Chapter 3 – 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.

Meaning of Capital Asset

Section 2(47): Meaning of Transfer

Transfer includes:

1. Sale of Capital Asset

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 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)

Classification of Capital Asset

1. Capital Assets are classified into two categories:
a. Short Term Capital Assets, and
b. Long Term Capital Assets.
2. This classification depends on the period of holding.
3. Period of holding means the duration for which an assessee owns the asset.
4. On the basis of period of holding, assets are classified as short or long term as per the
following:
Assets Classification
• Security (other than unit) Listed in a Recognised
Stock Exchange STCA, if held for ≤ 12 months
• Unit of Equity-Oriented Fund/Unit of UTI LTCA, if held for > 12 months
• Zero Coupon Bond
• Unlisted Shares STCA, if held for ≤ 24 months
• Land or Building or Both LTCA, if held for > 24 months
• Unit of Debt Oriented Fund
STCA, if held for ≤ 36 months
• Unlisted Securities Other Than Shares
LTCA, if held for > 36 months
• Other Capital Assets

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
𝐼𝑛𝑑𝑒𝑥 𝑜𝑓 𝑡ℎ𝑒 𝑌𝑒𝑎𝑟 𝑜𝑓 𝑇𝑟𝑎𝑛𝑠𝑓𝑒𝑟
𝐼𝑛𝑑𝑒𝑥𝑒𝑑 𝐶𝑂𝐼 = 𝐶𝑂𝐼 ×
𝐼𝑛𝑑𝑒𝑥 𝑜𝑓 𝑡ℎ𝑒 𝑌𝑒𝑎𝑟 𝑜𝑓 𝐼𝑚𝑝𝑟𝑜𝑣𝑒𝑚𝑒𝑛𝑡
3. Any property acquired before 01-04-2001:
Cost of Acquisition
a. Cost of Asset
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 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

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
st
Fair market value of the property on 1 April, 2001 22,00,000
Stamp duty value of the property as on 1st April, 2001 20,00,000
th
The house property is sold by him on 15 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

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

Particulars ₹
Full Value of Consideration 1,50,00,000
Less: Transfer Expenses 1,00,000
Net Consideration 1,49,00,000
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
Long Term Capital Gain 19,17,746

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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

Particulars ₹ Particulars ₹
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 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)

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: Transfer Expenses -
Net Consideration 3,00,000
Less: ICOA (₹80000 × 317/113) 2,24,425
Long Term Capital Gain 75,575

Computation of PGBP
Particulars ₹
Sale Value of Stock 3,25,000
Less: FMV as on Date of Conversion 3,00,000
PGBP 25,000

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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
Particulars ₹ Particulars ₹
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 3

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: Transfer Expenses -
Net Consideration 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

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.

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

Question 4

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: Transfer Expenses -
Net Consideration 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.

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

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 Less: COI/ICOI xxx
ST/LTCG xxx

Question 5

Mr. NISH10 acquired a House Property for ₹4,00,000 in P.Y. 02-03. 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
Less: Transfer Expenses -
Net Consideration 38,00,000
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)
1. Definition of transfer: The term “transfer” includes a situation where possession of immovable
property is given as part performance of a contract. It means that if someone allows another
person to use their land for a real estate project in exchange for a share in the project, it can
be considered a transfer.
2. Joint Development Agreement (JDA): Let’s say there’s a person A who owns a piece of land.
Person B is a builder who wants to develop a real estate project on A’s land. In this agreement,
B needs to buy A’s land and give A some consideration, which could be a share in the real
estate project and possibly some cash. This kind of an agreement is known as a Joint
Development Agreement.
3. Capital gains income: In a joint development agreement, even though A transfers the land to
B, the consideration for it will be received only when the real estate project is complete. So,
the income from the capital gains is considered in the year when the competent authority
issues a certificate of completion for the entire or part of the project.
4. Conditions for applicability: To be eligible for the provisions of Section 45(5A), certain
conditions need to be met:
a. The owner (assessee) of the land/building should be an Individual or a Hindu
Undivided Family (HUF).
b. The owner must have entered into a “specified agreement” with the builder/joint
developer for the development of a housing project.

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 Note: “Specified Agreement” is a registered agreement where the land/building
owner agrees to allow another person to develop a real estate project on their
property in exchange for a share in that project, with or without payment in cash.
5. Taxation of capital gains: If the above conditions are met, the capital gain from the transfer
will be taxable in the hands of the land/building owner in the year when the competent
authority issues the completion certificate for the whole or part of the project.
6. Full Value of Consideration: The value of consideration for the transfer is calculated as follows:
Full Value of Consideration = Share of the owner in the project on the date of issuing
completion certificate + monetary consideration.
7. Impact of share transfer: If the owner transfers his share in the project to someone else before
the completion certificate is issued, the capital gains will be considered as income in the year
of the share transfer. In this case, the special provisions of Section 45(5A) won’t apply, and
the capital gains will be calculated according to the general provisions of the Income Tax Act.
8. In summary, Section 45(5A) deals with the taxation of capital gains in a joint development
agreement. If the conditions are met, the capital gains income is taxed in the year of
completion certificate issuance. Otherwise, the normal capital gains tax provisions apply if the
owner transfers their share before completion.

Four Exceptional Cases at a Glance

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

Special Case 1: Section 50C – Stamp Duty Value shall be treated as Full
Value of Consideration

In case of immovable property held as Capital Asset

If SDV > 110% of Sale Consideration, then such SDV shall be treated as FVOC.

Question 6

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:

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 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.
4. If value determined by VO is less than the value claimed by the assessee, then also, value of
VO shall be ignored, and the value claimed by the assessee shall be treated as FVOC.

Question 7

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

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

Particulars ₹
FVOC:
Higher of:
Selling Price 50,00,000
Stamp Duty Value (₹5,00,000 ÷ 8%) 62,50,000 62,50,000
Less: Transfer Expenses 50,000
Net Consideration 62,00,000
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.

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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
𝐼𝑛𝑑𝑒𝑥 𝑜𝑓 𝑡ℎ𝑒 𝑌𝑒𝑎𝑟 𝑜𝑓 𝑇𝑟𝑎𝑛𝑠𝑓𝑒𝑟
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 8

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 01-04-2001 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

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 Less: Transfer Expenses -
Net Consideration 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.

Question 9

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.
CA NISHANT KUMAR 11
 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.
13. 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 10

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.

Question 11

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-

CA NISHANT KUMAR 12
 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 ₹
Full Value of Consideration 25,00,000
Less: Transfer expenses -
Net Consideration 25,00,000
Less: Indexed Cost of Acquisition (₹3,00,000 × 331/105) 9,45,714
Long Term Capital Gains 15,54,286

Tax Liability
Tax @ 20% [20% × (₹15,54,286 – ₹3,00,000)] 2,50,857
Add: Health and Education Cess @ 4% 10,034
Tax Liability 2,60,891
Tax Liability (Rounded Off) 2,60,890

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.

CA NISHANT KUMAR 13
Question 12

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
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
Long Term Capital Gain (6,880)

1100 Bonus Shares

Sale Proceeds (1100 × ₹200) 2,20,000
Less: Brokerage Paid (2% of ₹2,20,000) 4,400
Net Sale Consideration 2,15,600
Less: Indexed COA -
Long Term Capital Gain 2,15,600

Long Term Capital Gain 1,39,920

Question 13

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 ₹

CA NISHANT KUMAR 14
 1000 Original Shares
Sale Proceeds (1000 × ₹300) 3,00,000
Less: Brokerage Paid -
Net Sale Consideration 3,00,000
Less: Indexed COA (₹75,000 × 331/100) 2,48,250
Long Term Capital Gain 51,750
.
200 Right Shares
Sale Proceeds (200 × ₹300) 60,000
Less: Brokerage Paid -
Net Sale Consideration 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 -
Short Term Capital Gain 6,000
.
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: Brokerage Paid -
Net Sale Consideration 56,000
Less: COA 38,000
Short Term Capital Gain 18,000

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
Net Consideration Xxx

CA NISHANT KUMAR 15
 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

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 14

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

CA NISHANT KUMAR 16
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)
Less: Transfer Expenses 28,000
29,72,000
Less: COA (Net Worth) (Note 1) 12,50,625
LTCG 17,21,375

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

CA NISHANT KUMAR 17
 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.

Question 15

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
Less: Transfer Expenses -
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 16

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

Computation of Capital Gains of Mr. NISH10 for A.Y. 2023-24

Particulars ₹
CA NISHANT KUMAR 18
 FVOC 40,00,000
Less: Transfer Expenses -
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.

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.
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 17

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.

CA NISHANT KUMAR 19
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

Calculation of Capital Gain of Mr. Sarthak for A.Y. 2023-24

Particulars ₹
FVOC (Notes 1 and 2) 1,70,00,000
Less: Transfer Expenses -
Net Consideration 1,70,00,000
Less: ICOA (₹30,00,000 × 331/100) 99,30,000
Gross LTCG 70,70,000
Less: Exemption u/s 54 (Note 3)
Less: Lower of:
Less: (i) Capital Gain 70,70,000
Less: (ii) Cost of New Asset 55,00,000 55,00,000
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 18

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
CA NISHANT KUMAR 20
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

Calculation of Capital Gain of Mr. Shiva for A.Y. 2023-24

Particulars ₹
FVOC (Notes 1 and 2) 39,00,000
Less: Transfer Expenses 30,500
Net Consideration 38,69,500
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

CA NISHANT KUMAR 21
 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

1. Eligible Assessee: Individual/HUF
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.
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.
7. Amount of Exemption:
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 19

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

Computation of Capital Gains of Mr. NISH10 for A.Y. 2023-24

Particulars ₹
FVOC 25,00,000
Less: Transfer Expenses 75,000
Net Consideration 24,25,000
Less: ICOA (4,00,000 × 331/117) 11,31,624
Gross LTCG 12,93,376
Less: Exemption u/s 54B
Less: Lower of:
Less: (i) Capital Gain 12,93,376
Less: (ii) Cost of New Asset/Deposit Amount 12,00,000 12,00,000
Net LTCG 93,376

CA NISHANT KUMAR 22
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
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 20

CA NISHANT KUMAR 23
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: Transfer Expenses -
Net Consideration 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

Question 21

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: Transfer Expenses -
Net Consideration 75,00,000
Less: ICOA (₹10,00,000 × 331/100) 33,10,000
Less: ICOI (₹2,00,000 × 331/117) 5,65,812
Gross LTCG 36,24,188
Less: Exemption u/s 54
Less: Lower of:
Less: (i) LTCG 36,24,188

CA NISHANT KUMAR 24
 Less: (ii) Cost of New Asset 25,00,000 25,00,000
Net LTCG 11,24,188

Calculation of Capital Gain of Mr. Selvan for A.Y. 2024-25

Particulars ₹
FVOC 40,00,000
Less: Transfer Expenses -
Net Consideration 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

1. Eligible Assessee: Individual/HUF
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
5. Time Limit: Same as Section 54 (–1, +2, +3)
6. CGAS: Same as Section 54
7. Amount of Exemption:
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
formula:
𝐶𝑜𝑠𝑡 𝑜𝑓 𝑁𝑒𝑤 𝐴𝑠𝑠𝑒𝑡/𝐷𝑒𝑝𝑜𝑠𝑖𝑡 𝐴𝑚𝑜𝑢𝑛𝑡
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 22

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

CA NISHANT KUMAR 25
Particulars ₹
FVOC 11,50,000
Less: Transfer Expenses 7,000
Net Consideration 11,43,000
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)
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)

CA NISHANT KUMAR 26
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 23

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.
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
Long Term Capital Gain 1,33,333
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).

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”.

CA NISHANT KUMAR 27
 o Hence, capital gains arise in the hands of shareholders.
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 24

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

CA NISHANT KUMAR 28
amount assessed as dividend and the sum so arrived at shall be deemed to be the full value of
consideration.

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
Full Value of Consideration 7,33,333
Less: Indexed Cost of Acquisition (₹1,20,000 × 331/113) 3,51,504
Long Term Capital Gains 3,81,829

Computation of Capital Gains on Transfer of Land

Particulars ₹
Full Value of Consideration 15,00,000
Less: Cost of Acquisition 10,00,000
Short Term Capital Gains 5,00,000

Buy Back of Shares or Specified Securities

Taxability in the Buyback of shares by Buyback of shares by Buyback of specified
hands of domestic companies a company, other securities by any
than a domestic company
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

CA NISHANT KUMAR 29
Taxability of Capital Gains

Points to be considered:

1. For Resident Individual or HUF, if other income is less than the basic exemption limit, then
STCG/LTCG shall be reduced by such shortfall, and the balance STCG/LTCG shall be taxed at
their respective rates.
2. Also, deductions under Chapter VI-A are not applicable against STCG/LTCG which are
chargeable at special rates of 10%, 15%, or 20%.
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
(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

CA NISHANT KUMAR 30
 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.

Question 25

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

Computation of Capital Gain

Particulars ₹
Full Value of Consideration 16,75,000
Less: Expenses on Transfer (0.5% × ₹16,75,000) 8,375
Net Consideration 16,66,625
Less: Cost of Acquisition
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
Long Term Capital Gain 1,41,625
Note: The benefit of STT paid at the time of acquisition as well as at the time of transfer is not available.

Question 26

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.

CA NISHANT KUMAR 31
 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: Expenses on Transfer -
Net Consideration 65,00,000
Less: Cost of Acquisition
Less: FMV as on 31-01-2018 (Highest Price) 30,00,000
Less: FVOC 65,00,000
Less: Whichever is Lower 30,00,000
Less: Actual Cost of Acquisition (10,000 × ₹100) 10,00,000
Less: Whichever is Higher 30,00,000
Long Term Capital Gains 35,00,000
.
Units of B Mutual Fund (Equity Oriented)
Full Value of Consideration (1,000 × ₹50) 50,000
Less: Transfer Expenses -
Net Consideration 50,000
Less: Cost of Acquisition
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: Expenses on Transfer -
Net Consideration 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 ₹

CA NISHANT KUMAR 32
 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. 1,690
(20% × ₹8,450)
Total Tax Liability 3,41,690

Question 27

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 ₹
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: Transfer Expenses -
Net Consideration 19,20,000
Less: Cost of Acquisition
Less: FMV as on 31-01-2018 (Highest Price) 17,60,000
Less: FVOC 19,20,000
Less: Whichever is Lower 17,60,000
Less: Actual Cost of Acquisition (800 × ₹900) 7,20,000
Less: Whichever is Higher 17,60,000
Long Term Capital Gains 1,60,000
.
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: Cost of Acquisition
Less: FMV as on 31-01-2018 (Highest Price) 22,00,000
Less: FVOC 21,00,000
Less: Whichever is Lower 21,00,000
Less: Actual Cost of Acquisition (1000 × ₹900) 9,00,000
Less: Whichever is Higher 21,00,000
Long Term Capital Gains -
.
Total Income 4,60,000

CA NISHANT KUMAR 33
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.

Question 28

Ms. Neelima had purchased 500 equity shares in A Ltd. at a cost of ₹30 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
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: Cost of Acquisition
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

CA NISHANT KUMAR 34
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

CA NISHANT KUMAR 35