Chapter
PART II
INDIRECT TAX (GST & CUSTOMS)
CHAPTER
Q.1 Define Transfer as per Income-tax Act, 1961. [June 2014 New] [6 Marks]
Ans.: Transfer of a capital asset includes Sale, Exchange, or Relinquishment of the asset or compulsory acquisition by Law. Following rules are applicable in this regard for purpose of capital gain:
1.Immovable Property when documents are registered – Transfer is effective when conveyance deed is registered. OR under section 53A, when a contract is signed and advance is given, later on registered.
2.Movable Property – When property is delivered.
Q.2 Write a note on Long Term Capital Gain and Short Term Capital Gain. [Dec. 2009] [4 Marks]
Ans.: LONG TERM CAPITAL GAIN:
Long term capital gain arises when period of holding a capital asset is more than 12/24 months as per following categories:
CATEGORY A:
In case of following assets the period of holding must be 12 months: Securities which are listed in a recognized stock exchange in India. Units of equity-oriented fund. Units of Unit Trust of India. Zero Coupon Bonds.
CATEGORY B:
Other capital assets 24 months:
SHORT TERM CAPITAL GAIN:
Short term capital gain arises when the period of holding of an assets is less, as per detailed description given above in long term capital gain.
PART I : DIRECT TAX
Q.3 Distinguish between ‘Long Term Capital Gain’ and ‘Short Term Capital Gain’. [June 2009] [2 Marks]
Ans.:
Long Term Capital GainShort Term Capital Gain
1. A Capital Asset held by an assessee ≤ 12/24 months.
2. Securities listed in recognized stock exchange in India, Units of UTI, Units of an equity oriented mutual fund, Zero Coupon bonds, the period of holding is ≤ 12 months
3. In case of other capital assets the period of holding is more than 12/24 months.
A Capital Asset held by an assessee for less period.
Securities listed in recognized stock exchange in India, Units of UTI, Units of an equity oriented mutual fund, Zero Coupon bonds, the period of holding is less than 12 months
In case of other assets the period of holding is less than 12/24 months
Q.4 Distinguish between Cost of Acquisition and Cost of Improvement. [June 2011] [3 Marks]
Ans.: Cost of acquisition of an asset is the value which was paid by the assessee. It includes expenses/commission paid on purchase and interest on money borrowed to purchase the asset.
Cost of improvement is capital expenditure incurred by the assessee in making additions and improvement, which enhance capital value of asset.
Q.5 Discuss the tax implications arising consequent to conversion of a capital asset into stock-in-trade of business and its subsequent sale. [June 2014 New] [7.5 Marks]
Ans.: If a capital asset is converted into stock-in-trade the following rules are applicable regarding valuation of the asset on date of conversion and its subsequent sale:
1. It is assumed that capital asset has been transferred on the date of its conversion.
2. Accordingly fair market value of the asset on the date of conversion is taken as full value of the asset converted.
3. However, capital gain (if any) is taxable only when asset is actually sold out after conversion into stock in trade.
4. Any profit or loss after conversion will be business income or loss, as the case may be.
Q.6 Write short notes on the capital gains in case of damage or destruction of capital asset. [Dec. 2009] [5 Marks]
Ans.: If a person receives insurance claim or compensation from government in case of damage or destruction of capital asset, it is treated as full value of consideration for purpose of computation of capital gain (if any) and it is taxable. However this rule is applicable only when damage or destruction was caused by following:
1. Flood, Typhoon, Hurricane, Cyclone, Earthquake etc.
2. Riot or Civil Disturbance.
3. Accidental fire or explosion.
4. Action by enemy or in combating an enemy.
Q.7 Explain the provisions of section 54F in relation to capital gains on transfer of asset other than a residential house? [Dec. 2011] [5 Marks]
Ans.: Under section 54F Capital Gain arising on transfer of any long-term asset (except residential house property) is eligible for exemption, provided net sale proceeds were invested in acquisition of another one house within one year prior or two years hence from the date of transfer. If new one house is constructed, the period is next three years from the date of transfer. Exemption under section 54F is available, provided on the date of transfer the taxpayer owns one residential house only. Amount of exemption is as follows:
Amount of Exemption = Capital Gain × Cost of new house/Net Sales Consideration of asset sold
Q.8 Distinguish Between Exemption under Section 54G and Exemption under Section 54GA. [Dec. 2010] [5 Marks]
Ans.: Under section 54G, Capital Gain arising on transfer of assets due to shifting of an industrial undertaking from urban area to rural area is exempt. The exemption is amount of Capital gain or investment in new assets acquired, whichever is less.
Under section 54GA, Capital Gain arising on transfer of assets due to shifting of industrial undertaking from urban area to special economic zone is exempt. The exemption is amount of Capital gain or investment in new assets acquired, whichever is lower.
Q.9 Rupesh acquired a residential house on 01-09-2001 for ` 10,00,000. He spent ` 2,50,000 on 01-07-2003 and on 15-11-2008 ` 5,00,000 on improvement of this house property. He sold the house on 30-06-2025 for ` 80,00,000. Expenses on transfer (sale) were 2% of sales consideration. Compute Capital Gain and tax for the Assessment Year 2026-27.
Cost inflation indexes are as under: 2001-02 = 100, 2003-04 = 109, 2008-09 = 137, 2025-26 = 376. [Dec. 2009] [5 Marks]
PART I : DIRECT TAX
Ans.:
Net Sale Proceed of the House (` 80,00,000 – ` 1,60,000)78,40,000
Less: Cost of Acquisition
1. ` 10,00,000 on 01.09.2001
2. ` 2,50,000 on 01.07.2003
3. ` 5,00,000 on 15.11.2008 (17,50,000)
4.Long Term Capital Gain 60,90,000
Computation of Long Term Capital Gain Tax:
In case of Resident Individual and Hindu Undivided family, Long Term Capital Gain Tax on land or building or both (if acquired before 23.07.2024), would be taxable as under:
(a) Without indexation @12.5%
(b) With Indexation @20%
Whichever is beneficial for tax payer.
Accordingly Long term Capital Gain Tax would be calculated as under:
(a) Without indexation:
(60,90,000 × 12.50/100) = ` 7,61,250
(b) With Indexation:
(i) Indexed Cost of Acquisition:
10,00,000 × 376/100 = 37,60,000
250000 × 376/109 = 8,62,385
500000 × 376/137 = 13,72,263
Total = 59,94,648
(ii) Long term Capital Gain with Indexation = 78,40,000 – 59,94,648 = ` 18,45,352
(iii) Long Term Capital Gain Tax = (18,45,352 × 20/100) = ` 3,69,070 Indexation is beneficial for tax Payer.
Q.10 Vinod sells the following assets on 10th July, 2025.
Transfer Expenses4,00025,000
Date of Acquisition04-05-200104-03-200804-02-2003
Based on the following indices, Compute the amount of Capital Gain of Vinod for the Assessment Year 2026-27 taking into consideration the facts that the business was set up in November 2009 and that he purchased a plot of land for ` 8,00,000 and Jewellery for ` 2,00,000 on 10th March, 2026. Cost inflation index for various years are 2001-02 = 100, 2002-03 = 105, 2007-08 = 129, 2025-26 = 376. [Dec. 2010] [5 Marks]
Ans.:
Computation of Capital Gain of Vinod for Assessment Year 2026-27 ParticularsAmountAmount
1.Equity Shares: Sale Consideration6,00,000
Less: Transfer Expenses (deemed on sales) (4,000) 5,96,000
Less: Cost of Acquisition (40,000)5,56,000
2.Jewellery: Sales Consideration7,50,000
Less: Cost of Acquisition (80,000)6,70,000
3.Plot of Land: Sale Consideration25,00,000
Less: Transfer Expenses (deemed on sales) (25,000) 24,75,000
Less: Cost of Acquisition (2,50,000)22,25,000
4.Self-Generated Goodwill 25,00,000
5.Long Term Capital Gain 59,11,000
Note:
Computation of Long Term Capital Gain Tax on Plot of Land: In case of Plot of Land acquired on 04.02.2003 (i.e. acquired before 23.07.2024) Long term capital gain tax would be least of the following, which is beneficial for the tax payer, as under:
(a) Without indexation: (22,25,000 × 12.50/100) = ` 2,78,125
(b) With Indexation:
(i) Long Term Capital Gain: 24,75,000 – (2,50,000 × 376/105) = 24,75,000 – 8,95,238 = 15,79,762
(ii) Long Term Capital Gain Tax = (15,79,762 × 20/100) = ` 3,15,952 Hence Long term capital gain tax on Plot of Land, without indexation is beneficial for tax Payer.
PART I : DIRECT TAX
Q.11 Deepak acquired 200 listed debentures of ` 100 each on 15th May, 2017. 50% value of each debenture was converted into 4 listed equity shares of the face value of ` 10 each on 20th August, 2024. Deepak, therefore, received 800 shares of face value of ` 10 each and was left with 200 debentures of ` 50 each. The shares were sold on 15th June, 2025 @ ` 100 per share through recognized stock exchange and Deepak paid ` 800 as security transaction tax.
Compute the amount of Capital Gain of Deepak for the Assessment Year 2026-27. [Dec. 2012 old] [5 Marks]
Ans.:
Computation of Income from Capital Gain of Deepak for Assessment Year 2026-27
Particulars(`)
Sale Proceeds of 800 Shares @ 10080,000
Less: Cost of Debentures Converted into Shares (200 shares × ` 50)(10,000)
Short Term Capital Gain70,000
Q.12 Kundan sold his properties during the financial year 2025-26 as under:
(i) Household TV and refrigerator, costing ` 56,000 purchased in January, 2014, sold in February, 2026 for ` 70,000.
(ii) A car sold on 1st July, 2025 for ` 2,00,000 which was purchased by him in January, 2023 for ` 3,00,000 and its written down value on 1st April, 2025 was ` 1,72,000. The car is used for business purposes.
(
iii) Agricultural land was sold for ` 9,50,000 on 1st February, 2026, its purchase price in 1994-95 was ` 1,00,000. He purchased new land for his own cultivation for ` 5,00,000 in May, 2025. Fair Market Value on 1-4-2001 was ` 2,80,000.
(
iv) Gold ornaments acquired in July, 2019 for ` 2,00,000 were sold for ` 2,40,000 in June, 2025.
(
v) Let out residential house at Indore was inherited by him in 1975. Sale price on 30th June, 2025: ` 16,00,000; fair market value on 1st April, 2001: ` 4,00,000; cost of improvement during 2008-09: ` 1,00,000; and expenses on transfer: ` 32,000.
Compute his Taxable Capital Gains for the Assessment Year 2026-27. The Cost inflation indices: 100 (2001-02); 137 (2008-09); 184 (2011-12); 280 (2018-19); 301 (2020-21) and 376 (2025-26). [June 2012] [7 Marks]
Ans.:
Computation of Taxable Capital Gains of Kundan for the Assessment Year 2026-27 ParticularsAmountAmount
1.Car used for Business Purposes:
Sale proceeds2,00,000
Less: Written down value as on April 1, 2025 (1,72,000)
Short Term Capital Gain (Under section 50)28,000
2.Gold Ornaments:
Sale proceeds3,00,000
Less: Cost of Acquisition (2,00,000)1,00,000
Long Term Capital Gain
3.Residential House:
Net Sale Proceeds (` 16,00,000 – ` 32,000) 15,68,000
Less: Cost of Acquisition (4,00,000)
Less: Cost of Improvement (1,00,000) 10,68,000
4.Total Long Term Capital Gain 11,68,000
5.Total Short Term Capital Gain u/s 5028,000
Note: In case of Residential House, Long Term Capital Gain Tax would be least of the following:
(a) Without Indexation = 10,68,000 × 12.5 100 = 1,33,500
(b) With Indexation:
(i)Indexed Cost of Acquisition: 4,00,000 × 376/10015,04,000 1,00,000 × 376/137 2,74,453 Total17,78,453
(ii)Long Term Capital Loss = 15,68,000 – 17,78,453 = (2,10,453)(2,10,453) (iii)Long Term Capital Gain TaxNIL
Hence Indexation is beneficial for Tax Payer.
Q.13 From the following information, compute the Taxable Capital Gains of Sanjay:
- He sold his self-generated goodwill for ` 15,00,000 after using it for six years. He spent ` 1,50,000 for the development of the goodwill.
- The bonus shares (not listed) held by him in RK Limited were sold for ` 4,20,000 on 28th April, 2025. The face value of the shares which were allotted in May 2024 was ` 2,50,000.
- Short term capital loss from the transfer of building used for his business ` 1,00,000.
- A car purchased by him for ` 5,00,000 in 2016-17 for personal use, was sold on 1st July, 2025 for ` 2,10,000. [Dec. 2012] [5 Marks]
Ans.:
Computation of Capital Gains of Sanjay for Assessment Year 2026-27
Particulars(`)(`)
1.Long Term Capital Gain:
Sale of self-generated Goodwill15,00,000
Less: Expenses for development of Goodwill(1,50,000)13,50,000
2.Short Term Capital Gain:
Sale of bonus shares allotted in May 20244,20,000
Less: Short term capital loss from transfer of a building used for his business (1,00,000)3,20,000
Total Capital Gain16,70,000
Q.14 Ram purchased a house property for ` 76,000 on 30th June, 1987. The following expenses were incurred by him for making addition/alteration to the house property:
S. No.Particulars(`)
1.Cost of construction of first floor in 1995-961,10,000
2.Cost of construction of second floor in 2003-0440,000
3.Construction of third floor in 2012-1390,000
4.Fair market value of the property on 1st April, 20014,00,000
5.The house property is sold by him on 15th June, 2025 for ` 20,00,000 (expenses incurred on transfer ` 40,000)
Compute the amount of Capital Gains chargeable to tax for the Assessment Year 2026-27.
Cost Inflation Indices: 2001-02 = 100, 2003-04 = 109, 2012-13 = 200, 2025-26 = 376 [June 2013] [5 Marks]
Ans.:
Computation of Capital Gains Chargeable to tax of Ram for Assessment Year 2026-27
1.Net Sale Proceeds of House (20,00,000 – 40,000) 19,60,000
2. Less: Cost of Acquisition and there after Additions
(a) FMV on 1.04.20014,00,000
(b) Cost of Construction of Second Floor in 2003-0440,000
(c) Cost of Construction of Third Floor in 2012-13 90,000 (5,30,000)
3.Long Term Capital Gain 14,30,000
Note:
Since house property was acquired before 23.07.2024, Long Term Capital Gain Tax would be least of the following, which is beneficial for the Tax Payer: Computation of Long Term Capital Gain Tax:
(a) Without Indexation = 14,30,000 × 12.5/100 = 1,78,750
(b) With Indexation:
(i)Indexed Cost of Acquisition:
4,00,000 × 376/10015,04,000 40,000 × 376/1091,37,982 90,000 × 376/200 1,69,200
Total 18,11,182
(ii)Long Term Capital Gain = 19,60,000
(iii)Long
Long Term Capital Gain Tax would be lower in Indexation, Hence beneficial for Tax Payer.
Q.15 M & Sons, a Hindu Undivided Family (HUF), had purchased a land for ` 1,50,000 in 2006-07. In the Previous Year 2010-11, a partition took place and the coparcener, B, gets this plot valued at ` 2,00,000. In Previous Year 2011-12 he incurs expenses of ` 2,50,000 on the plot towards fencing of the plot of land. B then sells this plot at ` 15,00,000/- in Previous Year 2025-26. You are required to compute the Capital Gains for Assessment Year 2026-27.
Cost Inflation Index (CII): 2006-07 = 122, 2011-12 = 184, 2025-26 = 376. [June 2019] [4 Marks]
7.10
Ans.:
PART I : DIRECT TAX
Computation of Capital Gains for Assessment Year 2026-27
ParticularsAmount
1. Full Value of Consideration15,00,000
Less: Cost of Acquisition(1,50,000)
Less: Cost of Improvement (2,50,000)
2.Long Term Capital Gain 11,00,000
Note: Since the land was acquired before 23.07.2024, Long Term Capital Gain Tax would be least of the following, which is beneficial for the Tax Payer: Computation of Long Term Capital Gain Tax:
(a) Without Indexation = 11,00,000 × 12.5/100 = 1,37,500
(b) With Indexation:
(i)Indexed Cost of Acquisition:
1,50,000 × 376/1224,62,295 2,50,000 × 376/184 5,10,870
Total 9,73,165
(ii)Long Term Capital Gain = 15,00,000 – 9,73,165 = 5,26,8355,26,835
(iii)Long Term Capital Gain Tax 5,26,835 × 20/1001,05,367
Long Term Capital Gain Tax would be lower in Indexation, Hence beneficial for Tax Payer.
Q.16 Rakshit whose house property was compulsorily acquired in the year 2017 received enhanced compensation of ` 9,00,000 on 15th November, 2025 which includes ` 2,40,000 as interest on such enhanced compensation. Discuss the taxability of such compensation. [June 2011] [5 Marks]
Ans.: Enhanced Compensation granted by a court of law in respect of house property compulsory acquired in the year 2017, received on 15th November 2025 is fully taxable as Long Term Capital Gain (` 6,60,000) alongwith 50% interest (` 1,20,000 as Income from Other Sources) under section 57(iv) in the previous year 2025-26. In this case cost of acquisition will be taken as nil. In case of Mr. Rakshit Amount received is taxable as mentioned above.
Q.17 On 31st December, 1996, Goverdhan purchased a Plot for ` 40,000. The Fair Market Value of the Plot on 1st April, 2001 was ` 97,800. On 15th May, 2025. Goverdhan sells the Plot for ` 14,30,000 and paid brokerage etc. @ 2% on sales consideration. He invested ` 6,87,000 in the construction of residential house which was completed before 31st March, 2026.
Compute the Taxable Amount of Capital Gains for the Assessment Year 2026-27 of Goverdhan assuming that he already owns one residential house on the date of transfer of Plot.
Cost Inflation Index: Financial Year 2025-26 = 376. [June 2011] [7 Marks]
Ans.:
Computation of Taxable amount of Capital Gain of Goverdhan for Assessment Year 2026-27
Particulars(`)
Net Sale Proceeds of the Plot (` 14,30,000 – 28,600)14,01,400
Less: Cost of Acquisition(97,800)
Long Term Capital Gain13,03,600
Less: Exemption under section 54F (Capital Gain × Cost of New House/ Net Sales Consideration)=(13,03,600 × 6,87,000/14,01,400) (6,39,056)
Taxable Long Term Capital Gain6,64,544
Q.18 Ramesh, aged 66 years, sold a residential house at Pune for ` 30,00,000 on 1st July, 2025. This house was acquired by his father on 1st January, 1991 for ` 1,00,000. On the death of his father, he inherited the house on 5th July, 2009 fair market value of the house as on 1st April, 2001 was ` 5,00,000. He paid brokerage @ 1% to the real estate agent at the time of sale. He purchased a residential house at Baramati on 7th January, 2026 for ` 8,00,000 and on 20th October, 2025 purchased bonds of ` 3,00,000 (redeemable after 5 years) of Rural Electrification Corporation Limited. His other incomes are ` 50,000. He deposited ` 10,000 in Public Provident Fund.
Compute the Taxable Income and Capital Gain Tax Liability of Ramesh for the Assessment Year 2026-27. Cost Inflation Indices: 2001-02 = 100, 2009-10 = 148, 2025-26 = 376. [Dec. 2011] [5 Marks]
Ans.:
Computation of Taxable Income and Capital Gains tax Liability of Ramesh aged 66 years for Assessment Year 2026-27
ParticularsAmountAmount
1.Capital Gains:
Net Sale Proceeds of Residential House (30,00,000 –30,000) 29,70,000
Less: Cost of Acquisition on 01-04-2001 (5,00,000)
Gross Long Term Capital Gain24,70,000
