit Card, Debit Card, Net Banking, RTGS, NEFT, IMPS, UPI, BHIM UPI, QR Code
Special Case 2: Section 51 – Advance Money Forfeited (Token Money)

If any advance money is forfeited before 01-04-2014, then it shall be reduced from:
1. Cost of Asset (if asset is acquired on or after 01-04-2001)

2. FMV as on 01-04-2001 (if asset is acquired before 01-04-2001)
3. WDV (in case of depreciable asset)
Note: Advance money forfeited by previous owner shall not be reduced.
Section 56(2)(ix)
If any advance money is forfeited on or after 01-04-2014, it shall be taxable under IFOS in the year of
forfeiture.
Question 23
Mr. NISH10 acquired a House Property in P.Y. 01-02 for ₹6,00,000. During the P.Y. 06-07, he entered
into an agreement for sale of property with Mr. Anshul and received advance of ₹1,40,000. Mr. Anshul
did not pay the balance amount, so Mr. NISH10 forfeited the amount in P.Y. 06-07. Again, Mr. NISH10
entered into agreement of sale with Mr. Akhilesh on 16-07-21 and received advance of ₹90,000. Mr.
Akhilesh did not remit the balance amount, so NISH10 forfeited the advance. Finally, NISH10 sold the
property to Mrs. Charu on 14-01-2023 for ₹80,00,000. Calculate Capital Gain and Income from Other
Sources for Mr. NISH10.
CA NISHANT KUMAR 18
Solution

Particulars ₹
FVOC: 80,00,000
Less: ICOA {(₹6,00,000 – ₹1,40,000) × 331/100} 15,22,600
LTCG 64,77,400
Computation of Income from Other Sources

Particulars ₹
Advance Money Forfeited 90,000
IFOS 90,000
Special Case 3: Section 47 – Transactions not treated as Transfer

(Exempt Transfer)
1. Distribution of Capital Asset by HUF to members on partition.
2. Transfer of Capital Asset under Gift/Will/Inheritance
Note: If shares allotted under ESOPs, are gifted to someone then it is treated as transfer and
capital gain is applicable. For computation of capital gain, FMV as on date of gift is treated as
FVOC.
3. Transfer of Capital Assets by Holding Company to 100% Subsidiary Company and Subsidiary
Company should be Indian Company
4. Transfer of Capital Asset by 100% Subsidiary Company to Holding Company and Holding
Company should be Indian Company.
In above cases:
1. Cost of Acquisition = Cost to Previous Owner [Section 49(1)]

2. Cost of Improvement = Incurred by Previous Owner and Present Owner shall be considered
3. Period of Holding = POH of Previous Owner and Present Owner shall be considered
4. 𝐼𝐶𝑂𝐴 = 𝐶𝑂𝐴 × 𝐼𝑛𝑑𝑒𝑥 𝑜𝑓 𝑡ℎ𝑒 𝑌𝑒𝑎𝑟 𝑖𝑛 𝑤ℎ𝑖𝑐ℎ 𝑃𝑟𝑒𝑣𝑖𝑜𝑢𝑠 𝑂𝑤𝑛𝑒𝑟 𝐴𝑐𝑞𝑢𝑖𝑟𝑒𝑑 𝑠𝑢𝑐ℎ 𝐴𝑠𝑠𝑒𝑡 (Manjula J Shah –
Bombay High Court)
5. Benefit of FMV as on 01-04-2001 will be available.
Question 24
Mr. NISH10 purchased a House Property on 01-04-2001 for ₹6,00,000. He gifted the same to his wife
Charu in the P.Y. 2017-18. Charu sold the same to Adit in the P.Y. 2022-23 for ₹80,00,000. Compute
the Capital Gains in hands of Charu.
Solution
Computation of Capital Gain of Charu for P.Y. 2022-23

Particulars ₹
FVOC: 80,00,000
Less: ICOA (₹6,00,000 × 331/100) 19,86,000
CA NISHANT KUMAR 19
LTCG 60,14,000
Question 25 – May, 2011 (Adapted)
Mr. Rakesh purchased a house property on 14th April, 1999 for ₹1,05,000. He entered into an
agreement with Mr. B for the sale of house on 15th September, 2002 and received an advance of
₹25,000. However, since Mr. B did not remit the balance amount, Mr. Rakesh forfeited the advance.
Later on, he gifted the house property to his friend Mr. A on 15th June, 2006.
Following renovations were carried out by Mr. Rakesh and Mr. A to the house property:
Particulars ₹
By Mr. Rakesh during F.Y. 2000-01 10,000
By Mr. Rakesh during F.Y. 2003-04 50,000
By Mr. A during F.Y. 2013-14 1,90,000
The fair market value of the property as on 01-04-2001 is ₹1,50,000 & SDV as on 0-04-2001 is
₹1,40,000.
Mr. A entered into an agreement with Mr. C for sale of the house on 1st June, 2022 and received an
advance of ₹80,000. The said amount was forfeited by Mr. A, since Mr. C could not fulfil the terms of
the agreement. Finally, the house was sold by Mr. A to Mr. Sanjay on 2nd January, 2023 for a
consideration of ₹25,00,000. Compute the capital gains chargeable to tax in the hands of Mr. A for the
assessment year 2023-24. (CII for F.Y. 2001-02 = 100; F.Y. 2002-03 = 105; F.Y. 2003-04 = 109; F.Y. 2006-
07 = 122; F.Y. 2013-14 = 220; F.Y. 2021-22 = 317; F.Y. 2022-23 = 331)
Solution
Computation of Capital Gain for Mr. A for P.Y. 2022-23 A.Y. 2023-24
Particulars ₹
FVOC 25,00,000
Less: Indexed COA (₹1,40,000 × 331/100) 4,63,400
Less: Indexed COI
Less: Mr. Rakesh (₹50,000 × 331/109) 1,51,835
Less: Mr. A (₹1,90,000 × 331/220) 2,85,864
Long Term Capital Gains 15,98,902
Notes:
1. Improvement done by Mr. Rakesh in P.Y. 2000-01 shall not be considered as improvement
done before 01-04-2001 are ignored.
2. FMV as on 01-04-2001 is restricted to SDV as on 01-04-2001 if SDV is available as on 01-04-
2001. In this question, SDV as on 01-04-2001 is ₹1,40,000 and FMV is ₹1,50,000, so we have
considered ₹1,40,000.
3. As per Section 51, Advance Money Forfeited by Assessee (Present Owner) before 01-04-2014
shall be reduced from Cost of Acquisition. In this case, advance money forfeited by Mr. Rakesh
(Previous Owner) shall not be reduced.
4. Advance money forfeited on or after 01-04-2014 shall be taxable under IFOS u/s 56(2)(ix). So,
advance money forfeited by Mr. A shall be taxable under IFOS in P.Y. 2022-23 in the hands of
Mr. A.
CA NISHANT KUMAR 20
Question 26
AK & Sons, HUF, purchased a land for ₹5,20,000 in the P.Y. 2002-03. In the P.Y. 2006-07, a partition
takes place when Mr. N, a coparcener, is allotted this plot valued at ₹2,50,000. In P.Y. 2007-08, he had
incurred expenses of ₹4,35,000 towards fencing of the plot. Mr. A sells this plot of land for ₹30,00,000
in P.Y. 2022-23 after incurring expenses to the extent of ₹15,000. You are required to compute the
capital gain for the A.Y. 2023-24. (CII for F.Y. 2002-03 = 105; F.Y. 2006-07 = 122; F.Y. 2007-08 = 129;
F.Y. 2022-23 = 331)
Solution
Computation of Capital Gain for Mr. A for P.Y. 2022-23 A.Y. 2023-24
Particulars ₹
FVOC 30,00,000
Less: Indexed COA (₹5,20,000 × 331/105) 16,39,238
Less: Indexed COI (₹4,35,000 × 331/129) 11,16,163
Question 27
Mr. Kay purchases a house property on April 10, 1992 for ₹75,000. The fair market value of the house
property on April 1, 2001 was ₹3,70,000 & SDV as on 01-04-2001 is ₹3,90,000. On August 31, 2003,
Mr. Kay enters into an agreement with Mr. Jay for sale of such property for ₹3,70,000 and received an
amount of ₹50,000 as advance. However, as Mr. Jay did not pay the balance amount, Mr. Kay forfeited
the advance. In May, 2008, Mr. Kay constructed the first floor by incurring a cost of ₹3,35,000.
Subsequently, in January, 2009, Mr. Kay gifted the house to his friend Mr. Dee. On February 10, 2023,
Mr. Dee sold the house for ₹15,00,000.
Compute the capital gains in the hands of Mr. Dee for A.Y. 2023-24. (CII for F.Y. 2001-02 = 100; F.Y.
2003-04 = 109; F.Y. 2008-09 = 137; F.Y. 2022-23 = 331)
Solution
Computation of Capital Gain for Mr. Dee for P.Y. 2022-23 A.Y. 2023-24
Particulars ₹
FVOC 15,00,000
Less: Indexed COA (₹3,70,000 × 331/100) 12,24,700
Less: Indexed COI (₹3,35,000 × 331/137) 8,09,380
Long Term Capital Gains (5,34,080)
Notes:
1. FMV as on 01-04-2001 is restricted to SDV as on 01-04-2001 if SDV is available as on 01-04-

2001. In this question, SDV as on 01-04-2001 is ₹3,90,000 and FMV is ₹3,70,000, so we have
considered ₹3,70,000.
CA NISHANT KUMAR 21
2. As per Section 51, Advance Money Forfeited by Assessee (Present Owner) before 01-04-2014
shall be reduced from Cost of Acquisition. In this case, advance money forfeited by Mr. Kay
(Previous Owner) shall not be reduced.
Question 28
Mr. X purchases a house property in December 1993 for ₹6,25,000 and an amount of ₹2,75,000 was
spent on the improvement and repairs of the property in March, 1997. The property was proposed to
be sold to Mr. Z in the month of May, 2006 and an advance of ₹30,000 was taken from him. As the
entire money was not paid in time, Mr. X forfeited the advance and subsequently sold the property to
Mr. Y in the month of March, 2023 for ₹60,00,000. The fair value of the property on April 1, 2001 was
₹10,90,000 & SDV as on 01-04-2001 is ₹12,90,000. What is the capital gain chargeable in the hands of
Mr. X for the A.Y. 2023-24? (CII for F.Y. 2001-02 = 100; F.Y. 2006-07 = 122; F.Y. 2022-23 = 331)
Solution
Computation of Capital Gain for Mr. X for P.Y. 2022-23 A.Y. 2023-24
Particulars ₹
FVOC 60,00,000
Less: Indexed COA {(₹10,90,000 – ₹30,000) × 331/100} 35,08,600
Question 29
Mr. Dinesh received a vacant site as a gift from his friend in November, 2005. The site was acquired
by his friend for ₹8,00,000 in April, 2002. Dinesh constructed a residential building during the year
2010-11 in the said site for ₹20,00,000. He carried out some further extension of the construction in
the year 2012-13 for ₹7,00,000.
Dinesh sold the residential building for ₹1,00,00,000 in January, 2023 but the State stamp valuation
authority adopted ₹75,00,000 as value for the purpose of stamp duty.
Compute his long-term capital gain, for the assessment year 2023-24 based on the above information.
(CII for F.Y. 2002-03 = 105; F.Y. 2010-11 = 167; F.Y. 2012-23 = 200; F.Y. 2022-23 = 331)
Solution
Computation of Capital Gain for Mr. Dinesh for P.Y. 2022-23 A.Y. 2023-24
Particulars ₹
FVOC 1,00,00,000
Less: Indexed COA (₹8,00,000 × 331/105) (Note 1) 25,21,905
Less: In P.Y. 2010-11 (Construction of Building) (₹20,00,000 × 331/167) 39,64,072
Less: Indexed COI (in P.Y. 2012-13) (₹7,00,000 × 331/200) 11,58,500
CA NISHANT KUMAR 22
Question 30
Mr. NISH10 purchased a plot of land in P.Y. 2012-13 for ₹6,00,000. He constructed building on such
land in P.Y. 2021-22 for ₹15,00,000. He sold such House Property for ₹50,00,000 (consideration
towards plot is ₹24,00,000 and building is ₹26,00,000). Calculate capital gain for P.Y. 2022-23. (CII for
F.Y. 2012-13 = 200; F.Y. 2021-22 = 317; F.Y. 2022-23 = 331)
Solution
Computation of Capital Gain for Mr. NISH10 for P.Y. 2022-23 A.Y. 2023-24
Particulars Plot Building
FVOC 24,00,000 26,00,000
Less: Transfer Expenses - -
Net Consideration 24,00,000 26,00,000
Less: Indexed COA (₹6,00,000 × 331/200) 9,93,000
.
15,00,000
Capital Gains 14,07,000 11,00,000
LTCG STCG
Special Case 3: Section 47 – Transactions not treated as Transfer

(Exempt Transfer) Continued
5. Capital Asset transfer by Amalgamating Company to Amalgamated Company in the scheme of
Amalgamation and Amalgamated Company is an Indian Company.
6. Shareholder transfer shares of amalgamating company in the scheme of amalgamation and
received shares of amalgamated company is not treated as transfer.
7. Capital Asset transfer by Demerged Company to Resulting Company in the scheme of
Demerger and Resulting Company should be Indian Company.
8. Conversion of Bonds/Debentures/Deposit Certificates into shares/debentures of that
company.
9. Conversion of Preference Shares into Equity Shares of that company.
10. Redemption of Sovereign Gold Bonds issued by RBI in case of Individual Assessee.
11. Transfer of Capital Asset under reverse mortgage scheme by senior citizen.
Note: Any money received by senior citizens under this scheme is fully exempt u/s 10(43).
12. Transfer of Rupee Denominated Bonds or Government Securities by one Non-Resident to
another Non-Resident outside India.
Question 31
Mr. NISH10 purchased convertible debentures for ₹5,00,000 during August 2002. The debentures
were converted into equity shares in September 2012. These shares were sold for ₹15,00,000 in
August, 2022. The brokerage expenses are ₹50,000. You are required to compute the capital gains in
case of Mr. NISH10 for the assessment year 2023-24. (CII for F.Y. 2002-03 = 105; F.Y. 2012-13 = 200;
F.Y. 2022-23 = 331)
Solution
Computation of Capital Gain for Mr. B for P.Y. 2022-23 A.Y. 2023-24
Particulars ₹
FVOC 15,00,000
CA NISHANT KUMAR 23
Less: Indexed COA (₹5,00,000 × 331/105) 15,76,190
Long Term Capital Gains (1,26,190)
Conversion of Debentures into Shares is not treated as transfer, so Capital Gains is not applicable on
conversion, but Capital Gains is applicable at the time of sale of shares.
Special Case 4: Capital Gain in case of Shares and Debentures

1. Bonus Shares
a. If Bonus shares were acquired before 01-04-2001, then COA would be either actual
cost or FMV as on 01-04-2001 whichever is higher.
b. If Bonus shares were acquired after 01-04-2001, then COA would be taken as NIL.
c. If Bonus shares, which were acquired before 01-02-2018, are transferred on or after
01-02-2018, and STT is paid on such transfer, the COA of such shares shall be
determined as higher of (i) or (ii):
i. Lower of
1. FMV as on 31-01-2018; and
2. Actual Sale Consideration
ii. Actual Cost of Acquisition (i.e., NIL in case the bonus shares were allotted on
or after 01-04-2001; and FMV on 01-04-2001 in case the bonus shares were
allotted before 01-04-2001)
2. Right Shares
a. If the right shares are acquired by shareholder, then COA = Amount paid to company
and period of holding is considered from the date of allotment.
b. If the shareholder renounces the right in favour of someone else, then this will be
known as relinquishment of capital asset, and capital gains will arise. FVOC will be the
amount received from renouncement, and COA will be NIL. POH will be from Offer
Date to Renouncement Date, and this can never exceed 3 years. Therefore, this will
always be an STCG.
The person who has purchased the rights will be allotted the right shares. Therefore,
for these shares, his COA = Amount paid to the original shareholder + Amount paid to
the company. POH will be from the date of allotment of shares.
Question 32
Ms. Usha purchases 1,000 equity shares in X (P) Ltd., an unlisted company, at a cost of ₹30 per share
(brokerage 1%) in January 1996. She gets 100 bonus shares in August 2000. She again gets 1,100 bonus
shares by virtue of her holding in February 2006. Fair market value of the shares of X (P) Ltd. on April
1, 2001 is ₹80. On 1st January 2023, she transfers all her shares @ ₹200 per share (brokerage 2%).
Compute the capital gains taxable in the hands of Ms. Usha for the A.Y. 2023-24.
Cost Inflation Index for F.Y. 2001-02: 100, F.Y.2005-06: 117 & F.Y.2022-23: 331
Solution
Computation of Capital Gains for the A.Y. 2023-24

Particulars ₹
1000 Original Shares
Sale Proceeds (1,000 × ₹200) 2,00,000
Less: Brokerage Paid (2% of ₹2,00,000) 4,000
Net Sale Consideration 1,96,000
CA NISHANT KUMAR 24
Less: Indexed COA (₹80 × 1,000 × 331/100) 2,64,800
Long Term Capital Gain (68,800)
100 Bonus Shares

Sale Proceeds (100 × ₹200) 20,000
Less: Brokerage Paid (2% of ₹20,000) 400
Net Sale Consideration 19,600
Less: Indexed COA (₹80 × 100 × 331/100) 26,480
1100 Bonus Shares

Sale Proceeds (1100 × ₹200) 2,20,000
Less: Brokerage Paid (2% of ₹2,20,000) 4,400
Less: Indexed COA -
Question 33
Mr. R holds 1000 shares in Star Minus Ltd., an unlisted company, acquired in the year 2001-02 at a
cost of ₹75,000. He has been offered right shares by the company in the month of August, 2022 at
₹160 per share, in the ratio of 2 for every 5 held. He retains 50% of the rights and renounces the
balance right shares in favour of Mr. Q for ₹30 per share in September 2022. All the shares are sold by
Mr. R for ₹300 per share in January 2023 and Mr. Q sells his shares in December, 2022 at ₹280 per
share.
What are the capital gains taxable in the hands of Mr. R and Mr. Q?
Solution
Computation of Capital Gains in the hands of Mr. R for the A.Y. 2023-24
Particulars ₹
1000 Original Shares
Sale Proceeds (1000 × ₹300) 3,00,000
Less: Brokerage Paid -
Less: Indexed COA (₹75,000 × 331/100) 2,48,250
.
200 Right Shares
Sale Proceeds (200 × ₹300) 60,000
Less: COA 32,000
Short Term Capital Gain 28,000
.
Sale of Right Entitlement
Sale Proceeds (200 × ₹30) 6,000
Less: Cost of Acquisition -
CA NISHANT KUMAR 25
.
Capital Gains 85,750
Computation of Capital Gains in the hands of Mr. Q for the A.Y. 2023-24
Particulars ₹
Sale Proceeds (200 shares × ₹280) 56,000
Less: COA 38,000
Special Case 4: Capital Gain in case of Shares and Debentures (Contd.)

3. Indexation benefit is not available in case of debentures and bonds.
4. Sovereign Gold Bonds (SGB) issued by RBI:
a. Individual Assessee
i. Redemption on Maturity – No Capital Gain due to Section 47
ii. Transfer before Maturity – Capital Gain will apply, and Indexation benefit will
be available
b. Other Assessee – Capital Gain applicable on transfer or maturity and indexation
benefit is available.
Special Case 5: Section 50B – Slump Sale

Slump Sale means sale of undertaking or any segment/division for a lumpsum consideration without
assigning value of individual assets.
Computation of Capital Gains
Particulars ₹
Full Value of Consideration (Note 1) FMV of Capital Assets as per prescribed manner
Less: Transfer Expenses xxx
Less: COA (Net Worth) (No Index) (Note 2) xxx
ST/LTCG xxx
Note 1: Full Value of Consideration
Full Value of Consideration = FMV of Capital Assets calculated as per the prescribed manner.
Accordingly, CBDT has prescribed that the FMV of Capital Assets would be higher of:
1. FMV 1, being the fair market value of capital assets transferred by way of slump sale
(determined on the date of slump sale); and
2. FMV 2, being the fair market value of the consideration (monetary and non-monetary)
received or accruing as a result of transfer by way of slump sale.
Note 2: Calculation of Net Worth
CA NISHANT KUMAR 26
Particulars ₹
Assets
Depreciable Assets WDV as per IT Act
Other Assets Book Value
xxx
Less: Liabilities Book Value
Net Worth xxx
Notes:
1. Revaluation of Asset shall be ignored.

2. If undertaking is held for more than 3 years → LTCG
If undertaking is held for 3 years or less → STCG
3. For Net worth calculation, value of self-generated goodwill is taken as NIL.
4. For net worth calculation, value of asset on which deduction is claimed u/s 35AD is taken as
NIL.
5. No profit under PGBP shall arise if stock is transferred in slump sale.
Question 34 – ICAI SM – Illustration 10
Mr. A is a proprietor of Akash Enterprises having 2 units. He transferred on 1.4.2022 his Unit 1 by way
of slump sale for a total consideration of ₹25 lacs. The fair market value of capital assets of unit 1 on
1.4.2022 is ₹30 lacs. Unit 1 was started in the year 2005-06. The expenses incurred for this transfer
were ₹28,000. His Balance Sheet as on 31.3.2022 is as under:
Liabilities Total Assets Unit 1 Unit 2 Total

Own Capital 15,00,000 Building 12,00,000 2,00,000 14,00,000
Revaluation Reserve 3,00,000 Machinery 3,00,000 1,00,000 4,00,000
(for building of unit 1)
Bank loan 2,00,000 Debtors 1,00,000 40,000 1,40,000
(70% for unit 1)
Trade creditors 1,50,000 Other assets 1,50,000 60,000 2,10,000
(25% for unit 1)
Total 21,50,000 Total 17,50,000 4,00,000 21,50,000
Other information:
1. Revaluation reserve is created by revising upward the value of the building of unit 1.
2. No individual value of any asset is considered in the transfer deed.
3. Other assets of unit 1 include patents acquired on 01-07-2020 for ₹50,000 on which no
depreciation has been charged.
Compute the capital gain for the assessment year 2023-24.
Solution
Computation of Capital Gains of Mr. A for A.Y. 2023-24

Particulars ₹
FVOC (Higher of FMV of Capital Assets of Unit 1 on 01-04-2022 or FMV of Monetary 30,00,000
Consideration Received)
29,72,000
Less: COA (Net Worth) (Note 1) 12,50,625
LTCG 17,21,375
CA NISHANT KUMAR 27
Note 1 - Calculation of Net Worth
Particulars ₹
Assets:
Building (₹12,00,000 – ₹3,00,000) 9,00,000
Machinery 3,00,000
Debtors 1,00,000
Other Assets (Excluding Patents) 1,00,000
Patents (Note 2) 28,125
14,28,125
Less: Liabilities
Less: Bank Loan (70% × ₹2,00,000) 1,40,000
Less: Trade Creditors (25% × ₹1,50,000) 37,500
Net Worth 12,50,625
Note 2 – Patents
Particulars ₹
Cost 50,000
Less: Depreciation for P.Y. 2020-21 (25%) 12,500
37,500
Less: Depreciation for P.Y. 2021-22 (25%) 9,375
WDV 28,125
Note 3 – Since the unit is held for more than 36 months, capital gain arising would be long term capital
gain. However, indexation benefit is not available in case of slump sale.
Special Case 6: Section 55 – Capital Gain in case of Intangible Assets

In case of:
1. Goodwill of Business or Profession

2. Trademark or Brand Name
3. Right to Manufacture or Produce, Process any Article or thing (Patent & Copyright)
4. Right to carry on business or profession
5. Tenancy right
6. Loom hours
7. Route permit
Cost of Acquisition:
1. If the above assets are self generated → COA = NIL

2. If the above assets are purchased → COA = Purchase Price
Note:
1. In above case, FMV as on 01-04-2001 benefit is not available.

2. Index benefit available in case of purchased intangible assets.
3. Cost of Improvement
a. In case of Goodwill of business, patents, copyright, and right to carry on any business
or profession, cost of improvement is always taken to be NIL.
b. In case of other assets, cost of improvement = capital expenditure incurred on or after
01-04-2001.
CA NISHANT KUMAR 28
Question 35
NISH10 has been living in a rented accommodation since August, 2003, and he is paying a rent of
₹5,000 per month. The landlord got the house vacated from NISH10 on 16-07-2022 and paid a sum of
₹6 lacs for vacating the house. Compute capital gains, if any, in the hands of NISH10.
Solution
Computation of Capital Gains of Mr. NISH10 for A.Y. 2023-24

Particulars ₹
FVOC 6,00,000
6,00,000
Less: COA -
LTCG 6,00,000
Special Case 7: Section 50CA – Capital Gains in case of Unquoted Shares

(Unlisted)
In case of transfer of unlisted shares, if sale value is less than the FMV of such shares, then such FMV
is treated as FVOC.
Question 36
Mr. NISH10 acquired 10,000 shares of Shuchita Prakashan Pvt. Ltd. on 02-07-2003 for ₹80,000. On 10-
12-2022, he transferred all his shares to Mr. Tushar for ₹60 per share. FMV as on date of transfer is
₹400 per share. Compute capital gains. (CII for F.Y. 2003-04 = 109)
Solution

Particulars ₹
FVOC 40,00,000
40,00,000
Less: ICOA (₹80,000 × 331/109) 2,42,936
LTCG 37,57,064
Special Case 8: Section 50D – Capital Gain if Consideration is Not

Determinable
FVOC = FMV of Asset transferred (FMV of asset jo jaa rahi hai)
Note: In case of exchange of asset, FVOC = FMV of asset received in return.
Special Case 9: 1st Proviso to Section 48 – Capital Gains in case of Shares

and Debentures transferred by Non-Resident
If following conditions are satisfied, then we have to calculate Capital Gain in Foreign Currency and
after that reconvert into Indian Currency.
1. Assessee should be Non-Resident.

2. Asset should be Shares/Debentures of Indian Company.
CA NISHANT KUMAR 29
3. Such asset is acquired in Foreign Currency.
Particulars $
FVOC (Average Rate on Date of Transfer) xxx
Less: Transfer Expenses (Average Rate on Date of Transfer) xxx
Less: Cost of Acquisition (Average Rate on Date of Acquisition) [Indexation Benefit Not xxx
Available]
ST/LTCG in Foreign Currency xxx
This Capital Gain is converted into INR by applying TTBR on the date of transfer.
Note: Average Rate = (TTBR + TTSR) ÷ 2
Note: TTBR is Telegraphic Transfer Buying Rate, the rate at which Bank buys Dollar. TTSR is Telegraphic
Transfer Selling Rate, the rate at which Bank sells Dollar.
Question 37
Deepak is a Non-Resident; he acquired shares of Reliance Industries Ltd. (Indian Company) for ₹80,000
on 16-07-2017 in Foreign Currency. He transferred all the shares on 10-12-2022 for ₹7,00,000.
Transfer Expenses were ₹40,000. Calculate Capital Gain.
Date TTBR (SBI) TTSR (SBI)

16-07-2017 49 52
10-12-2022 62 65
Solution
Computation of Capital Gains of Mr. Deepak for A.Y. 2023-24

Particulars $
FVOC 11,023.62
Less: Transfer Expenses 629.92
10,393.70
Less: COA 1,584.16
LTCG 8,809.54
.
LTCG in INR 5,46,192
Exemptions
Section 54 – Exemption for Residential House Property

1. Eligible Assessee: Individual/HUF
2. Asset Transferred: Residential House Property
3. Capital Gain on Transferred Asset: Long Term Capital Gain
4. Asset to be Acquired: ONE Residential House Property in India
Note: Amendment by Finance Act, 2019: If LTCG is upto ₹2 crore, then Assessee can acquire
TWO Residential House Properties in prescribed time limit. This benefit of two house
properties is available once in the lifetime.
CA NISHANT KUMAR 30
5. Time Limit: New House Property should be purchased within one year before the date of
transfer or purchased within 2 years after the date of transfer or constructed within 3 years
after the date of transfer. (–1, +2, +3)
6. Capital Gain Account Scheme (CGAS): Assessee should acquire House Property or deposit
desired amount in Capital Gain Account upto due date of Return Filing.
Deposited Amount should be utilized for the purpose of House Property. If deposited amount
is mis-utilized or unutilized, then exemption claimed earlier shall be withdrawn.
7. Amount of Exemption:
a. Capital Gain
b. Cost of New Asset/Deposit Amount
Whichever is lower
8. Lock in Period: New House Property should not be transferred within 3 years from the date of
its acquisition. If it is transferred within 3 years, then exemption claimed earlier shall be
withdrawn and it shall be reduced from the Cost of Acquisition of New House Property.
Question 38
Mr. NISH10 purchased a residential house on July 20, 2016 for ₹12,00,000 and made some additions
to the house incurring ₹4,00,000 in August, 2016. He sold the house property in April, 2022 for
₹35,00,000. Out of the sale proceeds, he spent ₹10,00,000 to purchase another house property in
September, 2022.
What is the amount of capital gains taxable in the hands of Mr. NISH10 for the A.Y. 2023-24? (CII for
F.Y. 2016-17 = 264)
Solution

Particulars ₹
FVOC 35,00,000
Less: ICOA (₹12,00,000 × 331/264) 15,04,545
Less: ICOI (₹4,00,000 × 331/264) 5,01,515
Gross LTCG 14,93,939
Less: Exemption u/s 54: Lower of:
Less: (i) Capital Gain 14,93,939
Less: (ii) Cost of New Asset 10,00,000 10,00,000
Net LTCG 4,93,939
Question 39
Ravi owns a residential house which was purchased by him in 1975 for ₹80,000. The FMV as on 01-04-
2001 was ₹2,00,000 and SDV as on 01-04-2001 was ₹1,90,000. The house is sold by him on 16-07-2022
for a consideration of ₹27,00,000. The brokerage and expenses on transfer was ₹15,000. Compute
capital gains for the assessment year 2023-24, if he invests ₹5,00,000 for purchase of a new house on
15-03-2023. If the House Property so purchased in 15-03-2023 is again sold in 21-10-2023 for ₹9 lacs,
what will be the tax liability?
Solution
CA NISHANT KUMAR 31
Computation of Capital Gains of Mr. Ravi for A.Y. 2023-24
Particulars ₹
FVOC 27,00,000
Less: ICOA (₹1,90,000 × 331/100) 6,28,900
Less: Exemption u/s 54: Lower of:
Net LTCG 15,56,100
Computation of Capital Gains of Mr. Ravi for A.Y. 2024-25

Particulars ₹
FVOC 9,00,000
Less: COA [Cost - Exemption Claimed Earlier] -
STCG 9,00,000
Question 40
Mr. Roy owned a residential house in Noida. It was acquired on 09-09-2009 for ₹30,00,000. He sold it
for ₹1,57,00,000 on 07-01-2020.
Mr. Roy utilized the sale proceeds of the above property to acquire a residential house in Panchkula
for ₹2,05,00,000 on 20-07-2020. The said house property was sold on 31-10-2022 and he purchased
another residential house at Delhi for 2,57,00,000 on 02-03-2023. The property at Panchkula was sold
for ₹3,25,00,000.
Calculate capital gains chargeable to tax for the assessment year 2020-21 and 2023-24. All working
should form part of your answer. (CII for F.Y. 2009-10 = 148; 2019-20 = 289; 2020-21 = 301)
Solution
Computation of Capital Gains of Mr. Roy for A.Y. 2020-21

Particulars ₹
FVOC 1,57,00,000
Less: ICOA (₹30,00,000 × 289/148) 58,58,108
Less: Exemption u/s 54 (Note 1)
Less: Lower of:
Less: (ii) Cost of New Asset 2,05,00,000 98,41,892
Net LTCG -
Computation of Capital Gains of Mr. Roy for A.Y. 2023-24

Particulars ₹
CA NISHANT KUMAR 32
FVOC 3,25,00,000
Less: ICOA {(₹2,05,00,000 – ₹98,41,892) × 331/301} (Note 2) 1,17,20,378
Gross LTCG 2,07,79,622
Less: Lower of:
Less: (i) Capital Gain 2,07,79,622
Less: (ii) Cost of New Asset 2,57,00,000 2,07,79,622
Net LTCG -
Notes:
1. Since assessee acquired House Property in Panchkula within 2 years from the date of transfer
of property at Noida, he is eligible for exemption u/s 54.
2. As per Section 54, assessee cannot transfer new house property within 3 years from the date
of its acquisition. If it is transferred within 3 years, then exemption claimed earlier shall be
reduced from cost of new house property while calculating capital gain. In the present case,
assessee transfers Panchkula property within 3 years from the date of acquisition, so
exemption claimed earlier shall be reduced from Cost of Acquisition.
3. Since there is LTCG on transfer of Panchkula property and assessee purchased Delhi property
within 2 years from the date of transfer, he can claim exemption u/s 54.
Question 41
Mr. Sarthak entered into an agreement with Mr. Jaikumar to sell his residential house located at
Kanpur on 16-08-2022 for ₹1,50,00,000.
The sale proceeds were to be paid in the following manner:
1. 20% through account payee bank draft on the date of agreement.

2. 60% on the date of the possession of the property.
3. Balance after the completion of the registration of the title to the property.
Mr. Jaikumar was handed over the possession of the property on 15-12-2022 and the registration
process was completed on 14-01-2023. He paid the sale proceeds as per the sale agreement.
The value determined by the Stamp Duty Authority –
1. On 16-08-2022 was ₹1,70,00,000;

2. On 15-12-2022 was ₹1,71,00,000; and
3. On 14-01-2023 was ₹1,71,50,000.
Mr. Sarthak had acquired the residential house at Kanpur on 01-04-2001 for ₹30,00,000. After
recovering the sale proceeds from Jaikumar, he purchased two residential house properties, one in
Kanpur for ₹20,00,000 on 24-03-2023 and another in Delhi for ₹35,00,000 on 28-05-2023.
Compute the income chargeable under the head “Capital Gains” of Mr. Sarthak for the Assessment
Year 2023-24.
Solution
CA NISHANT KUMAR 33
Calculation of Capital Gain of Mr. Sarthak for A.Y. 2023-24
Particulars ₹
FVOC (Notes 1 and 2) 1,70,00,000
Less: ICOA (₹30,00,000 × 331/100) 99,30,000
Less: Lower of:
Net LTCG 15,70,000
Notes:
1. When the date of agreement is different from the date of registration, SDV as on date of
agreement can be considered if full or part payment is made in the prescribed mode on or
before the date of agreement. In this case, since 20% of ₹150 lakhs is paid through account
payee bank draft on the date of agreement, stamp duty value on the date of agreement would
be considered for determining the full value of consideration.
2. As per Section 50C, if SDV is more than 110% of the sale consideration, the SDV is considered
to be the full value of consideration. In this case, Sale consideration is ₹1,50,00,000, whereas
the SDV is ₹1,70,00,000, which is more than 110% of the sale consideration.
3. When the Capital Gains do not exceed ₹2 crore, exemption can be claimed for both the
residential house properties purchased in India.
Question 42
Mr. Shiva purchased a house property on February 15, 1979 for ₹3,24,000. In addition, he has also
paid stamp duty value @ 10% on the stamp duty value of ₹3,50,000.
In April, 2007, Mr. Shiva entered into an agreement with Mr. Mohan for sale of such property for
₹14,35,000 and received an amount of ₹1,11,000 as advance. However, the sale consideration did not
materialize, and Mr. Shiva forfeited the advance. In May 2014, he again entered into an agreement
for sale of said house for ₹20,25,000 to Ms. Deepshikha and received ₹1,51,000 as advance. However,
as Ms. Deepshikha did not pay the balance amount, Mr. Shiva forfeited the advance. In August, 2014,
Mr. Shiva constructed the first floor by incurring a cost of ₹3,90,000.
On November 15, 2022, Mr. Shiva entered into an agreement with Mr. Manish for sale of such house
for ₹30,50,000 and received an amount of ₹1,50,000 as advance through an account payee cheque.
Mr. Manish paid the balance entire sum and Mr. Shiva transferred the house to Mr. Manish on
February 20, 2023. Mr. Shiva has paid the brokerage @ 1% of sale consideration to the broker.
On April 1, 2001, fair market value of the house property was ₹11,85,000 and Stamp duty value was
₹10,70,000. Further, the Valuation as per Stamp duty Authority of such house on 15th November,
2022 was ₹39,00,000 and on 20th February, 2023 was ₹41,00,000.
Compute the capital gains in the hands of Mr. Shiva for A.Y.2023-24. (CII for F.Y. 2014-15 = 240)
Solution
CA NISHANT KUMAR 34
Calculation of Capital Gain of Mr. Shiva for A.Y. 2023-24
Particulars ₹
FVOC (Notes 1 and 2) 39,00,000
Less: ICOA (Note 3) 31,74,290
Less: ICOI (₹3,90,000 × 331/240) 5,37,875 37,12,165
LTCG 1,57,335
Notes:
1. When the date of agreement is different from the date of registration, SDV as on date of
agreement can be considered if full or part payment is made in the prescribed mode on or
before the date of agreement. In this case, since ₹1,50,000 is paid through account payee
cheque on the date of agreement, stamp duty value on the date of agreement would be
considered for determining the full value of consideration.
2. As per Section 50C, if SDV is more than 110% of the sale consideration, the SDV is considered
to be the full value of consideration. In this case, Sale consideration is ₹30,50,000, whereas
the SDV is ₹39,00,000, which is more than 110% of the sale consideration.
3.
Computation of Indexed Cost of Acquisition

Particulars ₹
Cost of Acquisition
Higher of:
(i) Actual Cost (₹3,24,000 + ₹35,000, being Stamp Duty @ 10% of 3,59,000
₹3,50,000)
(ii) Lower of FMV, i.e., ₹11,85,000 and SDV, i.e., ₹10,70,000, as 10,70,000
on 01-04-2001 10,70,000
Less: Advance Money taken from Mr. Mohan and forfeited (since 1,11,000
it was forfeited before 01-04-2014, it'll be reduced from the Cost
of Acquisition)
Cost of Acquisition for Indexation 9,59,000
Indexed Cost of Acquisition (₹9,59,000 × 331/100) 31,74,290
4. Any advance money forfeited on or after 01-04-2014 is charged to tax under the head Income
from Other Sources in the year in which it is forfeited. Therefore, the advance money forfeited
of ₹1,51,000 from Ms. Deepshikha would have been taxable under the head “Income from
other sources” in the hands of Mr. Shiva in A.Y.2015-16.
Section 54B – Exemption for Urban Agricultural Land

2. Transferred Asset: Urban Agricultural Land, which was used by assessee or his parents for
agricultural purposes for 2 years before the date of transfer.
3. Capital Gain on Transferred Asset: STCG/LTCG
4. Asset to be acquired: Urban/Rural Agricultural Land
5. Time Limit: New agricultural land should be acquired within 2 years after the date of transfer
(+2).
6. Capital Gain Account Scheme (CGAS): Assessee should acquire Land or deposit desired
amount in Capital Gain Account upto due date of Return Filing.
CA NISHANT KUMAR 35
Deposited Amount should be utilized for the purpose of Urban/Rural Agricultural Land. If
deposited amount is mis-utilized or unutilized, then exemption claimed earlier shall be
withdrawn.
a. Capital Gain
b. Cost of New Asset/Deposit Amount
Whichever is lower
8. Lock in Period: New Land should not be transferred within 3 years from the date of its
acquisition. If it is transferred within 3 years, then exemption claimed earlier shall be
withdrawn and it shall be reduced from the Cost of Acquisition of new land.
Question 43
On 16th January, 2023, NISH10 sold agricultural land for ₹25 lacs. He incurred selling expenses of
₹75,000. Compute capital gains, if the land sold, was purchased on 1st January 2006 for ₹4 lacs, and
was used for agricultural purposes by his mother. He again purchased agricultural land of ₹9 lacs on
25th January 2023. He deposited ₹3 lacs in a scheduled bank under “Capital Gains Deposit Scheme” on
6th April 2023. (CII for F.Y. 2005-06 = 117)
Solution

Particulars ₹
FVOC 25,00,000
Less: ICOA (4,00,000 × 331/117) 11,31,624
Less: Exemption u/s 54B
Less: Lower of:
Less: (ii) Cost of New Asset/Deposit Amount 12,00,000 12,00,000
Net LTCG 93,376
Note: If assessee acquires new asset as Rural Agricultural Land and if he transfers that new asset within
3 years, then also exemption claimed earlier shall not be withdrawn because Rural Agricultural Land
is not a capital asset.
Section 54D – Exemption for Compulsory Acquisition of Industrial Land

and Building
1. Eligible Assessee: All assessees.
2. Transferred Asset: Compulsory acquisition of industrial land and building which was used by
assessee for industrial purposes for 2 years before the date of transfer.
3. Capital Gain on transferred asset: STCG/LTCG
4. Asset to be acquired: Industrial Land and Building
5. Time Limit: New Industrial land and building should be purchased or constructed within 3
years after the date of receipt of compensation.
6. CGAS – Same as Section 54
7. Amount of Exemption – Same as Section 54
CA NISHANT KUMAR 36
8. Lock in Period – Same as Section 54
Section 54EC – Exemption for Immovable Property

1. Eligible Assessee: All assessees.
2. Transferred Asset: Immovable property (Land, Building, Land and Building)
3. Capital Gain on transferred asset: LTCG
4. Asset to be acquired: NHAI/RECL/PFCL/IRFCL Bonds
NHAI – National Highway Authority of India
RECL – Rural Electrification Corporation Ltd.
PFCL – Power Finance Corporation Ltd.
IRFCL – Indian Railway Finance Corporation Ltd.
5. Time Limit: Bonds should be acquired within 6 months after the date of transfer.
6. CGAS – Not Applicable
7. Amount of Exemption: Lower of:
a. Capital Gain
b. Cost of Bonds
Assessee can claim maximum exemption of ₹50,00,000 for bonds acquired during 6 months.
8. Lock in Period: Assessee cannot transfer Bonds or cannot convert bonds into money within 5
years from the date of its acquisition. If it is transferred or converted into money within 5
years, then exemption claimed earlier shall be withdrawn and treated as LTCG in the year in
which it is transferred or converted into money.
Note: Converted into money means loan or advances taken on the security of bonds.
Note: Under this section, time limit of 6 months is calculated from the date of transfer but as
per CBDT, in case of conversion of capital asset into stock in trade, time limit is calculated from
the date on which the stock is sold.
Question 44
Mr. Rahul transferred a vacant site on 28-10-2022 for ₹100 lakhs. The site was acquired for ₹9,99,300
on 30-06-2001. He invested ₹50 lakhs in eligible bonds issued by Rural Electrification Corporation Ltd.
(RECL) on 20-03-2023. Again, he invested ₹20 lakhs in eligible bonds issued by National Highways
Authority of India (NHAI) on 16-04-2023.
Compute the chargeable capital gain in the hands of Rahul for the A.Y. 2023-24.
Solution
Calculation of Capital Gain of Mr. Rahul for A.Y. 2023-24

Particulars ₹
FVOC 1,00,00,000
Less: ICOA (₹9,99,300 × 331/100) 33,07,683
LTCG 66,92,317
Less: Exemption u/s 54EC
Less: Lower of:
Less: (i) LTCG 66,92,317
Less: (ii) Cost of Bonds 70,00,000
Less: Restricted to: 50,00,000
Net LTCG 16,92,317
CA NISHANT KUMAR 37
Question 45
Mr. Selvan, acquired a residential house in January, 2002 for ₹10,00,000 and made some
improvements by way of additional construction to the house, incurring expenditure of ₹2,00,000 in
October, 2005. He sold the house property in October, 2022 for ₹75,00,000. The value of property was
adopted as ₹80,00,000 by the State stamp valuation authority for registration purpose. He acquired a
residential house in January, 2023 for ₹25,00,000. He deposited ₹20,00,000 in capital gains bonds
issued by National Highways Authority of India (NHAI) in June, 2023. Compute the capital gain
chargeable to tax for the assessment year 2023-24.
What would be the tax consequence and in which assessment year it would be taxable, if the house
property acquired in January, 2023 is sold for ₹40,00,000 in March, 2024? (CII for F.Y. 2005-06 = 117)
Solution
Calculation of Capital Gain of Mr. Selvan for A.Y. 2023-24

Particulars ₹
FVOC 75,00,000
(i) Selling Price 75,00,000
(ii) SDV 80,00,000
Since SDV is less than 110% of Selling Price, Selling Price is taken as FVOC
Less: ICOA (₹10,00,000 × 331/100) 33,10,000
Less: ICOI (₹2,00,000 × 331/117) 5,65,812
Less: Exemption u/s 54
Less: Lower of:
Less: (i) LTCG 36,24,188
Net LTCG 11,24,188
Calculation of Capital Gain of Mr. Selvan for A.Y. 2024-25

Particulars ₹
FVOC 40,00,000
Less: COA [Cost - Exemption Claimed Earlier] -
STCG 40,00,000
Note: Since bonds of NHAI are acquired after six months from the date of transfer, exemption u/s
54EC is not available.
Section 54F – Exemption for ANY LTCA

2. Transferred Asset: Any Long Term Capital Asset except Residential House Property
3. Capital Gain on Transferred Asset: Long Term Capital Asset
4. Asset required to be acquired: One Residential House Property in India
CA NISHANT KUMAR 38
5. Time Limit: Same as Section 54 (–1, +2, +3)
6. CGAS: Same as Section 54
a. If Net Consideration is fully utilized, then Capital Gains is fully exempt.
b. If Net Consideration is partly utilized, then Capital Gains is partly exempt as per the
𝐶𝑜𝑠𝑡 𝑜𝑓 𝑁𝑒𝑤 𝐴𝑠𝑠𝑒𝑡/𝐷𝑒𝑝𝑜𝑠𝑖𝑡 𝐴𝑚𝑜𝑢𝑛𝑡
formula: 𝐿𝑇𝐶𝐺 × 𝑁𝑒𝑡 𝐶𝑜𝑛𝑠𝑖𝑑𝑒𝑟𝑎𝑡𝑖𝑜𝑛
8. Lock in Period: Assessee should not transfer new House Property within 3 years from the date
of its acquisition. If it is transferred within 3 years then exemption claimed earlier shall be
withdrawn and treated as LTCG in the year in which new House Property is transferred.
9. Additional Conditions
a. On the date of transfer of any long term capital asset, assessee should not be owning
more than 1 residential house (other than acquired under this section).
b. Assessee should not purchase within two years or construct within 3 years any other
house property.
Question 46
From the following particulars, compute the taxable capital gains of Mr. NISH10 for A.Y. 2023-24:
Cost of Jewelry (Purchased in F.Y. 2004-05) ₹2,52,000

Sale price of Jewelry sold in January, 2023 ₹11,50,000
Expenses on Transfer ₹7,000
Residential house purchased in March 2023 ₹5,00,00
(CII for F.Y. 2004-05 = 113)
Solution
Calculation of Capital Gain of Mr. NISH10 for A.Y. 2023-24

Particulars ₹
FVOC 11,50,000
Less: ICOA (₹2,52,000 × 331/113) 7,38,159
Gross LTCG 4,04,841
Less: Exemption u/s 54F {₹4,04,841 × (₹5,00,000 ÷ ₹11,43,000)} 1,77,096
Net LTCG 2,27,745
Exemption Table
Particulars Section 54 Section 54B Section 54D Section Section 54F
54EC
Assessee Individual/ Individual/ All All Individual/ HUF
HUF HUF
Asset Residential Urban Industrial Immovable Any Long Term Capital
Transferred House Agricultural Land & Property Asset
Property Land (Used Building
for 2 Years) (Compulsory
Acquisition)
(Used for 2
Years)
CA NISHANT KUMAR 39
CG on Long Term Short Term/ Short Term/ Long Term Long Term Capital Gain
Transferred Capital Gain Long Term Long Term Capital
Asset Capital Gain Capital Gain Gain
Asset 1 Residential Urban/ Industrial NHAI/ 1 Residential House
Acquired House Rural Land and RECL/ Property in India
Property in Agricultural Building PFCL/ IRFCL
India Land Bonds
(Amendment
2 House
Property)
Time Limit –1, +2, +3 +2 +3 +6 months –1, +2, +3
CGAS Yes Yes Yes Not Yes
Applicable
Amount of Lower of: Lower of: Lower of: Lower of: 𝐶𝐺
Exemption (i) Capital (i) Capital (i) Capital (i) Capital 𝐶𝑁𝐴/𝐷𝑒𝑝𝑜𝑠𝑖𝑡𝑒𝑑
×
Gain Gain Gain Gain 𝑁𝑒𝑡 𝐶𝑜𝑛𝑠𝑖𝑑𝑒𝑟𝑎𝑡𝑖𝑜𝑛
(ii) Cost of (ii) Cost of (ii) Cost of (ii) Cost of
New Asset/ New Asset/ New Asset/ New Asset/
Deposit Deposit Deposit Deposit
Amount Amount Amount Amount
(Maximum
₹50 lakhs)
Lock in 3 Years 3 Years 3 Years 5 Years 3 Years
Period (Exemption (Exemption (Exemption (Full Cost) (Full Cost)
claimed claimed claimed
should be should be should be
reduced from reduced reduced
cost) from cost) from cost)
Section 10(37) – Exemption for Capital Gain on Urban Agricultural Land

Long Term Capital Gain/Short Term Capital Gain on compulsory acquisition of Urban Agricultural Land
shall be exempt if following conditions are satisfied:
1. Assessee should be Individual/HUF

2. Such agricultural land should have been used by Assessee or his parents for agricultural
purposes for 2 years before the date of transfer.
3. Consideration is determined by RBI or Central Government.
Question 47
Mr. NISH10 purchased an agricultural land costing ₹7 lakh in Prayagraj on 01-04-2002 and has been
using it for agricultural purposes since its purchase till 01-08-2011 when the Government compulsorily
acquired this land. A compensation of ₹14 lakh was settled. The compensation was received by Mr.
NISH10 on 01-07-2022.
1. Compute the amount of capital gains taxable in the hands of Mr. NISH10.
2. Would your answer be different if Mr. NISH10 had by his own will sold this land to his friend
Mr. Anshul? Explain.
3. Would your answer be different if Mr. NISH10 had not used this land for agricultural activities?
Explain and compute the amount of capital gains taxable in the hands of Mr. NISH10, if any.
CA NISHANT KUMAR 40
4. Would your answer be different if the land belonged to NISH10 Ltd. and not Mr. NISH10 and
compensation on compulsory acquisition was received by the company? Explain.
Solution
1. As per Section 10(37), in case of Individual/HUF, capital gain on compulsory acquisition of

urban agricultural land is exempt if it was used by assessee or parents for agricultural purposes
for 2 years before compulsory acquisition. So, in this case, capital gains is not applicable.
2. In case of sale, capital gain is applicable as 10(37) exemption is available only in the case of
compulsory acquisition.
3. If Mr. NISH10 had not used this land for agricultural activities, exemption u/s 10(37) is not
available and capital gain is applicable.
Computation of Capital Gain for the A.Y. 2023-24
Particulars ₹
FVOC 14,00,000
184 12,26,667
Less: ICOA (7,00,000 × ) 105
4. Exemption u/s 10(37) only in case of Individuals and HUF. So, in case of company normal
capital gain is applicable (calculation same as point 3).
Miscellaneous Provisions
Provision 1 – Transaction Not Regarded as Transfer

Any transfer of a capital asset, being any work of art, archaeological, scientific or art collection, book,
manuscript, drawing, painting, photograph or print, to the Government or a University or the National
Museum, National Art Gallery, National Archives or any such other public museum or institution as
may be notified by the Central Government in the Official Gazette to be of national importance or to
be of renown throughout any State(s) shall not be regarded as transfer.
Question 48
Mr. Kalicharan, a businessman, had acquired a sculpture for ₹8,36,600 and a drawing for ₹20,000 in
the year 2004-05. He sold the sculpture for ₹9,00,000 to a university and the drawing for ₹15,000 to
a National Museum on 25-12-2022.
Solution
While sculpture/drawings are capital assets, but their transfer to a University/National Museum is
exempt under section 47. Hence, no capital gains shall arise.
Provision 2 – Liquidation of Companies

• Liquidation is the process of winding up of a company.
• At the time of liquidation, the assets of the company are distributed to the shareholders.
• Taxability in the hands of Company: The distribution of assets shall not be regarded as transfer
in the hands of company.
• Taxability in the hands of Shareholder:
o Shareholders get assets in return for their share in the company.
o Therefore, it’s actually like “transfer of their share”.
o Hence, capital gains arise in the hands of shareholders.
CA NISHANT KUMAR 41
o At this time, any money received by a shareholder in respect of the accumulated
profits of the company shall be treated as deemed dividend u/s 2(22)(c), and it shall
be taxed under the head Income from Other Sources.
o Capital Gains shall be computed as under:
Particulars ₹
Money received xxx
Add: FMV of Assets distributed xxx
Less: Deemed dividend u/s 2(22)(c) xxx
Full value of consideration xxx
Less: COA/ICOA xxx
STCG/LTCG xxx
Question 49 – May, 2008 – 8 Marks
Mr. Raghu purchased 10,000 equity shares of AB Avenues Private Limited on 25-03-2005 for
₹1,20,000. The company went into liquidation on 31-07-2022. The following is the summarized
financial position of the company as on 31-07-2022.
Liabilities ₹ Assets ₹
60,000 equity shares of ₹10 each 6,00,000 Agricultural lands in urban area 22,00,000
General Reserve 40,00,000 Cash at bank 32,22,212
Provision for taxation 8,22,212
54,22,212 54,22,212
The assets remaining after discharging liability for income tax were distributed to the shareholders in
the proportion of their shareholding. The market value of agricultural land as on 31-07-2022 is
₹60,00,000.
The agricultural land received as above was sold by Mr. Raghu on 28-02-2023 for ₹15,00,000. Discuss
the tax implications in the hand of the company and Mr. Raghu.
The cost inflation index of F.Y. 2004-05 = 113
Solution
Tax implications in the hands of company
• According to section 46(1) of the Act, distribution of capital assets amongst the shareholders
on liquidation of the company is not regarded as “transfer” in the hands of the company.
Consequently, there will be no capital gains in the hands of the company.
• According to section 2(22)(c), any distribution made to the shareholders of a company on its
liquidation, to the extent to which distribution is attributable to the accumulated profits of
the company immediately before its liquidation would be deemed as dividend. Therefore,
₹40,00,000 being the amount of general reserves on the date of liquidation would be deemed
as dividend. The company will be liable to deduct tax at source under section 194 @ 10%.
Tax implications in the hands of Mr. Raghu (shareholder)
Where a shareholder on the liquidation of a company receives any money or other assets from the
company, he shall be chargeable to income tax under the head “Capital Gains” in respect of the money
so received or the market value of the other assets on the date of the distribution, as reduced by the
amount assessed as dividend and the sum so arrived at shall be deemed to be the full value of
consideration.
CA NISHANT KUMAR 42
Computation of Capital Gains on Transfer of Equity Shares
Particulars ₹
Mr. Raghu holds 1/6th of the shareholding of the company
Market Value of Agricultural Land (1/6 × ₹60,00,000) 10,00,000
Cash at Bank [1/6 × (₹32,22,212 – ₹8,22,212)] 4,00,000
14,00,000
Less: Deemed Dividend u/s 2(22)(c) (1/6 × ₹40,00,000) 6,66,667
Computation of Capital Gains on Transfer of Land

Particulars ₹
Short Term Capital Gains 5,00,000
Provision 3 – Buy Back of Shares or Specified Securities

• In case of specified securities other than shares:
o Any consideration received by a holder of specified securities (other than shares) from
any company on purchase of its specified securities is chargeable to tax in the hands
of the holder of specified securities.
o The difference between the cost of acquisition and the value of consideration
received by the holder of securities is chargeable to tax as capital gains in his hands.
o The computation of capital gains shall be made in accordance with the provisions of
section 48.
o Such capital gains shall be chargeable in the year in which such securities were
purchased by the company.
o For this purpose, “specified securities” shall have the same meaning as given in
Explanation to section 77A of the Companies Act, 1956. (Now section 68 of Companies
Act, 2013)
o As per Section 68 of the Companies Act, 2013, "specified securities" includes
employees' stock option or other securities as may be notified by the Central
Government from time to time.
o As far as shares are concerned, this provision would be attracted in the hands of the
shareholder only if the shares are bought back by a company, other than a domestic
company.
• In case of shares (whether listed or unlisted)
o In case of buyback of shares (whether listed or unlisted) by domestic companies,
additional income-tax @ 20% (plus surcharge @12% and cess @ 4%) is leviable in the
hands of the company.
o Consequently, the income arising to the shareholders in respect of such buyback of
shares by the domestic company would be exempt under section 10(34A), since the
domestic company is liable to pay additional income-tax on the buy back of shares.
Taxability in the Buyback of shares by Buyback of shares by Buyback of specified

hands of domestic companies a company, other securities by any
company
CA NISHANT KUMAR 43
than a domestic
company
Company Subject to additional Not subject to tax in Not subject to tax in
income tax @ 23.296% the hands of the the hands of the
company company
Shareholder/ holder of Income arising to Income arising to Income arising to
Specified securities shareholders exempt shareholder taxable as holder of specified
under section 10(34A) capital gains u/s 46A securities taxable as
capital gains u/s 46A
Taxability of Capital Gains
Section 111A: Short Term Capital Gains

1. When the asset transferred is:
a. Equity Share of a Company; or
b. Unit of an Equity Oriented Fund; or
c. Unit of a Business Trust
on which Security Transaction Tax (STT) has been paid, capital gains are taxed @ 15%.
a. For Resident Individual or HUF, if other income is less than the basic exemption limit,
then STCG shall be reduced by such shortfall, and the balance STCG shall be taxed @
15%.
b. Therefore, tax on such STCG = 15% × [Such STCG – (Basic Exemption Limit – Other
Income)]
c. Also, deductions under Chapter VI-A are not applicable against STCG.
d. If the transaction has been undertaken on a recognized stock exchange located in any
International Financial Services Centre (IFSC) and the consideration has been paid in
foreign currency, then also the STCG shall be taxed @ 15%, even if STT is not
applicable.
e. An IFSC caters to customers outside the jurisdiction of the domestic economy.
f. Such centers deal with flows of finance, financial products, and services across
borders.
g. Gujarat International Finance Tec-City (GIFT City) in an IFSC in India.
2. Other Short Term Capital Gains are usually taxed at normal rates to the assessee.
Section 112: Long Term Capital Gains

1. Individual/HUF
a. In case of Resident Individuals/HUFs, LTCG shall be taxed @ 20%.
b. If other income is less than the basic exemption limit, then LTCG shall be reduced by
such shortfall, and the balance LTCG shall be taxed @ 20%.
c. Therefore, tax on such LTCG = 20% × [Such LTCG – (Basic Exemption Limit – Other
Income)]
2. Domestic Company: LTCG shall be taxed @ 20%.
3. Non-Resident (not being a company) or a Foreign Company
a. Unlisted Securities
i. LTCG shall be taxed @ 10%.
CA NISHANT KUMAR 44
ii. The benefit of 1st Proviso to Section 48, i.e., calculating the Capital Gains first
in Foreign Currency and thereafter converting to Indian Currency won’t be
applicable here.
iii. The benefit of indexation won’t be applicable here.
b. Other Assets: LTCG shall be taxed @ 20%.
4. Any Other Case: LTCG shall be taxed @ 20%.
5. Notes:
a. Tax payable on listed securities (other than a unit) or zero coupon bonds, shall be
lower of:
i. 10% of Gross Capital Gains, i.e., Net Consideration – Cost of Acquisition
without Indexation (Without Basic Exemption)
ii. 20% of Long Term Capital Gains, i.e., Net Consideration – Indexed Cost of
Acquisition (After Basic Exemption)
b. Deductions under Chapter VI-A are not allowed against Long Term Capital Gains.
Section 112A: LTCG on Transfer of Equities on Which STT is Paid

1. Conditions for invoking Section 112A:
a. This section is applicable when the asset transferred is:
i. An Equity Share in a company; or
ii. A unit of an Equity Oriented Fund; or
iii. A Unit of a Business Trust
b. If the transferred asset is an equity share in a company, STT must be paid at the time
of acquisition, as well as at the time of transfer. (However, the Central Government
may specify the nature of acquisition by a notification in the official gazette on which
the condition of STT being paid on acquisition doesn’t apply.)
c. If the transferred asset is a unit of an equity-oriented fund, or a unit of a business
trust, STT must be paid at the time of transfer.
d. However, if the transfer has been undertaken on a recognized stock exchange located
in any International Financial Services Centre (IFSC), and the consideration for such
transfer is received or receivable in foreign currency, then the condition of STT doesn’t
apply.
2. Tax Computation:
a. LTCG is exempt upto ₹1,00,000, and beyond that, it shall be taxed @ 10%.
b. In case of Resident Individuals/HUFs, if other income is less than basic exemption
limit, then tax on such LTCG = 10% × [Such LTCG – (Basic Exemption Limit – Other
Income)].
c. The benefit of 1st Proviso to Section 48, i.e., calculating the Capital Gains first in
Foreign Currency and thereafter converting to Indian Currency, and indexation
benefit won’t be applicable here.
d. Rebate u/s 87A shall not be allowed against the tax payable u/s 112A.
e. Any deductions under Chapter VI-A shall not be allowed against such LTCG.
3. Computation of Cost of Acquisition of such assets acquired before 01-02-2018 shall be
computed as under [Section 55(2)(ac)]:
Particulars ₹
(i) FMV as on 31-01-2018 xxx
(ii) FVOC on Transfer of Such Asset xxx
(iii) Lower of (i) and (ii) xxx
(iv) Actual Cost of Acquisition xxx
CA NISHANT KUMAR 45
(v) Cost of Acquisition (Higher of (iii) or (iv)) xxx
4. Meaning of Fair Market Value (FMV) as on 31-01-2018
a. If the capital asset was listed on any recognized stock exchange as on 31-01-2018
i. If there was trading in such asset on such exchange on 31-01-2018, FMV shall
be the highest price of the capital asset quoted on such exchange.
ii. If there wasn’t any trading in such asset on such exchange on 31-01-2018,
FMV shall be the highest price of the capital asset on the date immediately
preceding 31-01-2018 when such asset was trading on such exchange.
b. If the capital asset is a “unit”, which was not listed on any recognized stock exchange
as on 31-01-2018, FMV shall be the net asset value of such unit as on the said date.
c. If the capital asset is an “equity share”
i. If it was not listed as on 31-01-2018, but listed on the date of transfer; or
ii. If it was listed on the date of transfer and became the property of the assessee
in consideration of an unlisted share as on 31-01-2018 by way of transaction
not regarded as transfer u/s 47
𝐹𝑀𝑉
= 𝐶𝑜𝑠𝑡 𝑜𝑓 𝐴𝑐𝑞𝑢𝑖𝑠𝑖𝑡𝑖𝑜𝑛
𝐶𝐼𝐼 𝑜𝑓 2017 − 18, 𝑖. 𝑒. , 272
×
𝐶𝐼𝐼 𝑜𝑓 𝑡ℎ𝑒 𝑦𝑒𝑎𝑟 𝑜𝑓 𝑎𝑐𝑞𝑢𝑖𝑠𝑖𝑡𝑖𝑜𝑛, 𝑜𝑟 2001 − 02 𝑤ℎ𝑖𝑐ℎ𝑒𝑣𝑒𝑟 𝑖𝑠 𝑙𝑎𝑡𝑒𝑟
Question 50
An equity share is acquired on 1st January, 2017 at ₹100, its fair market value is ₹200 on 31st of January,
2018 and it is sold on 1st of April, 2018 at ₹250. Calculate long term capital gain.
Solution

Particulars ₹
Full Value of Consideration 250
Less: Cost of Acquisition
Less: FMV as on 31-01-2018 200
Less: FVOC on Transfer 250
Less: Whichever is Lower 200
Less: Actual Cost of Acquisition 100
Less: Whichever is Higher 200
Long Term Capital Gain 50
Question 51
An equity share is acquired on 1st of January, 2017 at ₹100, its fair market value is ₹200 on 31 st of
January, 2018 and it is sold on 1st April, 2018 at ₹150. Calculate long term capital gain.
Solution

Particulars ₹
Less: FMV as on 31-01-2018 200
CA NISHANT KUMAR 46
Long Term Capital Gain -
Question 52
An equity share is acquired on 1st of January, 2017 at ₹100, its fair market value is ₹50 on 31 st of
January, 2018 and it is sold on 1st of April, 2018 at ₹150. Calculate long term capital gain.
Solution

Particulars ₹
Less: FMV as on 31-01-2018 50
Long Term Capital Gain 50
Question 53
An equity share is acquired on 1st January, 2017 at ₹100, its fair market value is ₹200 on 31st of January,
2018 and it is sold on 1st of April, 2018 at ₹50. Calculate long term capital gain.
Solution

Particulars ₹
Less: FMV as on 31-01-2018 200
Long Term Capital Gain (50)
Other Issues in This Regime

1. Indexation benefit won’t be available.
2. If the transfer is made after 1st April, 2018, LTCG exceeding ₹1,00,000 shall be taxed @ 10%.
However, no tax shall be levied on LTCG accrued upto 31st January, 2018.
3. Period of Holding shall be counted from the date of acquisition.
4. No TDS is required to be deducted from the payment of LTCG to a resident tax payer.
CA NISHANT KUMAR 47
Cost of Acquisition of Bonus Shares Acquired Before 1st February, 2018
The cost of acquisition of bonus shares acquired before 31st January, 2018 shall be determined as per
Section 55(2)(ac). Therefore, fair market value of the bonus shares as on 31 st January, 2018 will be
taken as the cost of acquisition (except in some situations explained from Questions 50 to 53), and
hence, the gains accrued upto 31st January, 2018 will continue to be exempt.
Cost of Acquisition of Right Shares Acquired Before 1st February, 2018

The cost of right shares acquired before 31st January, 2018 will be determined as per section 55(2)(ac).
Therefore, the fair market value of right share as on 31st January, 2018 will be taken as cost of
acquisition (except in some situations explained from Questions 50 to 53), and hence, the gains
accrued upto 31st January, 2018 will continue to be exempt.
Treatment of Long-Term Capital Loss on Transfer On or After 1st April,

2018
Long-term capital loss arising from transfer made on or after 1st April, 2018 will be allowed to be set-
off and carried forward in accordance with existing provisions of the Act. Therefore, it can be set-off
against any other long term capital gains and unabsorbed loss can be carried forward to subsequent
eight years for set-off against long term capital gains.
Question 54
From the following information, determine taxable capital gains. Mr. X has acquired 1,000 equity
shares on 01-04-2017 for ₹15,00,000 (STT paid @ 0.1%). The fair market value of shares as on 31-01-
2018 was ₹15,25,000. He sold the shares on 25-08-2022 for ₹16,75,000 (STT paid @ 0.1%). Brokerage
expenses incurred on transfer: 0.5% of the sales consideration.
Solution

Particulars ₹
Less: Expenses on Transfer (0.5% × ₹16,75,000) 8,375
Less: FMV as on 31-01-2018 15,25,000
Less: FVOC on Transfer 16,75,000
Less: Whichever is Lower 15,25,000
Less: Actual Cost of Acquisition 15,00,000
Less: Whichever is Higher 15,25,000
Note: The benefit of STT paid at the time of acquisition as well as at the time of transfer is not available.
Question 55
From the following information, determine taxable capital gains. Mr. X has acquired 1,000 equity
shares on 01-04-2017 for ₹15,25,000 (STT paid @ 0.1%). The fair market value of shares as on 31-01-
2018 was ₹15,00,000. He sold the shares on 25-08-2022 for ₹14,75,000 (STT paid @ 0.1%). Brokerage
expenses incurred on transfer: 0.5% of the sales consideration.
CA NISHANT KUMAR 48
Solution

Particulars ₹
Less: Expenses on Transfer (0.5% × ₹14,75,000) 7,375
Less: FMV as on 31-01-2018 15,00,000
Note: The benefit of STT paid at the time of acquisition as well as at the time of transfer is not available.
Question 56
From the following information, determine taxable capital gains. Mr. X acquired 1,000 equity shares
on 01-04-2017 for ₹15,25,000 (STT paid @ 0.1%). The fair market value of shares as on 31-01-2018
was ₹16,50,000. He sold the shares on 25-08-2022 for ₹16,00,000 (STT paid @ 0.1%).
Solution

Particulars ₹
Less: Expenses on Transfer -
Less: FMV as on 31-01-2018 16,50,000
Long Term Capital Gain -
Question 57
Mr. X (64 years) is a resident individual. For the A.Y. 2023-24, he has following income –
Particulars ₹
Long-term capital gain on transfer of equity shares as computed as per provisions of 1,80,000
section 112A
Other income 2,75,000
Compute his tax liability A.Y. 2023-24 if he has not opted for the provisions of Section 115BAC.
Solution
Mr. X is a senior citizen. Therefore, his basic exemption limit is ₹3,00,000. In the present case, his total
income, other than Capital Gains is ₹2,75,000. Therefore, Capital gains to the extent of ₹25,000 will
CA NISHANT KUMAR 49
be adjusted in the basic exemption limit, and the taxable capital gains will be ₹1,80,000 – ₹25,000 =
₹1,55,000. Since these capital gains are covered u/s 112A, tax shall be levied @ 10% on the amount
exceeding ₹1,00,000.
Therefore,
Particulars ₹
Tax on Capital Gains (10% × ₹55,000) 5,500
Add: Health and Education Cess @ 4% 220
Total Tax Liability 5,720
Note that even though the total income is less than ₹5,00,000, rebate u/s 87A shall not be available
because the taxable income comprises of LTCG u/s 112A.
Question 58 – November, 2019 – 6 Marks
Mr. Ranjan provides you the following details with regard to sale of certain securities by him during
F.Y. 2022-23:
1. Sold 10000 shares of A Ltd. on 05-04-2022 @ ₹650 per share: A Ltd. is a listed company. These
shares were acquired by Mr. Ranjan on 05-04-2017 @ ₹100 per share. STT was paid both at
the time of acquisition as well as at the time of transfer of such shares which was affected
through a recognized stock exchange. On 31-01-2018, the shares of A Ltd. were traded on a
recognized stock exchange as under:
Highest Price = ₹300 per share
Average Price = ₹290 per share
Lowest Price = ₹280 per share
2. Sold 1000 units of B Mutual Fund on 20-04-2022 @ ₹50 per unit: B Mutual Fund is an equity
oriented fund. These units were acquired by Mr. Ranjan on 15-04-2017 @ ₹10 per unit. STT
was paid only at the time of transfer of such units. On 31-01-2018, the Net Asset Value of the
units of B Mutual Fund was ₹55 per unit.
3. Sold 1000 shares of C Ltd. on 25-04-2022 @ ₹250 per share: C Ltd. is an un-listed company.
These shares were issued by the company as bonus shares on 30-09-1997. The fair market
value of these shares as on 01-04-2001 was ₹50 per share.
Calculate the amount chargeable to tax under the head Capital Gains and also calculate tax on such
gains for assessment year 2023-24 assuming that the other incomes of Mr. Ranjan exceed the
maximum amount not chargeable to tax. (Ignore surcharge and cess).
Cost Inflation Indices for F.Y. 2001-02 = 100; 2016-17 = 264; 2017-18 = 272; 2020-21 = 301; 2022-23 =
331
Solution
Computation of Capital Gains of Mr. Ranjan for A.Y. 2023-24

Particulars ₹
Shares of A Ltd. (Listed in RSE)
Full Value of Consideration (10,000 × ₹650) 65,00,000
Less: FMV as on 31-01-2018 (Highest Price) 30,00,000
CA NISHANT KUMAR 50
Less: FVOC 65,00,000
Less: Actual Cost of Acquisition (10,000 × ₹100) 10,00,000
.
Units of B Mutual Fund (Equity Oriented)
Full Value of Consideration (1,000 × ₹50) 50,000
Net Consideration 50,000
Less: NAV as on 31-01-2018 55,000
Less: FVOC 50,000
Less: Whichever is Lower 50,000
Less: Actual Cost of Acquisition (1,000 × ₹10) 10,000
Less: Whichever is Higher 50,000
Long Term Capital Gains -
.
Shares of C Ltd. (Unlisted)
Full Value of Consideration (100 × ₹250) 25,000
Less: Indexed Cost of Acquisition 16,550
Less: (100 × ₹50 × 331/100)
Long Term Capital Gains 8,450
.
Total Taxable LTCG 35,08,450
Computation of Tax Liability

Particulars ₹
Tax on LTCG on transfer of Shares of A Ltd. 3,40,000
[10% × (₹35,00,000 – ₹1,00,000)]
Tax on LTCG on transfer of Shares of C Ltd. 1,830
(20% × ₹9,150)
Total Tax Liability 3,41,830
Mr. Govind purchased 600 shares of “Y” Limited at ₹130 per share on 26-02-1979. “Y” Limited issued
him, 1,200 bonus shares on 20-02-1984. The fair market value of these shares at Mumbai Stock
Exchange as on 01-04-2001 was ₹900 per share and ₹2,200 per share as on 31-01-2018. On 31-01-
2022 he converted 1000 shares as his stock in trade. The shares were traded at Mumbai Stock
Exchange on that date at a high of ₹2,200 per share and closed for the day at ₹2,100 per share. On 07-
07-2022, Mr. Govind sold all 1,800 shares @ ₹2,400 per share at Mumbai Stock Exchange and
securities transaction tax was paid. Compute total income of Mr. Govind for the A.Y. 2023-24.
Solution
Computation of Total Income of Mr. Govind for A.Y. 2023-24

Particulars ₹
CA NISHANT KUMAR 51
Profits and Gains from Business or Profession
Sale Proceeds (1,000 × ₹2,400) 24,00,000
Less: FMV on the date of conversion (1,000 × ₹2,100) (Note 1) 21,00,000
Profits and Gains from Business or Profession 3,00,000
.
Capital Gains
800 Shares Held as Capital Asset upto Date of Sale
Full Value of Consideration (800 × ₹2,400) 19,20,000
Less: Actual Cost of Acquisition (800 × ₹900) 7,20,000
.
1000 Shares Converted into Stock in Trade on 31-01-2022
FMV on the date of conversion (1,000 × ₹2,100) 21,00,000
Less: Actual Cost of Acquisition (1000 × ₹900) 9,00,000
.
Total Income 7,20,000
Note: Explanation to section 55(2)(ac) defines “fair market value” as the highest price of capital asset
quoted on the stock exchange only for the purpose of the said clause (ac) i.e., to arrive at the FMV as
on 31.1.2018 for computing cost of acquisition of shares. However, the question states two prices on
31.1.2022, being the date of conversion of capital asset into stock in trade for which we have to
consider the definition of “fair market value” as per section 2(22B). As per this definition, FMV refers
to the price that the capital asset would ordinarily fetch on sale in the open market on the relevant
date. In the question, two prices are given on the relevant date i.e., the date of conversion of capital
asset into stock in trade, namely, the highest price and the closing price. The above solution is given
considering the closing price as the FMV as on 31.1.2022.
Miscellaneous Questions
Mr. Malik owns a factory building on which he had been claiming depreciation for the past few years.
It is the only asset in the block. The factory building and land appurtenant thereto were sold during
the year. The following details are available:
Particulars ₹
Building completed in September, 2004 for 10,00,000
Land appurtenant thereto purchased in April, 2003 for 11,00,000
CA NISHANT KUMAR 52
Advance received from a prospective buyer for land in May, 2004, forfeited in favour 50,000
of assessee, as negotiations failed
WDV of the building block as on 01-04-2022 8,74,800
Sale value of factory building in November, 2022 8,00,000
Sale value of appurtenant land 40,00,000
The assessee is ready to invest in long-term specified assets under section 54EC within specified time.
Compute the amount of taxable capital gain for the assessment year 2023-24 and the amount to be
invested under section 54EC for availing the maximum exemption. CII for F.Y. 2003-04 = 109.
Solution

Particulars ₹
Sale of Building
Sale Consideration of the Block 8,00,000
Less: WDV as on 01-04-2021 8,74,800
Short Term Capital Gain (74,800)
Sale of Land
Less: Indexed Cost of Acquisition {(₹11,00,000 – ₹50,000) × 331/109} 31,88,532
Taxable Long Term Capital Gains 7,36,668

Notes:
1. Advance Money forfeited before 01-04-2014 is reduced from the cost of acquisition of the
asset at the time of sale.
2. Deduction u/s 54EC is available only when the investment is made within 6 months from the
date of transfer.
Question 61 – CS Inter – June, 2005
Abhay purchased 1,000 listed equity shares of ₹10 each at ₹100 per share from a broker on 4 th May,
2014. He paid ₹3,000 as brokerage. On 15th March, 2022, he was given bonus shares by the company
on the basis of one share for every two shares held. On the same date, he was also given a right to
acquire 1,000 right shares @ ₹90 per share. He acquired 50% of the right shares offered and sold the
balance 50% of the rights entitlement for a sum of ₹67,500 on 7th April, 2022. The right shares were
allotted to him on 30th April, 2022. All the shares held by him were sold on 24th September, 2022 @
₹280 per share through a recognised stock exchange. Compute capital gain and tax assuming his
income from other sources is ₹5,40,000. FMV as on 31-01-2018 is ₹150 per share.
Solution

Particulars ₹
Original 1,000 Shares
CA NISHANT KUMAR 53
Less: FMV as on 31-01-2018 1,50,000
Less: Full Value of Consideration 2,80,000
.
500 Bonus Shares
.
500 Right Shares
Less: Cost of Acquisition 45,000
Short Term Capital Gains 95,000
.
Sale of Right Entitlement
Full Value of Consideration 67,500
Short Term Capital Gains 67,500
.
Computation of Tax Payable

Particulars ₹
Tax on Capital Gains on Sale of Right and Bonus Shares @ 15% 35,250
[15% × (₹1,40,000 + ₹95,000)]
Tax on Capital Gains on Sale of original 1,000 Shares @ 10% 3,000
[10% × (₹1,30,000 – ₹1,00,000)]
Tax on Remaining Income (₹5,40,000 + ₹67,500 = ₹6,07,500)
First ₹2,50,000 -
From ₹2,50,000 till ₹5,00,000 (5% × ₹2,50,000) 12,500
From ₹5,00,000 till ₹6,07,500 (20% × ₹1,07,500) 21,500 34,000
72,250
Add: Surcharge -
72,250
Add: Health and Education Cess @ 4% 2,890
Tax Liability 75,140
Question 62 – May, 1997
CA NISHANT KUMAR 54
NISH10 is the holder of 1,000 debentures of Shuchita Prakashan Ltd. having a face value of ₹1,000
each. The company has offered an option to the debenture-holders either to redeem the debentures
at ₹1,200 each or to convert the debentures into equity shares of equivalent value. The market value
of the shares on the date of exercising the option is ₹1,200 per share (face value ₹1,000). What will
be the tax consequences of the two options in the hands of debenture holder NISH10?
Solution
Option 1: Redemption of Debentures
Capital Gains are applicable in the case of redemption of debentures. Please note that indexation
benefit is not available in case of redemption of debentures.

Particulars ₹
Capital Gains 2,00,000
Option 2: Conversion into Equity Shares
As per section 47, conversion of debentures into equity shares is not regarded as a transfer. Therefore,
no capital gains shall arise at the time of conversion of debentures into equity shares.
Question 63
Ms. Smriti purchased 40 capital indexed bonds issued by Government listed in RSE for ₹10,000 each
on 01-04-2008. She sold all the bonds @ ₹40,500 per bond on 28th September, 2022. She invested
₹80,000 in bonds of NABARD on 01-11-2022 and ₹70,000 in the bonds of National Highway Authority
of India on 31-03-2023. Compute the tax liability of Ms. Smriti assuming that she has no other income
chargeable to tax. CII for F.Y. 2008-09 = 137
Solution

Particulars ₹
Less: Indexed Cost of Acquisition (40 × ₹10,000 × 331/137) 9,66,423
Less: Exemption u/s 54EC (Note 1) -
Long Term Capital Gains (Rounded Off) 6,53,580
Calculation of Tax Liability

Particulars ₹
10% of Gross Capital Gains (Without Basic Exemption)
Sale Proceeds 16,20,000
CA NISHANT KUMAR 55
Gross Capital Gains 12,20,000
10% thereof (A) 1,22,000
.
20% of Capital Gains (After Basic Exemption)
Less: Basic Exemption Limit 2,50,000
20% thereof (B) 80,715
.
Tax Liability [Lower of (A) or (B)] 80,715
Tax Liability (Rounded Off) 80,720
Notes:
1. Benefit of Section 54EC is available only when an immovable property is transferred. In the
present case, no immovable property was transferred, so benefit of section 54EC won't be
available.
2. Tax payable on listed securities (other than a unit) or zero-coupon bonds, shall be lower of:
a. 10% of Gross Capital Gains, i.e., Net Consideration – Cost of Acquisition without
Indexation (Without Basic Exemption)
b. 20% of Long-Term Capital Gains, i.e., Net Consideration – Indexed Cost of Acquisition
(After Basic Exemption)
Mukesh (aged 55 years) owned a residential house at Nagpur. It was acquired by Mukesh on 10-10-
2004 for ₹14,50,000. It was sold for ₹55,00,000 on 04-11-2022. The State stamp valuation authority
fixed the value of the property at ₹75,00,000. The assessee paid 2% of the sale consideration as
brokerage for the sale of the said property.
Mukesh acquired a residential house at Chennai on 10-12-2022 for ₹10,00,000 and deposited
₹10,00,000 on 10-04-2023 in the capital gain bond of Rural Electrification Corporation Ltd. (RECL). He
deposited ₹5,00,000 on 06-07-2023 in the Capital Gain Deposit Scheme in a nationalised bank for
construction of additional floor on the residential house property acquired at Chennai.
Compute the capital gain chargeable to tax in the hands of Mr. Mukesh. Calculate the income-tax
payable on the assumption that he has no other income chargeable to tax. CII for F.Y. 2004-05 = 113
Solution
Computation of Capital Gains and Tax Liability

Particulars ₹
Full Value of Consideration (Note 1) 75,00,000
Less: Transfer Expenses (2% × ₹55,00,000) 1,10,000
Capital Gains 31,42,655
Less: Exemption u/s 54 (Note 2) 15,00,000
Less: Exemption u/s 54EC (Note 3) 10,00,000 25,00,000
Less: Basic Exemption Limit (Note 4) 2,50,000
CA NISHANT KUMAR 56
Tax @ 20% 78,531
Total Tax Liability 81,672
Notes:
1. Since the SDV, i.e., ₹75,00,000 exceeds 110% of the Sale Consideration, SDV is treated as Full
Value of Consideration.
2.
Calculation of Exemption u/s 54

Particulars ₹
Cost of new residential house 10,00,000
Amount Deposited in Capital Gain Account Scheme 5,00,000
(Before the due date of filing of return of income)
15,00,000
Amount of Capital Gains 31,42,655
Whichever is Lower 15,00,000
3. Exemption u/s 54EC will be available because the investment in the bonds of RECL has been
made within 6 months from transfer of the residential house.
4. Since Mukesh is an individual having no other income, he shall get the benefit of basic
exemption limit against the long-term capital gains.
Question 65 – November 2012 – 8 Marks; November 2016 (Similar)
Mr. C inherited from his father 8 plots of land in 1980. His father had purchased the plots in 1960 for
₹5 lakhs. The fair market value of the plots as on 01-04-2001 was ₹8 lakhs. (₹1 lakh for each plot)
On 1st June 2003, C started a business of dealer in plots and converted the 8 plots as stock-in-trade of
his business. He recorded the plots in his books at ₹45 lakhs being the fair market value on that date.
In June 2005, C sold the 8 plots for ₹50 lakhs.
In the same year, he acquired a residential house property for ₹45 lakhs. He invested an amount of ₹5
lakhs in construction of one more floor in his house in June 2006. The house was sold by him in June
2022 for ₹90,00,000.
The valuation adopted by the registration authorities for charge of stamp duty was ₹1,50,50,000. As
per the assessee’s request, the Assessing Officer made a reference to a Valuation Officer. The value
determined by the Valuation Officer was ₹1,70,00,000.
Brokerage of 1% of sale consideration was paid by C. Give the tax computation for the relevant
assessment years with reasoning. CII for F.Y. 2003-04 = 109; 2005-06 = 117, 2006-07 = 122
Solution
Computation of Capital Gains and Tax Liability of Mr. C for A.Y. 2023-24
Particulars ₹
Full Value of Consideration (Note 1) 1,50,50,000
Less: Transfer Expenses (1% × ₹90,00,000) 90,000
1,49,60,000
CA NISHANT KUMAR 57
Less: Indexed Cost of Acquisition (₹45,00,000 × 331/117) 1,27,30,769
Less: Indexed Cost of Improvement (₹5,00,000 × 331/122) 13,56,557
Less: Basic Exemption Limit 2,50,000
Capital Gains for Computing Tax 6,22,673
Tax @ 20% 1,24,535
Total Tax Liability 1,29,516
Tax Liability (Rounded Off) 1,29,520
Notes:
1. Since the SDV, i.e., ₹1,50,50,000 is more than 110% of the sale consideration, SDV is treated
as the FVOC. Also, since the value adopted by the valuation officer exceeds the stamp duty
value, it will be ignored.
2. Since, for May, 2023 exams, the relevant assessment year is 2023-24, solution has been given
for that assessment year only.
Ms. Neelima had purchased 500 equity shares in A Ltd. at a cost of ₹330 per share (brokerage 1%) in
February 1995. She got 50 bonus shares in September 1999. She again got 550 bonus shares by virtue
of her holding on March 2005. Fair market value of the shares of A Ltd. on April, 2001 is ₹45. In January,
2023, she transferred all her shares @ ₹280 per share (brokerage 2%). The FMV of shares as on 31-
01-2018 is ₹150 per share. Compute the capital gains taxable in the hands of Ms. Neelima assuming:
1. A Ltd. is an unlisted company and securities transaction tax was not applicable at the time of
sale.
2. A Ltd. is a listed company and the shares are sold in a recognised stock exchange and securities
transaction tax was paid at the time of purchase and sale.
Solution
Computation of Capital Gains of Ms. Neelima for A.Y. 2023-24

Case 1 - Assuming the Shares are Unlisted
Particulars Original Shares 1st Bonus Shares 2nd Bonus Shares
Number 500 50 550
Full Value of Consideration 1,40,000 14,000 1,54,000
Less: Expenses on Transfer @ 2% 2,800 280 3,080
Net Sale Consideration 1,37,200 13,720 1,50,920
Less: Indexed Cost of Acquisition 74,475 7,448 -
Long Term Capital Gains 62,725 6,273 1,50,920
Total Long Term Capital Gains 2,19,918

Rounded Off 2,19,920
Computation of Capital Gains of Ms. Neelima for A.Y. 2023-24

Case 2 - Assuming the Shares are Listed
Particulars Original Shares 1st Bonus Shares 2nd Bonus Shares
Number 500 50 550
CA NISHANT KUMAR 58
Full Value of Consideration 1,40,000 14,000 1,54,000
Less: Expenses on Transfer @ 2% 2,800 280 3,080
Net Sale Consideration (A) 1,37,200 13,720 1,50,920
Less: FMV as on 31-01-2018 75,000 7,500 82,500
Less: Full Value of Consideration 1,40,000 14,000 1,54,000
Less: Whichever is Lower 75,000 7,500 82,500
Less: Actual Cost of Acquisition 22,500 2,250 -
Less: Whichever is Higher (B) 75,000 7,500 82,500
Long Term Capital Gains (A) – (B) 62,200 6,220 68,420
Total Long Term Capital Gains 1,36,840
Question 67 – May, 2014 – 8 Marks; May, 2017 (Similar) – 8 Marks
Mr. Roy, aged 55 years owned a Residential House in Ghaziabad. It was acquired by Mr. Roy on 10-10-
1986 for ₹6,00,000. The fair market value as on 01-04-2001 was ₹18,00,000. He sold it for ₹53,00,000
on 04-11-2022. The stamp valuation authority of the state fixed value of the property at ₹85,00,000.
The assessee paid 2% of the sale consideration as brokerage on the sale of the said property.
Mr. Roy acquired a residential house property at Kolkata on 10-12-2022 for ₹10,00,000 and deposited
₹7,00,000 on 10-04-2023 and ₹5,00,000 on 15-06-2023 in the Capital Gains Bonds of Rural
Electrification Corporation Ltd. He deposited ₹4,00,000 on 06-07-2023 and ₹3,00,000 on 01-11-2023
in the capital gain deposit scheme in a nationalised bank for construction of an additional floor on the
residential house property in Kolkata.
Compute the capital gain chargeable to tax for the assessment year 2023-24 and income tax
chargeable thereon assuming Mr. Roy has no other income.
Solution
Computation of Capital Gains and Tax Liability of Mr. Roy for A.Y. 2023-24
Particulars ₹
Less: Transfer Expenses (2% × ₹53,00,000) 1,06,000
Less: Capital Gains 24,36,000
Less: Cost of New House + Deposit Amount (Note 2) 14,00,000
Less: Exemption u/s 54EC (Note 3) 7,00,000
Tax on Capital Gains
Tax @ 20% [20% × (₹3,36,000 – ₹2,50,000)] (Note 4) 17,200
Less: Rebate u/s 87A (Note 5)
Less: Tax Liability 17,200
Less: ₹12,500 12,500
Tax 4,700
CA NISHANT KUMAR 59
Tax Liability 4,888
Notes:
1. Since the SDV, i.e., ₹85,00,000 exceeds 110% of the Sale Consideration, SDV is taken to be the
Full Value of Consideration.
2. Exemption u/s 54 is available if one/two new residential house(s) is/are purchased within 1
year before or 2 years after the date of transfer. Here, the new house is purchased within the
said time limit. Since the cost of new house is less than the amount of Capital Gains, the
amount of the cost of new house is exempt. Further, amount deposited in the capital gain
account scheme before the due date of filing of return of income is exempt. In the present
case, the amount of ₹4,00,000 was deposited before the due date of filing of return of income,
while the amount of ₹3,00,000 was deposited after the due date of filing return of income,
therefore, deduction of only ₹4,00,000 is allowed, even if it is deposited for the construction
of additional floor of the house.
3. Exemption u/s 54EC is available in respect of investment in bonds of Rural Electrification
Corporation only if the investment is made within a period of 6 months after the date of such
transfer. In this case, the investment made after 6 months, i.e., ₹5,00,000 shall not qualify for
exemption u/s 54EC.
4. The benefit of basic exemption limit is available against Long Term Capital Gains chargeable
to tax u/s 112 in case there is no other income.
5. Since the total income of Mr. Roy is less than ₹5,00,000, Rebate u/s 87A is available.
Mr. Martin sold his residential house property on 08-06-2022 for ₹70 lakhs which was purchased by
him for ₹20 lakhs on 05-05-2006.
1. He paid ₹50,000 as brokerage for the sale of said property. The stamp duty valuation assessed
by sub-registrar was ₹94 lakhs.
2. He bought another house property on 25-12-2022 for ₹15 lakhs.
3. He deposited ₹10 lakhs on 10-11-2022 in the capital gain bond of National Highway Authority
of India (NHAI).
4. He deposited another ₹10 lakhs on 10-07-2023 in the capital gain deposit scheme with SBI for
construction of additional floor of house property.
Compute income under the head “Capital Gains” for A.Y. 2023-24 as per Income-tax Act, 1961 and
also Income tax payable on the assumption that he has no other income chargeable to tax. CII for F.Y.
2006-07 = 122
Solution
Computation of Capital Gains and Tax Liability of Mr. Martin for A.Y. 2023-24
Particulars ₹
CA NISHANT KUMAR 60
Less: Capital Gains 39,23,770
Less: Cost of New House + Amount Deposited (Note 2) 25,00,000
Less: Whichever is lower 25,00,000
Tax on Capital Gains
20% × (₹4,23,770 – ₹2,50,000) (Note 4) 34,754
Less: Rebate u/s 87A (Note 5)
Less: Tax Liability 34,754
Less: ₹12,500 12,500
Tax 22,254
Tax Liability 23,144
Notes:
2. Exemption u/s 54 is available if one/two new residential house(s) is/are purchased within 1
year before or 2 years after the date of transfer. Here, the new house is purchased within the
said time limit. Since the cost of new house is less than the amount of Capital Gains, the
amount of the cost of new house is exempt. Further, amount deposited in the capital gain
account scheme before the due date of filing of return of income is exempt. In the present
case, the amount of ₹10,00,000 was deposited before the due date of filing of return of
income, therefore, deduction of ₹10,00,000 is allowed, even if it is deposited for the
construction of additional floor of the house.
3. Exemption u/s 54EC is available in respect of investment in bonds of Rural Electrification
Corporation only if the investment is made within a period of 6 months after the date of such
transfer. In this case, investment is made within the said time limit. Therefore, deduction u/s
54EC is allowed.
4. The benefit of basic exemption limit is available against Long Term Capital Gains chargeable
to tax u/s 112 in case there is no other income.
5. Since the total income of Mr. Martin is less than ₹5,00,000, Rebate u/s 87A is available.
Question 69 – ICAI SM – Question 3
Mrs. Harshita purchased a land at a cost of ₹35 lakhs in the financial year 2004-05 and held the same
as her capital asset till 20th March, 2022.
She started her real estate business on 21st March, 2022 and converted the said land into stock-in-
trade of her business on the said date, when the fair market value of the land was ₹210 lakhs.
She constructed 15 flats of equal size, quality and dimension. Cost of construction of each flat is ₹10
lakhs. Construction was completed in February, 2023. She sold 10 flats at ₹30 lakhs per flat in March,
2023. The remaining 5 flats were held in stock as on 31st March, 2023.
She invested ₹50 lakhs in bonds issued by National Highways Authority of India on 31st March, 2023
and another ₹50 lakhs in bonds of Rural Electrification Corporation Ltd. in April, 2023.
CA NISHANT KUMAR 61
Compute the amount of chargeable capital gain and business income in the hands of Mrs. Harshita
arising from the above transactions for Assessment Year 2023-24 indicating clearly the reasons for
treatment for each item. [Cost Inflation Index: F.Y. 2004-05: 113; F.Y. 2021-22: 317].
Solution
Computation of Capital Gains of Mrs. Harshita for A.Y. 2023-24

Particulars ₹
On Conversion of Capital Asset into Stock-in-Trade
Full Value of Consideration (FMV on the date of Conversion) 2,10,00,000
Long Term Capital Gains 1,11,81,416
Proportionate Capital Gains Taxable in A.Y. 23-24 (10/15 × ₹1,11,81,416) 74,54,277

Capital Gains chargeable to tax in A.Y. 2023-24 24,54,277
Computation of Business Income of Mrs. Harshita for A.Y. 2023-24

Particulars ₹
Sale Proceeds from Flats 3,00,00,000
Less: Cost of Land (Proportionate FMV) 1,40,00,000
Less: Cost of Construction 1,00,00,000 2,40,00,000
Business Income 60,00,000
Notes:
1. The conversion of a capital asset into stock-in-trade is treated as a transfer under section
2(47). It would be treated as a transfer in the year in which the capital asset is converted into
stock-in-trade (i.e., P.Y.2021-22, in this case).
2. However, as per section 45(2), the capital gains arising from the transfer by way of conversion
of capital assets into stock-in-trade will be chargeable to tax only in the year in which the
stock-in-trade is sold.
3. The indexation benefit for computing indexed cost of acquisition would, however, be available
only up to the year of conversion of capital asset into stock-in-trade (i.e., P.Y.2021-22) and not
up to the year of sale of stock-in-trade (i.e., P.Y. 2022-23).
4. For the purpose of computing capital gains in such cases, the fair market value of the capital
asset on the date on which it was converted into stock-in-trade shall be deemed to be the full
value of consideration received or accruing as a result of the transfer of the capital asset. In
this case, since only 2/3rd of the stock-in-trade (10 flats out of 15 flats) is sold in the P.Y.2022-
23, only proportionate capital gains (i.e., 2/3rd) would be chargeable to tax in the A.Y.2023-
24.
5. On sale of such stock-in-trade, business income would arise. The business income chargeable
to tax would be the difference between the price at which the stock-in-trade is sold and the
fair market value on the date of conversion of the capital asset into stock-in-trade.
6. In case of conversion of capital asset into stock-in-trade and subsequent sale of stock-in-trade,
the period of 6 months is to be reckoned from the date of sale of stock-in-trade for the
purpose of exemption under section 54EC. In this case, since the investment in bonds of NHAI
has been made within 6 months of sale of flats, the same qualifies for exemption under section
54EC. With respect to long-term capital gains arising on land or building or both in any financial
CA NISHANT KUMAR 62
year, the maximum deduction under section 54EC would be ₹50 lakhs, whether the
investment in bonds of NHAI or RECL are made in the same financial year or next financial
year or partly in the same financial year and partly in the next financial year. Therefore, even
though investment of ₹50 lakhs has been made in bonds of NHAI during the P.Y. 2022-23 and
investment of ₹50 lakhs has been made in bonds of RECL during the P.Y. 2023-24, both within
the stipulated six-month period, the maximum deduction allowable for A.Y. 2023-24, in
respect of long-term capital gain arising on sale of long-term capital asset(s) during the P.Y.
2022-23, is only ₹50 lakhs.
Mrs. Mahalakshmi, an individual, aged 68 years, mortgaged her Residential Property, purchased for
₹3 lakhs on 01-10-2002, with a bank, under a notified reverse mortgage scheme and was sanctioned
a loan of ₹20 lakhs. As per the said scheme, she was receiving the loan amount in equal monthly
instalments of ₹30,000 per month from the bank. Mrs. Mahalakshmi was not able to repay the loan
on maturity and in lieu of settlement of the loan surrenders the residential property to the bank. Bank
sold the property for ₹25 lakhs on 22-02-2023. She had no other income during the year.
Discuss the tax consequences and compute tax for Assessment Year 2023-24. CII for F.Y. 2002-03 =
105.
Solution
The tax consequences in the hands of Mrs. Mahalakshmi are as under:
1. At the time of mortgage:

As per section 47, any transfer of a capital asset in a transaction of reverse mortgage under a
scheme made and notified by the Central Government will be not regarded as a transfer.
Therefore, capital gains tax liability is not attracted.
Section 10(43) provides that the amount received by a senior citizen as a loan, either in lump
sum or in instalments, in a transaction of reverse mortgage would be exempt from income-
tax. Therefore, the amount received by Mrs. Mahalakshmi in a transaction of reverse
mortgage of her residential building is exempt u/s 10(43).
2. At the time of alienation of house property:
When the bank alienates the property for the purpose of recovery of the loan on non-payment
of the loan, then the same will constitute ‘transfer’ and the capital gains so computed will be
taxed accordingly. Therefore, capital gains in the hands of Mrs. Mahalakshmi are as under:
Computation of Capital Gains of Mrs. Mahalakshmi for A.Y. 2023-24

Particulars ₹
Less: Transfer expenses -
Less: Indexed Cost of Acquisition (₹3,00,000*331/105) 9,45,714
Tax Liability
Tax @ 20% [20% × (₹15,54,286 – ₹3,00,000)] 2,50,857
Tax Liability 2,60,891
CA NISHANT KUMAR 63
Tax Liability (Rounded Off) 2,60,890
Question 71 – July, 2021 – 4 Marks
Examine the taxability of Capital Gains in the following scenarios for the Assessment Year 2023-24,
determine the taxable amount and the rate applicable:
1. On 28th February, 2023, 10,000 shares of XY Ltd., a listed company are sold by Mr. B @ 550
per share and STT was paid at the time of sale of shares. These shares were acquired by him
on 5th April, 2017 @ ₹395 per share by paying STT at the time of purchase. On 31st January,
2018, the shares of XY Ltd. were traded on a recognized stock exchange at the Fair Market
Value of ₹390 per Share.
2. Mr. A is the owner of residential house which was purchased on 1st September, 2016 for
₹9,00,000. He sold the said house on 4th September, 2022 for ₹19,00,000. Valuation as per
stamp valuation authorities was ₹45,00,000. He invested ₹19,00,000 in NHAI Bonds on 21st
March, 2023.
The Cost Inflation index for F.Y. 2016-17 = 264; F.Y. 2020-21 = 301
Solution
Computation of Capital Gains of Mr. B for A.Y. 2023-24

Particulars ₹
On Sale of Shares
Less: FMV as on 31-01-2018 39,00,000
Less: Full Value of Consideration 55,00,000
Long-term capital gain exceeding ₹1 lakh i.e., ₹14,50,000 would be taxable
@10%.
.
On Sale of Residential House
Less: Exemption u/s 54EC (Note 2) -
Long-term capital gain taxable u/s 112 @ 20%
Notes:
CA NISHANT KUMAR 64
2. No deduction under section 54EC would be allowed on investment of ₹19,00,000 in NHAI
bonds, since such investment is made on 21st March 2023 i.e., after six months from the date
of transfer i.e., 4th September, 2022.
CA NISHANT KUMAR 65

Chapter 3 - Income From Capital Gains - Notes

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Income from Capital Gains

Section 45(1): Charging Section

Therefore, following conditions must be satisfied for taxability of Capital Gains:

1. There must be a Capital Asset

Section 2(14): Meaning of Capital Asset

However, it does not include:

1. Stock-in-Trade (Raw Materials/WIP/Finished Goods)

• Kilometers are measured aerially.

1. Sale of Capital Asset

S. No. Period of Holding for Considering

1. Indexed Cost of Acquisition

F.Y. 22-23 331

It’s a personal effect.

Sold in F.Y. 2023-24.

Rural Agricultural Land is exempt.

Computation of Capital Gain of Mrs. Priya for A.Y. 2023-24

Computation of Capital Gain of NISH10 for A.Y. 2023-24

Computation of Capital Gain of NISH10 for A.Y. 2023-24

Computation of Capital Gain of NISH10 for A.Y. 2023-24

Computation of Capital Gain of NISH10 for A.Y. 2023-24

Computation of Capital Gain of NISH10 for A.Y. 2023-24

Computation of Capital Gain of NISH10 for A.Y. 2023-24

Computation of Capital Gain of NISH10 for A.Y. 2023-24

P.Y. 96-97 4,00,000

Computation of Capital Gain of NISH10 for A.Y. 2023-24

Computation of Capital Gain of NISH10 for A.Y. 2023-24

Section 45(2): Conversion of Capital Asset into Stock in Trade

Capital Gain PGBP

Question 15 – ICAI SM – Question 2

Computation of Capital Gain

Section 45(5): Compulsory Acquisition of Capital Asset

Part A: Initial Compensation Part B: Enhanced Compensation

Computation of Capital Gain for P.Y. 22-23 A.Y. 23-24

Computation of Capital Gain for P.Y. 24-25 A.Y. 25-26

Compensation Received in Instalments

Taxable Amount = Interest Received × 50% (Standard Deduction 50%)

Mr. NISH10 - P.Y. 22-23 A.Y. 23-24

Mr. NISH10 - P.Y. 24-25 A.Y. 25-26

Section 45(1A): Destruction/Damage of Capital Asset

1. Natural Calamity, e.g., Floods, Tsunami

Computation of Capital Gain of Mr. NISH10 for P.Y. 2022-23

1. Insurance Premium paid is not allowed as deduction.

Section 45(5A): Immovable Property Transfer in Joint Development

Section Particulars Year of Transfer Year of Tax

What is Stamp Duty?

What is Stamp Duty Value?

In case of immovable property held as Capital Asset

Case I Case II Case III Case IV

Computation of Capital Gain of Mr. NISH10 for P.Y. 2022-23

SDV on the Date of Registration or Agreement?

Special Case 2: Section 51 – Advance Money Forfeited (Token Money)

1. Cost of Asset (if asset is acquired on or after 01-04-2001)

Note: Advance money forfeited by previous owner shall not be reduced.

Computation of Capital Gain of Mr. NISH10 for P.Y. 2022-23

Computation of Income from Other Sources

Special Case 3: Section 47 – Transactions not treated as Transfer

1. Cost of Acquisition = Cost to Previous Owner [Section 49(1)]

Computation of Capital Gain of Charu for P.Y. 2022-23

Question 25 – May, 2011 (Adapted)