Chapter 2 – Income from House Property

Section 22: Charging Section of House Property

Rental Income (Annual Value) of House Property is taxable under the head House Property if the
following two conditions are satisfied:

1. There should be House Property*

2. Assessee should be the OWNER of such House Property

* House Property means Building and Land appurtenant to such building (commercial as well as
residential building).

Rent

QB r

Name of Assessee ………… P.Y. 2022-23 A.Y. 2023-24

Computation of Income from House Property

e
Particulars Self Let Out Deemed to be
Occupied Property Let Out
Property (2) Property
Municipal Value - xxx xxx
Fair Rent - xxx xxx
Whichever is Higher - xxx xxx
CA NISHANT KUMAR 1
 Standard Rent - xxx xxx
Expected Rent (Lower of Higher of Municipal Value or - xxx xxx
Fair Rent and Standard Rent)
Actual Rent - xxx -
Gross Annual Value (GAV) (Higher of Expected Rent - xxx xxx
and Actual Rent)
Less: Municipal Taxes Paid - xxx xxx
Net Annual Value (NAV) - xxx xxx
Less: Deductions u/s 24 - xxx xxx
(i) 24(a) 30% of NAV - xxx xxx
(ii) 24(b) Interest on Loan xx/- xxx xxx
Income from House Property (xx)/- xxx xxx

1. Municipal Value – It means value of property as per Municipality Record.

2. Fair Rent – It means rent of similar property in the same locality. It is also known as Reasonable
Rent, or Reasonable Letting Value.
3. Standard Rent – It means rent as per Rent Control Act. It is the maximum amount of rent that
can be legally recovered by the OWNER from tenant.
4. Actual Rent = Rent Received + Rent Receivable – Unrealised Rent
5. Municipal Taxes
a. It means taxes which are recovered by Municipality, Local Authority, Gram Panchayat,
etc.
b. It is also known as House Tax, Local Tax, Property Tax, etc.
c. It is allowed on payment basis (pay kiya toh allowed hai; outstanding hai toh not
allowed; jab bhi pay karoge, tab ho jaayega)
d. It is allowed only if it is paid by the OWNER; if it is paid by TENANT, then not allowed.
e. If it is given in percentage form, then it should be calculated on Municipal Value.

Question 1 – ICAI SM – Illustration 1

Jayashree owns five houses in India, all of which are let-out. Compute the GAV of each house from the
information given below –

Particulars House I House II House III House IV House V

(₹) (₹) (₹) (₹) (₹)
Municipal Value 80,000 55,000 65,000 24,000 80,000
Fair Rent 90,000 60,000 65,000 25,000 75,000
Standard Rent N.A. 75,000 58,000 N.A. 78,000
Actual Rent Received/ Receivable 72,000 72,000 60,000 30,000 72,000

Solution

Computation of GAV of each house owned by Jayashree

Particulars House I House II House III House IV House V
(i) Municipal Value soooo 55in arrow 24,000 soooo
(ii) Fair Rent a ooo 60,000 Grow arow 15,000
(iii) Higher of (i) and (ii) go.no 60,000 Giovo soooo soooo
(iv) Standard Rent aa www.ooone.aar.ooo
(v) Expected Rent [Lower of (iii) and (iv)] 90,000 soooo
soon 2in 8,000

CA NISHANT KUMAR 2
 (vi) Actual Rent Received/Receivable 72000 72000 Gaooo 30,00 72000
GAV [Higher of (v) and (vi)] 72000 Golovo 30,000 789000
90,000

Question 2

Mr. Nandan owns five houses in Delhi. Compute the NAV of each house from the information given
below:

Particulars House I House II House III House IV House V

(₹) (₹) (₹) (₹) (₹)
Municipal Value 1,20,000 2,40,000 1,10,000 90,000 75,000
Fair Rent 1,50,000 2,40,000 1,14,000 84,000 80,000
Standard Rent 1,08,000 N.A. 1,40,000 N.A. 78,000
Actual Rent Received/ Receivable 1,80,000 2,10,000 1,20,000 1,08,000 72,000
Municipal Taxes 10% 12% 15% 8% 12%

Solution

Computation of NAV of each house owned by Mr. Nandan

Particulars House I House II House III House IV House V
(i) Municipal Value
(ii) Fair Rent
(iii) Higher of (i) and (ii)
120,000 2,40on cnn.no 90,000 soooo
(iv) Standard Rent
(v) Expected Rent [Lower of (iii)
and (iv)] in in
(vi) Actual Rent Received/ 1180,000 2,19000 420,000 1.08.000 74000
Receivable
GAV [Higher of (v)and(vi)] 1 80,000 240,000 1120,000 108,000 78,000
Less: Municipal Taxes
NAV

6. Interest on Loan –
a. Interest on Loan is allowed as deduction if loan is taken for the purpose of House
Property, i.e., purchase, construction, repair, or renovation.
b. Loan may be taken from Banks, Financial Institutions, friends, family, etc.
c. Interest is allowed on due basis. (Pay kiya toh allowed hai; outstanding bhi allowed
hai)
d. Interest on Interest (Penal Interest) is not allowed as deduction.
e. If any fresh loan taken for repayment of earlier loan and earlier loan was taken for the

to
purpose of House Property, then interest on fresh loan is allowed as deduction.
f. Any interest paid/payable outside India shall not be allowed as deduction if TDS is not
deducted on such interest.
g. Limit

CA NISHANT KUMAR 3
 Name
Special
1,801000
25,000

N t 200,00
only

0 0 306

g
it
7. Other Expenses
a. Repair & Maintenance Not Allowed because 30%
b. Insurance Expenses of NAV is allowed
c. Electricity & Water Charges
d. Parking Charges

49adiln
e. Society Charges, etc.
8. Actual Rent = Rent Received + Rent Receivable – Unrealised Rent*
or from tenant. It is like Bad Debts
*Unrealised Rent means rent which is not recovered by owner
Do
of Bank. It is deductible only if following 4 conditions of Rule 4 are satisfied:
a. Tenancy should be bona-fide

e
b. Tenant should have vacated that House Property
c. Such tenant should not occupy any other house property of same assessee.
d. Reasonable steps should have been taken for recovery of unrealised rent.

Question 3 – ICAI SM – Illustration 4

Anirudh has a property whose municipal valuation is ₹1,30,000 p.a. The fair rent is ₹1,10,000 p.a. and
the standard rent fixed by the Rent Control Act is ₹1,20,000 p.a. The property was let out for a rent of
₹11,000 p.m. throughout the previous year. Unrealised rent was ₹11,000 and all conditions prescribed
by Rule 4 are satisfied. He paid municipal taxes @10% of municipal valuation. Interest on borrowed
capital was ₹40,000 for the year. Compute the income from house property of Anirudh for A.Y. 2023-
24.

Solution

Computation of Income from House Property of Anirudh for A.Y. 2023-24

Particulars Amount
(i) Municipal Value 1,301000
(ii) Fair Rent 1,101000
(iii) Higher of (i) and (ii) 430,000
(iv) Standard Rent 1,201000
(v) Expected Rent [Lower of (iii) and (iv)] 1120,000
(vi) Actual Rent Received/Receivable (W.N. 1)
1121,000
GAV [Higher of (v) and (vi)]
1,211000
CA NISHANT KUMAR 4
 Less: Municipal Taxes 3,000
NAV 108,000
Less: Deductions u/s 24 32,400
Less: 30% of NAV
Less: Interest on Loan 40,000
Income from House Property
35,600

W.N. 1 - Actual Rent Received/Receivable

Particulars ₹
Rent Received
moon
I
Add: Rent Receivable

Less: Unrealised Rent

Actual Rent Received/Receivable

9. Pre-Construction Period Interest/Pre-Acquisition Period Interest

It means interest before the year in which construction was completed. It is allowed in 5 equal
instalments from the year in which construction was completed.

Question 4

Mr. Hari took a loan from ICICI Bank on 01-12-2019 of ₹12,00,000 @10%. Construction got completed
on 14-02-2023. Compute interest for P.Y. 2022-23 (A.Y. 2023-24).
1 4 20 310321
Solution
Beforethis year because this yr 3103122
coffee
Calculation of Interest to be Allowed in P.Y. 2022-23
Particulars ₹
Pre-Construction Interest:
2019-20
of
101 12,00000 412
2020-21
2021-22
101 12100,000
of
c 1 of12100,000
280,000
Pre-Construction Interest to be allowed every year 2 80,000 5
of
101 1200,000 448
Add: Interest for P.Y. 2022-23
Interest to be allowed in P.Y. 2022-23
1176,000

Question 5

Sneha had taken a loan of ₹7,00,000 for construction of property on 01-10-2021. Interest was payable
@ 12% p.a. The construction was completed on 30-06-2022. No principal repayment has been made
up to 31-03-2023. Compute the interest allowable as deduction u/s 24 for the A.Y. 2023-24.

Solution

Calculation of Interest to be Allowed in P.Y. 2022-23

Particulars ₹
Pre-Construction Interest: 42,000

Pre-Construction Interest to be allowed every year

Add: Interest for P.Y. 2022-23
www.s
CA NISHANT KUMAR 5
70,000
21
121
20
4200
 from 01 10 21 31 3 21 as 6 months

Interest to be allowed in P.Y. 2022-23

are
Question 6

Loan taken for construction of House ₹10,00,000 on 01-06-2016 @ 12% p.a. Loan repaid on 01-04-
2019 ₹4,00,000. Construction completed on 01-03-2021. Compute interest on loan deduction for A.Y.
2023-24.

Solution

Calculation of Interest to be Allowed in P.Y. 2022-23

Particulars ₹
Pre-Construction Interest:
2016-17 10,090 12 1 2 sooooo
2017-18
cooooooxial 1,20ooo
2018-19 gooooonice
2019-20
1,20ooo
Co 4 xizy 2 ooo
4,121000
Pre-Construction Interest to be allowed every year 4112,000
5 82,400
Add: Interest for P.Y. 2022-23 6,001000 124 72,000
Interest to be allowed in P.Y. 2022-23
1 54,400

Question 7 t Wh
Mr. Jai has taken a loan from SBI on 01-06-2018 for ₹20,00,000 @ 6%. He made following repayments
gooooo good
8
of Principal amount:

1 01-04-2019 4,00,000 19 20 z 16,00ooo

16100,000
01-10-2020 2,00,000 20 a a emonth
inooooo
y 01-12-2021 1,50,000 umouth

m
01-04-2022 2,50,000
Construction completed on 14-02-2022. Compute interest allowable for P.Y. 2022-23 (A.Y. 2023-24).

im Solution

Calculation of Interest to be Allowed in P.Y. 2022-23

Particulars ₹
Pre-Construction Interest:
2018-19
2019-20 woo 000 6 101,2
asooo
2020-21
1661001000
64
16100,000 6 61,2 inooooo xox soooo
2,861000
Pre-Construction Interest to be allowed every year 52,200
Add: Interest for P.Y. 2022-23 cocoqoooxoy 286,00015
Goooo
Interest to be allowed in P.Y. 2022-23
n
Question 8

Mr. Hari has taken a loan from Axis Bank for construction of House Property on 01-12-2019 of
₹42,00,000 @ 7%. He paid Principal amount as follows:
4 12 98,000
00 71
31 3 20 42,0
1 12 19 3510900 7
CA NISHANT KUMAR 6
3019120 a
yup t
ii o int
a
my ay My
230,333
 in 112122 12

54 4103122 P

3403122
01-04-2020 7,00,000
01-10-2020 4,00,000
4shddthf.es
01-02-2022 5,00,000
1 08,0
01-07-2022 7,00,000
Construction completed on 10-12-2022. Compute Interest for P.Y. 2022-23 (A.Y. 2023-24).

Solution no
Calculation of Interest to be Allowed in P.Y. 2022-23
mm
Particulars ₹
Pre-Construction Interest:
2019-20
2020-21
2021-22

Pre-Construction Interest to be allowed every year 5

said
5149166
Add: Interest for P.Y. 2022-23 114 18
Interest to be allowed in P.Y. 2022-23
2153,3283

Question 9

NISH10 has one house property at Tagore Town in Prayagraj. He stays with his family in the house.
The rent of similar property in the neighborhood is ₹25,000 p.m. The municipal valuation is ₹23,000
p.m. Municipal Taxes paid is ₹8,000. The house was constructed in the year 2017 with a loan of
₹20,00,000 taken from SBI Housing Finance Ltd. The construction was completed on 30.11.2018. The
accumulated interest up to 31.3.2018 is ₹1,50,000. During the previous year 2022-23, NISH10 paid
₹2,08,000 which included ₹1,74,000 as interest. There was no principal repayment prior to this date.
Compute NISH10’s income from house property for A.Y. 2023-24.
1,50000 5 2 30 on
Solution
mM 9
2e But specialCollyooooo
Computation of Income from House Property of NISH10 for A.Y. 2023-24
Particulars Amount
NAV
Less: Deductions u/s 24
Less: 30% of NAV
Less: Interest on Loan (W.N. 1)
Income from House Property

W.N. 1 - Calculation of Interest on Loan

Particulars ₹
Pre-Construction Interest (Refer Note)
Post Construction Interest 94 0
2104000 But 2,09000
4001000
Restricted to

Since the construction was completed in F.Y. 2018-19, interest accrued upto 31-03-2018, i.e.,
₹1,50,000 is Pre-Construction interest. It'll be allowed in 5 equal instalments from the year in which

18 19
CA NISHANT KUMAR 7
the construction was completed. Therefore, Interest to be allowed every year = ₹1,50,000 ÷ 5 =
₹30,000

Concept of Vacancy
If the house property has been vacant for some months in a year, then the GAV is calculated as follows:

1. If Actual Rent + Vacancy Rent ≥ Expected Rent, then GAV = Actual Rent
2. If Actual Rent + Vacancy Rent < Expected Rent, then GAV = Expected Rent

Question 10

Expected Rent = ₹3,00,000. Rent p.m. = ₹30,000. Vacancy = 3 months. Find GAV.

Solution

Actual trace EEN 2 Gave A R

Jo oooxat 30,000 3 a
3,601000 23,00ooo
Gave AR d 2,70ooo

GAV22,70ooo
Question 11

Expected Rent = ₹3,00,000. Rent p.m. = ₹20,000. Vacancy = 1 months. Find GAV.

Solution
320900 11 20,000 125 2,201000 so ooo a 2,401000

GAV 2 ER
GAV23,001000

Question 12

Expected Rent = ₹3,00,000. Rent p.m. = ₹25,000. Vacancy = 4 months. Find GAV.

Solution

a 25000 8 25000 9 a 1100,000 23,00ooo

AR I
2 3,001000 perceived
Er
Garand
a 2,001000
GAV
CA NISHANT KUMAR 8
 I
Partly Let Out Property (Area Wise)
If some area of house property is let out and remaining area is self-occupied, then the let-out portion
is treated as LOP, and self-occupied portion is treated as SOP. In this case, Municipal Value, Fair Rent,
Standard Rent, Municipal Taxes, Interest on Loan should be divided between SOP and LOP on area
basis. Actual rent should never be divided, as it is always for LOP.

Interest on Loan

Let Out Property Self-Occupied Property

Full Interest Allowed Maximum ₹30,000/₹2,00,000 Allowed

Question 13 – ICAI SM – Illustration 9

Prem owns a house in Madras. During the previous year 2022-23, 2/3rd portion of the house was self-
occupied and 1/3rd portion was let out for residential purposes at a rent of ₹8,000 p.m. Municipal
value of the property is ₹3,00,000 p.a., fair rent is ₹2,70,000 p.a. and standard rent is ₹3,30,000. He
paid municipal taxes @ 10% of municipal value during the year. A loan of ₹25,00,000 was taken by
him during the year 2018 for acquiring the property. Interest on loan paid during the previous year
2022-23 was ₹1,20,000. Compute Prem’s income from house property for the A.Y. 2023-24.

Solution

Computation of Income from House Property of Prem for A.Y. 2023-24

Particulars SOP (2/3) LOP (1/3)
(i) Municipal Value
(ii) Fair Rent
(iii) Higher of (i) and (ii)

I
(iv) Standard Rent
(v) Expected Rent [Lower of (iii) and (iv)]
(vi) Actual Rent Received/Receivable
GAV [Higher of (v) and (vi)] 1100,000
Less: Municipal Taxes
NAV
Less: Deductions u/s 24 127,0005
Less: 30% of NAV
Less: Interest on Loan 8000 40,000
Income from House Property
180,000 23000
.
Net Income from House Property
80,000 23,000 57,000

Question 14 – ICAI SM – Question 2

Mr. X owns one residential house in Mumbai. The house is having two identical units. First unit of the
house is self-occupied by Mr. X and another unit is rented for ₹8,000 p.m. The rented unit was vacant
for 2 months during the year. The particulars of the house for the previous year 2022-23 are as under:

Standard Rent ₹1,62,000 p.a.

CA NISHANT KUMAR 9
80 16
2 96,000
8,000
10
8,000
 AR
Gav a
80,000
Gar
Municipal Valuation ₹1,90,000 p.a.
Fair Rent ₹1,85,000 p.a.
Municipal Tax (paid by Mr. X) 15% of Municipal Value
Light and water charges ₹500 p.m.
Interest on borrowed capital
Lease money
₹1,500 p.m.
₹1,200 p.a.
XIN 9000
x
Insurance charges ₹3,000 p.a.
Repairs ₹12,000 p.a.
Compute income from house property of Mr. X for the A.Y. 2023-24.

Solution

Computation of Income from House Property of Mr. X for A.Y. 2023-24

Particulars SOP LOP
(i) Municipal Value -
atooo
95,000
(ii) Fair Rent - I 92,500
92,500
(iii) Higher of (i) and (ii) - arooo
95,000
(iv) Standard Rent - I 81,000
81,000
(v) Expected Rent [Lower of (iii) and (iv)] - 81,000
(vi) Actual Rent Received/Receivable (W.N. 1)
GAV (W.N. 1)
-
-
I agon
80,000
80,000
89000
Less: Municipal Taxes - 14,250
14,250
NAV - 65,750
Less: Deductions u/s 24 -
Less: 30% of NAV - 19,747
19,725
Less: Interest on Loan 9,000 9,000
Income from House Property (9,000)
69,000 37,025
37,025
.
Net Income from House Property 19.001
28,025
37,025
W.N. 1 - Calculation of GAV
28,05
Particulars ₹
Expected Rent 81,000
81,00 0
Actual Rent 8,000
80,000
Vacancy Rent 8,000
16,000 2

AR + VR 96,000
96,000

GAV (Since AR + VR > ER, GAV = AR)

96,0007ER CAVIAR 80,000
80,000

Partly Let Out Property (Time Wise)

If property is let out for some period and self-occupied for remaining period, then such property is

0
treated as Let Out Property only. If property is let out even for one day, it’ll be treated as LOP only.

Question 15 – Illustration 7

Smt. Rajalakshmi owns a house property at Adyar in Chennai. The municipal value of the property is
₹5,00,000, fair rent is ₹4,20,000 and standard rent is ₹4,80,000. The property was let-out for ₹50,000
p.m. up to December, 2022. Thereafter, the tenant vacated the property and Smt. Rajalakshmi used
the house for self-occupation. Rent for the months of November and December, 2022 could not be
CA NISHANT KUMAR 10

50,000 2 3,501000 4,0ooo

50,000 7 1,001000
 Into
a anyproved

realised in spite of the owner’s efforts. All the conditions prescribed under Rule 4 are satisfied. She
paid municipal taxes @ 12% during the year. She had paid interest of ₹25,000 during the year for
amount borrowed for repairs for the house property. Compute her income from house property for
the A.Y. 2023-24.
Total It out is dead because here thisis a
let out
Solution
property
Computation of Income from House Property of Smt. Rajalakshmi for A.Y. 2023-24
Particulars LOP
(i) Municipal Value
Here in this case we dont 5,00,000
gooooo
(ii) Fair Rent 4,20,000
(iii) Higher of (i) and (ii) Considerthe Vacay 4,20ooo
5,00,000
(iv) Standard Rent the owner is 5100,000
4,80,000
become 4,80ooo
(v) Expected Rent [Lower of (iii) and (iv)] 4,80,000
4 roooo
Occupy 3,50,000
(vi) Actual Rent Received/Receivable (W.N. 1)
intension to Self 350,000
GAV [Higher of (v) and (vi)] 4,80,000
has been 4,80 ooo
Less: Municipal Taxes vacancy
Jo 60,000
60,000
NAV benefit 4,20,000
4,20ooo
Less: Deductions u/s 24 Cancelled
Less: 30% of NAV 1Tiooo
1,26,000
Less: Interest on Loan
1,26 ooo
25,000
25,000
Income from House Property
22,69,000
69,000
.
Net Income from House Property 2,69,000

W.N. 1 - Calculation of Actual Rent

Particulars ₹
Rent Received 3,50,000
3,501000
Add: Rent Receivable soooox2 1,00,000
i ooooo
4,50,000
Less: Unrealised Rent 1,00,000
1,00 ooo
Actual Rent 3,50,000
an
Question 16 – ICAI SM – Illustration 5

Ganesh has a property whose municipal valuation is ₹2,50,000 p.a. The fair rent is ₹2,00,000 p.a. and
the standard rent fixed by the Rent Control Act is ₹2,10,000 p.a. The property was let out for a rent of
₹20,000 p.m. However, the tenant vacated the property on 31.1.2023. Unrealised rent was ₹20,000
and all conditions prescribed by Rule 4 are satisfied. He paid municipal taxes @8% of municipal
valuation. Interest on borrowed capital was ₹65,000 for the year. Compute the income from house
property of Ganesh for A.Y. 2023-24.

Solution

Computation of Income from House Property of Ganesh for A.Y. 2023-24

Particulars ₹
(i) Municipal Value 2,50 ooo
2,50,000
(ii) Fair Rent 2,00 ooo
2,00,000
(iii) Higher of (i) and (ii) 2,50 ooo
2,50,000
(iv) Standard Rent 2,10,000
2,101000
(v) Expected Rent [Lower of (iii) and (iv)] 2,10,000
ooo
2,10
CA NISHANT KUMAR 11
 (vi) Actual Rent Received/Receivable (W.N. 1) 1,80,000
GAV (W.N. 1) 1,80,000
i soooo
Less: Municipal Taxes 20,000
NAV 2,000
1,60,000
1,601000
Less: Deductions u/s 24
Less: 30% of NAV 1,13 ooo
48,000
48,000
Less: Interest on Loan 65,000
ooo
Income from House Property 47,000
. uitooo
Net Income from House Property 47,000

W.N. 1 - Calculation of GAV

Particulars ₹
Expected Rent 2,10,000
2,101000
.
Actual Rent 20,000 10 20,000 1,80100
1,80,000
Vacancy Rent 40,000
noooo
20,000 2
.
AR + VR 2,201000
2,20,000
.
GAV (Since AR + VR > ER, GAV = AR) 2120,000 ER GAV AR 1,80ooo
1,80,000

When Assessee Owns More Than 2 SOPs

Suppose the Assessee owns three House Properties – H1, H2, H3. In such a case, two of them will be
treated as SOPs and the third one will be treated as DLOP. In this situation, you’ll have to solve the
question 3 times:

1. taking H1 as DLOP and H2 and H3 as SOP

2. taking H2 as DLOP and H1 and H3 as SOP
3. taking H3 as DLOP and H1 and H2 as SOP

You’ll go with that case in which your total income from house property is minimum.

Question 17 – ICAI SM – Illustration 8

Ganesh has three houses, all of which are self-occupied. The particulars of the houses for the P.Y.
2022-23 are as under:

Particulars House I House II House III

Municipal Value p.a. ₹3,00,000 ₹3,60,000 ₹3,30,000
Fair Rent p.a. ₹3,75,000 ₹2,75,000 ₹3,80,000
Standard Rent ₹3,50,000 ₹3,70,000 ₹3,75,000
Date of completion/purchase 31.3.1999 31.3.2002 01.4.2015
Municipal Taxes paid during the year 12% 8% 6%
Interest on money borrowed for repair of property during - 55,000 -
the current year
Interest for current year on money borrowed in April, 2015 1,75,000
for purchase of property
Compute Ganesh’s income from house property for A.Y. 2023-24 and suggest which house should be
opted by Ganesh to be assessed as self-occupied so that his tax liability is minimum.

CA NISHANT KUMAR 12
Solution

Computation of Income from House Property of Ganesh for A.Y. 2023-24

Particulars HP 1 HP 2 HP 3
(i) Municipal Value 3,00,000 3,601000
300000 3 soooo
3,60,000 3,30,000
(ii) Fair Rent 3,75,000 2,17000
3,71000 3.80.000
2,75,000 3,80,000
(iii) Higher of (i) and (ii) 3,75000 3,601000
3,75,000 3,60,000 3.80.00
3,80,000
(iv) Standard Rent 3 50,000 3,10000
3,50,000 3,70,000 3,75,000
3.75.000
(v) Expected Rent [Lower of (iii) and (iv)] 3,50,000 3,60,000
350,000 3 Tooo
2.601000 3,75,000
(vi) Actual Rent Received/Receivable - - -
GAV [Higher of (v) and (vi)] 3roroo 3,60,000
3,50,000 3,601000 serious
3,75,000
Less: Municipal Taxes 36,000
360ns Cartoon28,800 19,800
asoo
NAV 3,14,000 3,31,200 3,55,200
3,14000 3.31.200 3.55.20
Less: Deductions u/s 24
199,200 99,360 1,06560
Less: 30% of NAV 94,200 99,360 1,06,560
Less: Interest on Loan - 55000 1,75008
55,000 1,75,000
Income from House Property 2,19,800 1,76,840 73,640
2119,80 1,761840 73,690

Ganesh can opt to treat any two of the above house properties as self-occupied.

Option 1 - HP1 and HP2 Self Occupied; HP3 Deemed Let Out
Particulars ₹
House Property I (Self Occupied) -
House Property II (Self Occupied) 5 ooo
(30,000)
(Since the loan was taken for repairs, the interest is restricted to ₹30,000)
House Property 3 73,640
73,640
Income from House Property 43,640
43,6640

Option 2 - HP1 and HP3 Self Occupied; HP2 Deemed Let Out
Particulars ₹
House Property I (Self Occupied) -
House Property II 1,76,840
House Property 3 (Self Occupied) 476,840
(1,75,000)
Income from House Property C 1,840 ooo
1,840
Option 3 - HP2 and HP3 Self Occupied; HP1 Deemed Let Out
Particulars ₹
House Property I 2,19800
2,19,800
House Property II (Self Occupied) (30,000)
ooo
(Since the loan was taken for repairs, the interest is restricted to ₹30,000) 30
House Property 3 (Self Occupied) 1,75 ooo
(1,75,000)
(2,05,000)
2,061000
Restricted to (2,00,000)
2,001000
Income from House Property 19,800

Since the income from House Property is minimum in option 2, Ganesh should treat House Property
1 and House Property 3 as Self Occupied, and House Property 2 as deemed to be let out.

Question 18 – RTP May, 2020

CA NISHANT KUMAR 13
Mrs. Daya, a resident of India, owns a house property at Panipat in Haryana. The Municipal value of
the property is ₹8,50,000, Fair Rent of the property is ₹7,30,000 and Standard Rent is ₹8,20,000 per
annum.

The property was let out for ₹85,000 per month for the period April 2022 to December 2022.

Thereafter, the tenant vacated the property and Mrs. Daya used the house for self-occupation. Rent
for the months of November and December 2022 could not be realized from the tenant. Mrs. Daya
has not instituted any legal proceedings for the recovery of unpaid rent.

She paid municipal taxes @ 12% during the year and paid interest of ₹50,000 during the year for
amount borrowed towards repairs of the house property.

You are required to compute her income from house property for the A.Y. 2023-24.

Solution

Computation of Income from House Property of Mrs. Daya for A.Y. 2023-24
Particulars ₹
(i) Municipal Value 8,50,000
(ii) Fair Rent 7,30,000
(iii) Higher of (i) and (ii) 8,50,000
(iv) Standard Rent 8,20,000
(v) Expected Rent [Lower of (iii) and (iv)] 8,20,000
(vi) Actual Rent Received/Receivable (W.N. 1) 7,65,000
GAV [Higher of (v) and (vi)] 8,20,000
Less: Municipal Taxes 1,02,000
NAV 7,18,000
Less: Deductions u/s 24
Less: 30% of NAV 2,15,400
Less: Interest on Loan 50,000
Income from House Property 4,52,600
4 52,600

Working Notes

1. Actual Rent = Rent Received + Receivable – Unrealised Rent

Therefore, Actual Rent = ₹85,000 × 9 = ₹7,65,000
Unrealised rent for two months will not be deducted because it is given that Mrs. Daya has
not instituted any legal proceedings for the recovery of unpaid rent, hence the condition of
Rule 4 is not satisfied.

Concept of Co-Ownership (Joint Ownership)

It means property is owned by more than one owner. In this case, Income from House Property is
calculated normally and thereafter it should be divided between co-owners in their ownership ratio.

CA NISHANT KUMAR 14
 Chapter 2 – Income from House Property
(Part 2)
Concept of Co-Ownership (Joint Ownership)
It means property is owned by more than one owner. In this case, Income from House Property is
calculated normally and thereafter it should be divided between co-owners in their ownership ratio.

LOP/DLOP No Limit

Interest on Loan
Limit:
SOP ₹30,000/₹2,00,000
 No. of Co-Owners

Question 19 – ICAI SM – Question 1

Mr. Raman is a co-owner of a house property alongwith his brother holding equal share in the
property.

Particulars ₹
Municipal value of the property 1,60,000
Fair rent 1,50,000
allowed
Standard rent under the Rent Control Act 1,70,000
put
debate Rent received 15,000 p.m.
on The loan for the construction of this property is jointly taken and the interest charged by the bank is
at ₹25,000, out of which ₹21,000 has been paid. Interest on the unpaid interest is ₹450. To repay this
loan, Raman and his brother have taken a fresh loan and interest charged on this loan is ₹5,000. The
municipal taxes of ₹5,100 have been paid by the tenant.

Compute the income from this property chargeable in the hands of Mr. Raman for the A.Y. 2023-24.

Solution

Computation of Income from House Property for A.Y. 2023-24

Particulars ₹
(i) Municipal Value 1Goooo
(ii) Fair Rent e toooo
(iii) Higher of (i) and (ii) 1 soooo
(iv) Standard Rent 1 toooo
(v) Expected Rent [Lower of (iii) and (iv)] 1 soooo
(vi) Actual Rent Received/Receivable 1 80,000
GAV [Higher of (v) and (vi)] 1180,000
Less: Municipal Taxes
NAV 1,801000
Less: Deductions u/s 24
154.0001
Less: 30% of NAV

CA NISHANT KUMAR 1
 Less: Interest on Loan 30,0001
Income from House Property
96,000
.
Share of Co-owner 1
Share of Co-owner 2
Notes:

1. Interest on Loan: Interest on Loan is allowed on due basis, therefore, the entire ₹25,000 will
be allowed as deduction even though the interest paid is ₹21,000.
2. Interest on Interest (Penal Interest) is not allowed as deduction.
3. If any fresh loan is taken for repayment of earlier loan and earlier loan was taken for the
purpose of House Property, then interest on fresh loan is allowed as deduction. In the present
case, interest on fresh loan of ₹5,000 is also allowed as deduction.
4. Municipal taxes paid by the OWNER are allowed as deduction. In the present case, the
municipal taxes have been paid by the tenant, hence NOT allowed.

Question 20 – ICAI SM – Question 5

Two brothers Arun and Bimal are co-owners of a house property with equal share. The property was
constructed during the financial year 1998-1999. The property consists of eight identical units and is
situated at Cochin.

During the financial year 2022-23, each co-owner occupied one unit for residence and the balance of
six units were let out at a rent of ₹12,000 per month per unit. The municipal value of the house
property is ₹9,00,000 and the municipal taxes are 20% of municipal value, which were paid during the
year. The other expenses were as follows:

Particulars ₹
Repairs 40,000
Insurance Premium (paid) 15,000
Interest payable on loan taken for construction of house 3,00,00
One of the let-out units remained vacant for four months during the year.

Arun could not occupy his unit for six months as he was transferred to Chennai. He does not own any
other house.

The other income of Mr. Arun and Mr. Bimal are ₹2,90,000 and ₹1,80,000, respectively, for the
financial year 2022-23.

Compute the income under the head ‘Income from House Property’ and the total income of two
brothers for the assessment year 2023-24.

Solution

Computation of Total Income

Particulars Arun Bimal
Income from House Property (W.N. 1) 95,850 95,850
Other Income 290,000 180,000
Total Income
31848502,751850

W. N. 1 - Computation of Income from House Property for A.Y. 2023-24

CA NISHANT KUMAR 2
 Particulars SOP (25%) LOP (75%)
(i) Municipal Value 6.75.000
(ii) Fair Rent I
(iii) Higher of (i) and (ii)
(iv) Standard Rent I GAIN
(v) Expected Rent [Lower of (iii) and (iv)] G ooo
(vi) Actual Rent Received/Receivable (Note 2) 8,161000
GAV (Note 3)
Less: Municipal Taxes
816,000
11,310001

I
NAV
Less: Deductions u/s 24
G81.000
Less: 30% of NAV 12.04.3007
Less: Interest on Loan (Note 1) Goooo 2,250001
Income from House Property
.
160,0001 2,51too
Net Income from House Property
.
Share of Arun (1/2) 95,850
Notes:
Share of Bimal (1/2) I 95,850

1. Interest on Loan = ₹3,00,000

Attributable to SOP = 25% × ₹3,00,000 = ₹75,000
However, since the loan was taken before 01-04-1999, deduction of only ₹30,000 will be
allowed. Also, since there are two owners, total deduction will be ₹30,000 × 2 = ₹60,000.
Attributable to LOP = 75% × ₹3,00,000 = ₹2,25,000
2. Actual Rent

Particulars ₹
Rent Received
5 units × ₹12,000 p.m. × 12 months 7,20,000
7,201000
1 unit × ₹12,000 p.m. × 8 months 96,000
96,000 8,16,000
8,161000
Add: Rent Receivable -
8,16,000
Less: Unrealised Rent 48,000-
Actual Rent 8,16,000
8169,000
3. Vacancy

Particulars ₹
Expected Rent 6,75,000
.
6 ttooo
Actual Rent (Note 2) 8,16,000
8116,000
Vacancy Rent (1 unit × ₹12,000 p.m. × 4 months) 48,000
48,000
.
AR + VR 8,64,000
8914,000
.
GAV (Since AR + VR > ER, GAV = AR) 8,16,000
8,161000

Question 21 – November, 2003

CA NISHANT KUMAR
33
A and B construct their houses on a piece of land purchased by them at New Delhi. The built-up area
of each house was 1,000 sq. ft. (ground floor and an equal area on the first floor). A starts construction
on 01-04-2021 and completes on 01-04-2022. B starts the construction on 01-04-2021 and completes
the construction on 30-06-2022. A occupied the entire house on 01-04-2022. B occupied the ground
floor on 01-07-2022 and let out the first floor for a rent of ₹15,000 per month. However, the tenant
vacated the house on 31-12-2022 and B occupied the entire house during the period 01-01-2023 to
31-03-2023. Following are the other information:

1. Fair rental value of each unit (ground floor/first floor) ₹1,00,000 per year
2. Municipal value of each unit (ground floor/first floor) ₹72,000 per year
3. Municipal taxes paid by A ₹8,000
Municipal taxes paid by B ₹8,000
4. Repair and Maintenance charges paid by A ₹28,000
Repair and Maintenance charges paid by B ₹30,000
A has availed a housing loan of ₹20 lakhs @ 12% p.a. on 01-04-2021. B has availed a housing loan of
₹12 lakhs @ 10% p.a. on 01-07-2021. No repayment was made by either of them till 31-03-2023.
Compute income from house property for A and B for the previous year 2022-23.

Solution

Computation of IFHP for A for A.Y. 2023-24

Particulars SOP
NAV -
Less: Deductions u/s 24
Less: 30% of NAV -
Less: Interest on Loan (Note 1) 200,0001
2,00,000
Income from House Property (2,00,000)
2100,0001

Computation of Income from House Property of B for A.Y. 2023-24

Particulars SOP (50%) LOP (50%)
(i) Municipal Value - 54,000
54,000
I
(ii) Fair Rent - tooo
75,000
(iii) Higher of (i) and (ii) - wooo75,000
(iv) Standard Rent - -
(v) Expected Rent [Lower of (iii) and (iv)] - It75,000
ooo
(vi) Actual Rent Received/Receivable - 90,000
90,000
GAV [Higher of (v) and (vi)] - 90,000
90,000
Less: Municipal Taxes (Note 4) - 4,000
NAV -
14 ooo
86,000
Less: Deductions u/s 24
soooo
Less: 30% of NAV
Less: Interest on Loan (Note 3)
169.0001
-
69,000
485825,800
69,000 1
Income from House Property (69,000)
69,0001 (8,800)
18,8007
.
Net Income from House Property 77,8001 (77,800)

Notes:

1. Interest on Loan

Particulars ₹
CA NISHANT KUMAR 4
 Interest for 2021-22 (12% × ₹20,00,000) 240,000
2,40,000
.
Since the construction got completed on 01-04-2022, i.e., P.Y. 2022-23, the
interest for the P.Y. 2021-22 will be considered as Pre-construction period 48000
interest. Therefore, ₹2,40,000 ÷ 5 = ₹48,000 will be allowed every year for the
next 5 years.
.
Interest for 2022-23 (12% × ₹20,00,000) 2,401000
2,40,000
Add: Pre-construction period interest 48,000
48000
2,88,000
. 288,000
Restricted to 200,000
2,00,000
2. There is no vacancy in this house of B. As soon as the tenant left, B occupied the first floor
also. In case of timewise partly let out property, even if the property is let out for a single day,
it is considered to be let out for the entire year. Therefore, since first floor was let out from
July to December, it will be considered to be let out for the entire period.
3. Interest on Loan

Particulars ₹
Interest for 2021-22 (10% × ₹12,00,000 × 9/12) 90,000
90,000
Since the construction got completed on 30-06-2022, i.e., P.Y. 2022-23, the
interest for the P.Y. 2021-22 will be considered as Pre-construction period 18,000
interest. Therefore, ₹90,000 ÷ 5 = ₹18,000 will be allowed every year for the
next 5 years.

Interest for 2022-23 (10% × ₹12,00,000) 1,201000

1,20,000
Add: Pre-construction period interest 18,000
18,000
1,38,000
.
1138,00
Appropriated towards SOP (50%) 69,000 69,000
Appropriated towards LOP (50%) 69ooo 69,000
4. Municipal Taxes – Municipal Taxes are not allowed for SOP. Therefore, only the portion
attributed to LOP will be allowed, i.e., 50%. Therefore, amount allowed = 50% × ₹8,000 =
₹4,000. Since Municipal Taxes are allowed on paid basis, month-wise apportionment is not
required.

Arrears of Rent
It means rent under dispute.

Section 25A: Recovery of Unrealised Rent or Arrears of Rent

Recovery is taxable in the year in which it is recovered under the head Income from House Property,
whether the assessee is the owner of the property or not in that financial year. Any expenditure
incurred for recovery shall be ignored.

Question 22 – ICAI SM – Illustration 10

Mr. Anand sold his residential house property in March, 2022.

In June, 2022, he recovered rent of ₹10,000 from Mr. Gaurav, to whom he had let out his house for
two years from April 2016 to March 2018. He could not realise two months’ rent of ₹20,000 from him
CA NISHANT KUMAR 5
and to that extent his actual rent was reduced while computing income from house property for A.Y.
2018-19.

Further, he had let out his property from April, 2018 to February, 2022 to Mr. Satish. In April, 2020,
he had increased the rent from ₹12,000 to ₹15,000 per month and the same was a subject matter of
dispute. In September, 2022, the matter was finally settled, and Mr. Anand received ₹69,000 as arrears
of rent for the period April, 2020 to February, 2022.

Would the recovery of unrealised rent and arrears of rent be taxable in the hands of Mr. Anand, and
is so, in which year?

Solution

Unrealised rent and arrears of rent is recovered by Mr. Anand in P.Y. 2022-23. As per section 25A, it is
taxable in the year of recovery, i.e., P.Y. 2022-23 even though Mr. Anand is not the owner of house
property in the year of recovery. Standard deduction of 30% is allowed while calculating income from
house property.

Computation of Income from House Property

Particulars ₹
Unrealised Rent 10,000
10,000
Arrears of Rent 69,000
69,000
79,000
79,000
Less: Deduction @ 30% 23,700
Income from House Property 55,300

Concept of Composite Rent (Rent of House Property + Rent of Other

Assets)

Composite Rent
Agreement is not
Agreement is Separable
separable

Rent of House Total Rent is taxable

Rent of Other Assets
Property under PGBP/IFOS

Taxable under Income Taxable under

from House Property PGBP/IFOS

Note: If let out of property is not possible without other assets, then total rent is taxable under the
head PGBP/IFOS, whether agreement is separable or not.

House Property Held as Stock in Trade (Builder)

1. Income from Sale of House Property → Taxable under the head PGBP
2. Income from Let Out of House Property → Taxable under the head IFHP

CA NISHANT KUMAR 6
Amendment

Where the House Property is held as Stock-in-Trade and not let out during the Previous Year, then
NAV shall be treated as NIL for the period of 2 years from the end of F.Y. in which construction is
completed.

Example: DLF Builder completed construction of 1 House Property on 16-07-2022. In this case, if such
HP is NOT let out, then NAV of such HP shall be treated as NIL till 31-03-2025. From P.Y. 2025-26, this
HP shall be treated as DLOP, and income shall be taxable under IFHP.

Section 27: Deemed Ownership

1. If any individual transfers House Property to his/her spouse without consideration or for
inadequate consideration, then such individual is treated as deemed owner of such House
Property.
Exception: Transfer in connectionMANof live apart.
2. If any individual transfers any house property to minor child without consideration or for
inadequate consideration, then such individual is treated as deemed owner.
Exception: Transfer to minor married daughter.
3. Holder of Impartible Estate: It means property which is not legally divisible. The main holder
of Impartible Estate is treated as Deemed Owner.
4. Member of co-operative society: In case of co-operative society, shareholders/members are
treated as deemed owners of property.
5. In case of immovable property, if possession is acquired in part performance of a contract,
then assessee is treated as deemed owner from the date on which he obtained possession.
6. If any house property is acquired under long term lease (12 years or more), then acquirer is
treated as deemed owner.

Question 23

Answer the following:

1. Mr. Rajesh transfers a property of market value ₹38,00,000 to his wife out of natural love and
affection. The income from such property is ₹2,00,000. How will the property income be
taxed?
2. Mr. Amit gifts a property valuing ₹10,00,000 to his minor child. The annual income from such
property is ₹2,00,000. How will the property income be taxed?
3. What will your answer be, if in the above case Mr. Amit has gifted the house property to his
minor married daughter?
4. Mr. Anuj gives his house property to Mr. Dinesh on lease for 20 years. However, the lease is
to be renewed by Mr. Dinesh every year. How will the property income be taxed?
5. What will your answer be if in the above case Mr. Anuj gives his house property on lease to
Mr. Dinesh for 2 years and Mr. Dinesh can get the lease renewed for another 2 years on
payment of a specified sum and so on for indefinite period?

Solution

1. In this case, Mr. Rajesh has transferred his house property to his wife in natural love and
affection, i.e., otherwise than for adequate consideration. Therefore, he will be the deemed
owner of such property and hence income of ₹2,00,000 will be assessed in the hands of Mr.
Rajesh as “Income from House Property”.

CA NISHANT KUMAR 7
 2. Here, Mr. Amit has gifted the property to his minor child, i.e., without any adequate
consideration. Thus, Mr. Amit shall be the deemed owner of such property and the income of
₹2,00,000 from the said property shall be taxable in his hands.
3. In case, an individual transfers the property without adequate consideration to his minor
married daughter, then he shall not be treated as deemed owner in respect of such property
as per Section 27. Hence, the income from such property will be taxed in the hands of the
minor married daughter.
4. In this case, the lease is for 20 years, i.e., for more than 12 years, but the same is to be renewed
every year by Mr. Dinesh, i.e., for a period of not more than one year. Thus, Mr. Dinesh is not
treated as the deemed owner of such property and income from such property will be taxable
for Mr. Anuj.
5. Here, the lease is for 2 years but Mr. Dinesh can renew it after every 2 years for indefinite
period, which implies that the lease can be for more than 12 years. Thus, Mr. Dinesh will be
the deemed owner of such property and income therefrom will be taxable in his hands.

Question 24 – ICAI SM – Question 4

Mrs. Rohini Ravi, a citizen of the USA, is a resident and ordinarily resident in India during the financial
year 2022-23. She owns a house property at Los Angeles, USA, which is used as her residence. The
annual value of the house is $20,000. The value of one USD ($) may be taken as ₹75.

She took ownership and possession of a flat in Chennai on 1.7.2022, which is used for self-occupation,
while she is in India. The flat was used by her for 7 months only during the year ended 31.3.2023. The
municipal valuation is ₹3,84,000 p.a. and the fair rent is ₹4,20,000 p.a. She paid the following to
Corporation of Chennai:

Property Tax ₹16,200

Sewerage Tax ₹1,800
She had taken a loan from Standard Chartered Bank in June, 2020 for purchasing this flat. Interest on
loan was as under:

Particulars ₹
Period prior to 1.4.2022 49,200 529,840
1.4.2022 to 30.6.2022 50,800
1.7.2022 to 31.3.2023 1,31,300 782,100
She had a house property in Bangalore, which was sold in March, 2019. In respect of this house, she
received arrears of rent of ₹60,000 in March, 2023. This amount has not been charged to tax earlier.

Compute the income chargeable from house property of Mrs. Rohini Ravi for the assessment year
2023-24.

Solution

Since Mrs. Rohini is Resident and Ordinarily Resident, her global income is taxable in India

Calculation of Income from House Property of Mrs. Rohini for the A.Y. 2023-24
Particulars ₹
(i) House at Los Angeles (USA) (Self Occupied Property)
Net Annual Value -
Less: Deduction u/s 24 -
Income from House Property -

CA NISHANT KUMAR 8
 (ii) House at Chennai (Self Occupied Property)
Net Annual Value -
Less: Deductions u/s 24
Less: Standard Deduction @ 30% -
Less: Interest on Loan (W.N. 1) 1,91,940 1,91,940
1191,940
Income from House Property (1,91,940)
11191,9407

(iii) Recovery of Arrears Rent at Bangalore

Rent Received 60,000
60,000
Less: Standard Deduction @ 30% 18,000
18,000
Income from House Property 42,000
92,000
Net Income from House Property (1,49,940)
199,940

W.N. 1 - Interest on Loan

Particulars ₹
Pre-Acquisition Period Interest 49,200
49200
.
Interest to be allowed every year (₹49,200 ÷ 5) 9860
9,840
Post-Acquisition Period Interest 182,100
1,82,100
Total Interest for A.Y. 2023-24 1,91,940
e 91,940

Question 25 – ICAI SM – Illustration 2

Rajesh, a British national, is a resident and ordinarily resident in India during the P.Y. 2022-23. He owns
a house in London, which he has let out at £10,000 p.m. The municipal taxes paid to the Municipal
Corporation of London is £8,000 during the P.Y. 2022-23. The value of one £ in Indian rupee to be
taken at ₹95. Compute Rajesh’s Net Annual Value of the property for the A.Y. 2023-24.

Solution

For the P.Y. 2022-23, Mr. Rajesh, a British national, is resident and ordinarily resident in India.
Therefore, income received by him by way of rent of the house property located in London is to be
included in the total income in India. Municipal taxes paid in London is be to allowed as deduction
from the gross annual value.

Computation of Income from House Property

Particulars ₹
Actual Rent (GAV) (10,000 × 12 × 95) 1,14ooooo
1,14,00,000
Less: Municipal Taxes Paid (8,000 × 95) 7,60,000
Net Annual Value
7,60out
1,06,40,000
1,0640,000
Question 26 – ICAI SM – Illustration 3

Mr. Manas owns two house properties one at Bombay, wherein his family resides and the other at
Delhi, which is unoccupied. He lives in Chandigarh for his employment purposes in a rented house. For

acquisition of house property at Bombay, he has taken a loan of ₹30 lakh @ 10% p.a. on 1.4.2021. He
has not repaid any amount so far. In respect of house property at Delhi, he has taken a loan of ₹5 lakh

CA NISHANT KUMAR 9
@ 11% p.a. on 1.10.2021 towards repairs. Compute the deduction which would be available to him
under section 24(b) for A.Y.2023-24 in respect of interest payable on such loan.

Solution

Calculation of Interest on Loan

Particulars Actual
I Interest on Loan for Bombay Property
(For Construction)
30,00,000 × 10% 3,00ooo
3,00,000
Restricted to 2,00ooo
2,00,000

II Interest on Loan for Delhi Property

(For Repair)
5,00,000 × 11%
Ttooo
55,000
30,000
Restricted to 30,000

Total Interest 2,30,000

2,30ooo
Restricted to 2,00,000
2,00ooo

Question 27 – ICAI SM – Illustration 11

Ms. Aparna co-owns a residential house property in Calcutta along with her sister Ms. Dimple, where
her sister’s family resides. Both of them have equal share in the property and the same is used by
them for self-occupation. Interest is payable in respect of loan of ₹50,00,000 @ 10% taken on 1.4.2021
for acquisition of such property. In addition, Ms. Aparna owns a flat in Pune in which she and her
parents reside. She has taken a loan of ₹3,00,000 @ 12% on 1.10.2021 for repairs of this flat. Compute
the deduction which would be available to Ms. Aparna and Ms. Dimple under section 24(b) for
A.Y.2023-24.

Solution

Calculation of Interest on Loan available to Ms. Aparna for A.Y. 2023-24

Particulars Actual
I Interest on Loan for Calcutta Property
(For Construction)
50,00,000 × 10% 5100,000 5,00,000
Aparna's Share (50%) 2,50,000
Restricted to
2 toooo 2,00,000
2,001000

II Interest on Loan for Pune Property

(For Repair)
3,00,000 × 12% 36,000 36,000
Restricted to 30,000 30,000

Total Interest 2,30,000

ooo
2,30
Restricted to 2,00,000
2,001000

Calculation of Interest on Loan available to Ms. Dimple for A.Y. 2023-24

Particulars Actual
I Interest on Loan for Calcutta Property
CA NISHANT KUMAR 10
 (For Construction)
50,00,000 × 10% 5,00,000
Dimple's Share (50%) 2,50,000
Restricted to 2,00,000
2 00,000

Question 28 – RTP May, 2021

Mr. Roxx, a citizen of the Country Y, is a resident but not ordinarily resident in India during the financial
year 2022-23. He owns two house properties in Country Y, one is used as his residence. Another house
property is rented for a monthly rent of $18,000. Fair rent of the house property is $20,000. The value
of one CYD ($) may be taken as ₹78. 1 8 20
He took ownership and possession of a flat in Delhi on 1.10.2022, which is used for self-occupation,
31312
while he is in India. The flat was used by him for 3 months at the time when he visited India during the
previous year 2022-23. The municipal valuation is ₹4,58,000 p.a. and the fair rent is ₹3,60,000 p.a. He
paid property tax of ₹13,800 and ₹2,800 as Sewerage tax to Municipal Corporation of Delhi.

He had taken a loan of ₹18,00,000 @ 9.5% from HDFC Bank on 1st August, 2020 for purchasing this
L
flat. No amount is repaid by him till 31.3.2023.

He also had a house property in Bangalore which is let out on a monthly rent of ₹40,000. The fair rent
of which is ₹4,58,000 p.a. and Municipal value of ₹3,58,000 p.a. and Standard Rent of ₹4,20,000 p.a.
He had taken a loan of ₹25,00,000 @ 10% from one of his friends, residing in Country Y for this house.
Municipal tax of ₹5,400 is paid by him in respect of this house during the previous year 2022-23.

Compute the income chargeable from house property of Mr. Roxx for the assessment year 2023-24.

Solution

Since Mr. Roxx is Resident but Not Ordinarily Resident in India (R-NOR), so only Indian Income from
House Property is taxable for him.

Computation of Income from House Property

Particulars Delhi (SOP) Bangalore (LOP)
(i) Municipal Value - 3,58,000
(ii) Fair Rent - 4,58,000
(iii) Higher of (i) and (ii) - 4,58,000
(iv) Standard Rent - 4,20,000
4,101000
(v) Expected Rent [Lower of (iii) and (iv)] - 4,58,000
(vi) Actual Rent Received/Receivable
GAV [Higher of (v) and (vi)]
-
- is
4,80,000
4,80,000
Less: Municipal Taxes - 5,400
NAV - 4,74,600
Less: Deductions u/s 24
1142,13801
Less: 30% of NAV - 1,42,380
Less: Interest on Loan (Note 1) 2100,0001
2,00,000 12,5010001
2,50,000
Income from House Property (2,00,000)
2,0010001 82,220
.
82,220
Net Income from House Property (1,17,780)
2100,000 82,220 1,17780

W.N. 1 - Interest on Loan

CA NISHANT KUMAR 11
 Particulars ₹
Pre-Acquisition Period Interest
P.Y. 2020-21 (9.5% × ₹18,00,000 × 8/12) 114,000
1,14,000
P.Y. 2021-22 (9.5% × ₹18,00,000) 1,71ooo
1,71,000
Total 2,85,000
2,851000
.
Allowable Every Year (₹2,85,000 ÷ 5) 57,000
571000
.
P.Y. 2022-23 (9.5% × ₹18,00,000) 1 71,000
1,71,000
Add: Pre-Acquisition Period Interest 57,000
57,000
Total 2,28,000
2128,000
.
Restricted to 2,00,000
2,001000

Question 29 – ICAI SM – Question 3

Mr. Vikas owns a house property whose Municipal Value, Fair Rent and Standard Rent are ₹96,000,
₹1,26,000 and ₹1,08,000 (per annum), respectively.

During the Financial Year 2022-23, one-third of the portion of the house was let out for residential
purpose at a monthly rent of ₹5,000. The remaining two-third portion was self-occupied by him.
Municipal tax @ 11 % of municipal value was paid during the year. 1 7 15
The construction of the house began in June, 2015 and was completed on 31-5-2018. Vikas took a loan 31318
of ₹1,00,000 on 1-7-2015 for the construction of building. He paid interest on loan @ 12% per annum
and every month such interest was paid. 3115118
Compute income from house property of Mr. Vikas for the Assessment Year 2023-24 1 7 15 31 316 9
1 416 31317
12
Solution

Computation of Income from House Property for A.Y. 2023-24 11

117
Particulars SOP (2/3) LOP (1/3)
(i) Municipal Value - 32,000
(ii) Fair Rent - 42,000
(iii) Higher of (i) and (ii) - 42,000
(iv) Standard Rent - 108,000
36,000

I
(v) Expected Rent [Lower of (iii) and (iv)] - 1.08.000
36,000
(vi) Actual Rent Received/Receivable - 60,000
GAV [Higher of (v) and (vi)]
Less: Municipal Taxes
-
-
9
60,000
3,520
60

NAV - 56,480
Less: Deductions u/s 24
Less: 30% of NAV - 16,944
Less: Interest on Loan (Note 1) 12,400 626,200
124007 00
Income from House Property (12,400)
12400 33,336
. 91,240
Net Income from House Property 20,936
112,4001 91,240 2 78,840
W.N. 1 - Interest on Loan
Particulars ₹

CA NISHANT KUMAR 12
 Pre-Acquisition Period Interest
P.Y. 2015-16 (12% × ₹1,00,000 × 9/12) 9,000
P.Y. 2016-17 (12% × ₹1,00,000) 12,000
P.Y. 2017-18 (12% × ₹1,00,000) 2000
12,000
Total 33,000
33000
.
Allowable Every Year (₹33,000 ÷ 5) 6,600
6,600
.
P.Y. 2022-23 (12% × ₹1,00,000) 12,000
Add: Pre-Acquisition Period Interest 6,600
Total 18,600
18,600
.
For LOP (1/3) 200
66,200
For SOP (2/3) 12,400
12400

Question 30 – ICAI SM – Illustration 6

Poorna has one house property at Indira Nagar in Bangalore. She stays with her family in the house.
The rent of similar property in the neighbourhood is ₹25,000 p.m. The municipal valuation is ₹2,80,000
p.a. Municipal taxes paid is ₹8,000. The house construction began in April 2016 with a loan of
₹20,00,000 taken from SBI Housing Finance Ltd. @ 9% p.a. on 1.4.2016. The construction was
completed on 30.11.2018. The accumulated interest up to 31.3.2018 is ₹3,60,000. On 31.3.2023,
Poorna paid ₹2,40,000 which included ₹1,80,000 as interest. There was no principal repayment prior
to this date. Compute Poorna’s income from house property for A.Y. 2023-24.

Solution

Computation of Income from House Property of Poorna for A.Y. 2023-24

Particulars Amount
NAV -
Less: Deductions u/s 24
Less: 30% of NAV -
Less: Interest on Loan (W.N. 1) 2,00,000 5001000
2,00,000
Income from House Property (2,00,000)
0010001

Calculation of Interest to be Allowed in P.Y. 2022-23

Particulars ₹
Pre-Construction Interest:
2016-17 (9% × ₹20,00,000) 1,80,000
2017-18 (9% × ₹20,00,000) 1,80,000
3,60,000
3,601000
Pre-Construction Interest to be allowed every year (₹3,60,000 ÷ 5) 7
72,000
Add: Interest for P.Y. 2022-23 1,80,000
Interest to be allowed in P.Y. 2022-23 2,52,000
2,521000
202 91 1 80,000
.
Restricted to 1 4 16 31 3 17 2,00,000
2,001000

114117 3103118 204 91

CA NISHANT KUMAR 13

3411180
 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,
ppps 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
buildingCompletedafter
Transfer includes:
En Lease of lease
of
1. Sale of Capital Asset Completion So vight
Wyre extinguished
2. Exchange of Capital Asset
3. Relinquishment of Capital Asset, or Extinguishment of Right in Capital Asset
e4.
Giveitup Conversion of Capital Asset into SIT

III
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

I yr

2 yr

3yr

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
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
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 700,000
7,00,000
Less: Transfer Expenses -
Net Consideration 7,00,000

III
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 ₹
Full Value of Consideration ooo
20,00,000
20,00
Less: Transfer Expenses 5,000
150001
Net Consideration 19 atooo
19,95,000
Less: Indexed Cost of Acquisition (₹5,00,000 × 331/100) ie tioooh
16,55,000
Long Term Capital Gain 3,40,000
3140,000

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

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

Particulars ₹
Full Value of Consideration 6,80 ooo
6,80,000
Less: Transfer Expenses
it 5,000
cool
Net Consideration atooo
6 6,75,000
Less: Cost of Acquisition 5,00,000
1500,0001
1 ti
Short Term Capital Gain 1,75,000
ooo

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

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

Particulars ₹
Full Value of Consideration 6,75,000
6,15000
Less: Transfer Expenses 5,000
Food
Net Consideration 6toooo
6,70,000
Less: Indexed Cost of Acquisition (₹5,00,000 × 331/272) 6,08,456
6108,4561
Long Term Capital Gain 61,544
Gl Tay
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

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

Particulars ₹
Full Value of Consideration 17175 ooo
17,75,000
Less: Transfer Expenses 5,000
1510001
Net Consideration 17toooo
17,70,000
Less: Indexed Cost of Acquisition (₹10,00,000 × 331/272) 12,16,912
12116,9121
Long Term Capital Gain
55,53,088
53,088

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

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

Particulars ₹
Full Value of Consideration ooooo
1,00,00,000
1,00
Less: Transfer Expenses 15,000
115,0001
Net Consideration 85,00
99,85,000
ooo
Less: Indexed Cost of Acquisition (₹18,00,000 × 331/100)
ra t8ooo
59,58,000
Long Term Capital Gain 40,27,000
25192,000

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

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

Particulars ₹
Full Value of Consideration Goooooo
60,00,000
Less: Transfer Expenses e1,80,000
soooo
Net Consideration 58,20,000
58,201000
Less: Indexed Cost of Acquisition (₹5,50,000 × 331/113) 16,11,062 Go11,0621
Less: Indexed Cost of Improvement (₹4,00,000 × 331/117) 11,31,624 27,42,686
Long Term Capital Gain
111 31,6241
30,77,314
3077,314

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

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

Particulars ₹
Full Value of Consideration 79
79,00,000
ouooo
Less: Transfer Expenses
to
50,000
ooo
Net Consideration 78toooo
78,50,000
Less: Indexed Cost of Acquisition (₹5,50,000 × 331/100)
Less: Indexed Cost of Improvement (2003-04) (₹610000 × 331/109)
18,20,500
18,52,385
48wtoo
Less: (Second Floor) RioIL3851
Less: Indexed Cost of Improvement (2009-10) (₹7,50,000 × 331/148) 16,77,365 116,77 36587
53,50,250
Less: (Reconstruction of Property)
Long Term Capital Gain 24,99,750
24 99,750

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

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

Particulars ₹
Full Value of Consideration 1 tooooo
1,50,00,000
Less: Transfer Expenses 4,50,000
Net Consideration 1,45,50,000
Less: Indexed Cost of Acquisition (₹17,00,000 × 331/100) 56,27,000 hut itooo
Less: Indexed Cost of Improvement (2012-13) (₹8,00,000 × 331/200) 13,24,000 56,27ooo
Less: Indexed Cost of Improvement (2020-21) (₹7,50,000 × 331/301)
Long Term Capital Gain
8,24,751
IIIs
77,75,751
167,74
67,74,249
29499

CA NISHANT KUMAR 9
 s
I
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
a Limitedks
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
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

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

Particulars ₹
Full Value of Consideration e soooooo
1,50,00,000
Less: Transfer Expenses 1,00,000
lionooo
Net Consideration 1,49,00,000
Less: Indexed Cost of Acquisition 66,20,000
149,00ooo
Less: (₹20,00,000 × 331/100) 166wood
Less: Indexed Cost of Improvement (2002-03) 33,10,000 17710,000
Less: (₹10,50,000 × 331/105)
Less: Indexed Cost of Improvement (2006-07) 30,52,254 130,521254
Less: (₹11,25,000 × 331/122) 1,29,82,254
Long Term Capital Gain 19,17,746
19,171746

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 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
3,001000
Less: Transfer Expenses -
Net Consideration 3,00,000
300,000
Less: ICOA (₹80000 × 317/113) 2,24,425
24,4251
275,575
Long Term Capital Gain IT sat
Computation of PGBP
Particulars ₹
Sale Value of Stock 3,251000
3,25,000
Less: FMV as on Date of Conversion 300,0001
3,00,000
PGBP
2525,000
ooo

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) 1,50ooooo
1,50,00,000
Less: Transfer Expenses -
Net Consideration
1 toooooo
1,50,00,000

CA NISHANT KUMAR 11
 Less: ICOA (₹10,00,000 × 167/100) 16,70,000
116
70,0001
LTCG 1,33,30,000
9 9 90
Capital Gains taxable in P.Y. 2022-23 (A.Y. 2023-24) 1 33,301000k 99,97,500

Mrs. Preeti
Particulars ₹
Sale Value of Flats (15 Flats × ₹20 Lakhs) 3,00,00,000

i
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
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 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 ro.coooo
50,00,000
Less: Transfer Expenses -
Net Consideration to0,000
50,00,000
Less: ICOA (₹4,00,000 × 254/100) 10,16,000
110,1610001
LTCG 39,84,000
39,84000

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 IFS

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
20100,000
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.
compensation
m n
Sdfdfhhgn
Question 19 Initial Enhanced
1 Transfer yearof
acquiation

2 Tannins onk
sundowner
satedf
Entire ant dffhE
d
f ffefam
CA NISHANT KUMAR 13
 of you for

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 Relinquishment

Normally, destruction is not treated as transfer but if destruction/damage of capital asset is due to ofAsset
following four reasons, then it is treated as transfer if assessee receives insurance claim:

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

2. Riot rider
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.

no 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
3800,000
CA NISHANT KUMAR 14
 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)
• 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)
Builder

Emanation CA NISHANT KUMAR 15

continue.i niceties
 s

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

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.

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

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

Particulars ₹
FVOC: 80,00,000
Less: Transfer Expenses -
Net Consideration 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
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 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: Transfer Expenses -
Net Consideration 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: 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.

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: Transfer Expenses 15,000
Net Consideration 29,85,000
Less: Indexed COA (₹5,20,000 × 331/105) 16,39,238
Less: Indexed COI (₹4,35,000 × 331/129) 11,16,163
Long Term Capital Gains 2,29,599

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: Transfer Expenses -
Net Consideration 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: Transfer Expenses -
Net Consideration 60,00,000
Less: Indexed COA {(₹10,90,000 – ₹30,000) × 331/100} 35,08,600
Long Term Capital Gains 24,91,400

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: Transfer Expenses -
Net Consideration 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
Long Term Capital Gains 23,55,523

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
Less: Transfer Expenses 50,000

CA NISHANT KUMAR 23
 Net Consideration 14,50,000
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
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 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 -
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 -

CA NISHANT KUMAR 25
 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
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)
Less: Transfer Expenses 28,000
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
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 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

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

Particulars ₹
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.

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.

Computation of Capital Gains

Particulars $
FVOC (Average Rate on Date of Transfer) xxx
Less: Transfer Expenses (Average Rate on Date of Transfer) xxx
Net Consideration 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

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

Particulars ₹
FVOC 35,00,000
Less: Transfer Expenses -
Net Consideration 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: Transfer Expenses 15,000
Net Consideration 26,85,000
Less: ICOA (₹1,90,000 × 331/100) 6,28,900
Gross LTCG 20,56,100
Less: Exemption u/s 54: Lower of:
Less: (i) Capital Gain 20,56,100
Less: (ii) Cost of New Asset 5,00,000 5,00,000
Net LTCG 15,56,100

Computation of Capital Gains of Mr. Ravi for A.Y. 2024-25

Particulars ₹
FVOC 9,00,000
Less: Transfer Expenses -
Net Consideration 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: Transfer Expenses -
Net Consideration 1,57,00,000
Less: ICOA (₹30,00,000 × 289/148) 58,58,108
Gross LTCG 98,41,892
Less: Exemption u/s 54 (Note 1)
Less: Lower of:
Less: (i) Capital Gain 98,41,892
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: Transfer Expenses -
Net Consideration 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: Exemption u/s 54 (Note 3)
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: 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 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: 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
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.

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.
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 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

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

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: 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

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: 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
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

CA NISHANT KUMAR 38
 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
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: 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)

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
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).

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
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

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

Computation of Capital Gain

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

Computation of Capital Gain

Particulars ₹
Full Value of Consideration 150
Less: Cost of Acquisition
Less: FMV as on 31-01-2018 200
Less: FVOC on Transfer 150

CA NISHANT KUMAR 46
 Less: Whichever is Lower 150
Less: Actual Cost of Acquisition 100
Less: Whichever is Higher 150
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

Computation of Capital Gain

Particulars ₹
Full Value of Consideration 150
Less: Cost of Acquisition
Less: FMV as on 31-01-2018 50
Less: FVOC on Transfer 150
Less: Whichever is Lower 50
Less: Actual Cost of Acquisition 100
Less: Whichever is Higher 100
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

Computation of Capital Gain

Particulars ₹
Full Value of Consideration 50
Less: Cost of Acquisition
Less: FMV as on 31-01-2018 200
Less: FVOC on Transfer 50
Less: Whichever is Lower 50
Less: Actual Cost of Acquisition 100
Less: Whichever is Higher 100
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

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 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

Computation of Capital Gain

Particulars ₹
Full Value of Consideration 14,75,000
Less: Expenses on Transfer (0.5% × ₹14,75,000) 7,375
Net Consideration 14,67,625
Less: Cost of Acquisition
Less: FMV as on 31-01-2018 15,00,000
Less: FVOC on Transfer 14,75,000
Less: Whichever is Lower 14,75,000
Less: Actual Cost of Acquisition 15,25,000
Less: Whichever is Higher 15,25,000
Long Term Capital Gain (57,375)
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

Computation of Capital Gain

Particulars ₹
Full Value of Consideration 16,00,000
Less: Expenses on Transfer -
Net Consideration 16,00,000
Less: Cost of Acquisition
Less: FMV as on 31-01-2018 16,50,000
Less: FVOC on Transfer 16,00,000
Less: Whichever is Lower 16,00,000
Less: Actual Cost of Acquisition 15,25,000
Less: Whichever is Higher 16,00,000
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: Expenses on Transfer -
Net Consideration 65,00,000
Less: Cost of Acquisition
Less: FMV as on 31-01-2018 (Highest Price) 30,00,000
CA NISHANT KUMAR 50
 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 ₹
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

Question 59 – November, 2020 – 5 Marks

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: Transfer Expenses -
Net Consideration 19,20,000
Less: Cost of Acquisition
Less: FMV as on 31-01-2018 (Highest Price) 16,00,000
Less: FVOC 19,20,000
Less: Whichever is Lower 16,00,000
Less: Actual Cost of Acquisition (800 × ₹900) 7,20,000
Less: Whichever is Higher 16,00,000
Long Term Capital Gains 3,20,000
.
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: Cost of Acquisition
Less: FMV as on 31-01-2018 (Highest Price) 20,00,000
Less: FVOC 21,00,000
Less: Whichever is Lower 20,00,000
Less: Actual Cost of Acquisition (1000 × ₹900) 9,00,000
Less: Whichever is Higher 20,00,000
Long Term Capital Gains 1,00,000
.
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
Question 60 – November, 2006 – 10 Marks

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

Computation of Capital Gains

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
Full Value of Consideration 40,00,000
Less: Indexed Cost of Acquisition {(₹11,00,000 – ₹50,000) × 331/109} 31,88,532
Long Term Capital Gains 8,11,468

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

Computation of Capital Gains

Particulars ₹
Original 1,000 Shares
Full Value of Consideration 2,80,000
Less: Transfer Expenses -
Net Consideration 2,80,000

CA NISHANT KUMAR 53
 Less: Cost of Acquisition
Less: FMV as on 31-01-2018 1,50,000
Less: Full Value of Consideration 2,80,000
Less: Whichever is Lower 1,50,000
Less: Actual Cost of Acquisition 1,00,000
Less: Whichever is Higher 1,50,000
Long Term Capital Gains 1,30,000
.
500 Bonus Shares
Full Value of Consideration 1,40,000
Less: Transfer Expenses -
Net Consideration 1,40,000
Less: Cost of Acquisition -
Short Term Capital Gains 1,40,000
.
500 Right Shares
Full Value of Consideration 1,40,000
Less: Transfer Expenses -
Net Consideration 1,40,000
Less: Cost of Acquisition 45,000
Short Term Capital Gains 95,000
.
Sale of Right Entitlement
Full Value of Consideration 67,500
Less: Transfer Expenses -
Net Consideration 67,500
Less: Cost of Acquisition -
Short Term Capital Gains 67,500
.
Short Term Capital Gains 3,02,500
Long Term Capital Gains 1,30,000

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.

Computation of Capital Gains

Particulars ₹
Full Value of Consideration 12,00,000
Less: Cost of Acquisition 10,00,000
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

Computation of Capital Gains

Particulars ₹
Full Value of Consideration 16,20,000
Less: Transfer Expenses -
Net Consideration 16,20,000
Less: Indexed Cost of Acquisition (40 × ₹10,000 × 331/137) 9,66,423
Long Term Capital Gains 6,53,577
Less: Exemption u/s 54EC (Note 1) -
Long Term Capital Gains 6,53,577
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
Less: Cost of Acquisition 4,00,000

CA NISHANT KUMAR 55
 Gross Capital Gains 12,20,000
10% thereof (A) 1,22,000
.
20% of Capital Gains (After Basic Exemption)
Long Term Capital Gains 6,53,577
Less: Basic Exemption Limit 2,50,000
Taxable Long Term Capital Gains 4,03,577
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)

Question 64 – November, 2010 – 7 Marks

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
Net Consideration 73,90,000
Less: Indexed Cost of Acquisition (₹14,50,000 × 331/113) 42,47,345
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
Long Term Capital Gains 6,42,655
Less: Basic Exemption Limit (Note 4) 2,50,000

CA NISHANT KUMAR 56
 Taxable Long Term Capital Gains 3,92,655
Tax @ 20% 78,531
Add: Health and Education Cess @ 4% 3,141
Total Tax Liability 81,672
Tax Liability (Rounded Off) 81,670
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
Long Term Capital Gains 8,72,673
Less: Basic Exemption Limit 2,50,000
Capital Gains for Computing Tax 6,22,673
Tax @ 20% 1,24,535
Add: Health and Education Cess @ 4% 4,981
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.

Question 66 – May, 2013 – 8 Marks

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
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 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
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 ₹
Full Value of Consideration (Note 1) 85,00,000
Less: Transfer Expenses (2% × ₹53,00,000) 1,06,000
Net Consideration 83,94,000
Less: Indexed Cost of Acquisition (₹18,00,000 × 331/100) 59,58,000
Long Term Capital Gains 24,36,000
Less: Exemption u/s 54
Less: Capital Gains 24,36,000
Less: Cost of New House + Deposit Amount (Note 2) 14,00,000
Less: Whichever is Lower 14,00,000
Less: Exemption u/s 54EC (Note 3) 7,00,000
Taxable Long Term Capital Gains 3,36,000
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
Less: Whichever is Lower 12,500
Tax 4,700

CA NISHANT KUMAR 59
 Add: Health and Education Cess @ 4% 188
Tax Liability 4,888
Tax Liability (Rounded Off) 4,890
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.

Question 68 – November, 2015 – 8 Marks

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 ₹
Full Value of Consideration (Note 1) 94,00,000
Less: Transfer Expenses 50,000
Net Consideration 93,50,000
Less: Indexed Cost of Acquisition (₹20,00,000 × 331/122) 54,26,230
Long Term Capital Gains 39,23,770
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 Less: Exemption u/s 54
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
Less: Exemption u/s 54EC (Note 3) 10,00,000
Taxable Long Term Capital Gains 4,23,770
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
Less: Whichever is Lower 12,500
Tax 22,254
Add: Health and Education Cess @ 4% 890
Tax Liability 23,144
Tax Liability (Rounded Off) 23,140
Notes:

1. Since the SDV, i.e., ₹94,00,000 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 ₹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
Less: Indexed Cost of Acquisition (₹35,00,000 × 317/113) 98,18,584
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

Less: Exemption u/s 54EC (Note 6) 50,00,000
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 Acquisition
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.

Question 70 – May, 2018 – 5 Marks

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 ₹
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

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
Full Value of Consideration 55,00,000
Less: Transfer Expenses -
Net Consideration 55,00,000
Less: Cost of Acquisition
Less: FMV as on 31-01-2018 39,00,000
Less: Full Value of Consideration 55,00,000
Less: Whichever is Lower 39,00,000
Less: Actual Cost of Acquisition 39,50,000
Less: Whichever is Higher 39,50,000
Long Term Capital Gains 15,50,000
Long-term capital gain exceeding ₹1 lakh i.e., ₹14,50,000 would be taxable
@10%.
.
On Sale of Residential House
Full Value of Consideration (Note 1) 45,00,000
Less: Transfer Expenses -
Net Consideration 45,00,000
Less: Indexed Cost of Acquisition (₹9,00,000 × 331/264) 11,28,409
Long Term Capital Gains 33,71,591
Less: Exemption u/s 54EC (Note 2) -
Taxable Long Term Capital Gains 33,71,591
Long-term capital gain taxable u/s 112 @ 20%
Notes:

1. Since the SDV, i.e., ₹45,00,000 exceeds 110% of the Sale Consideration, SDV is taken to be the
Full Value of Consideration.

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
Income from Capital Gains – Solution to
Homework
Miscellaneous Questions
Question 60 – November, 2006 – 10 Marks

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
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

Computation of Capital Gains

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
Full Value of Consideration 40,00,000
Less: Indexed Cost of Acquisition {(₹11,00,000 – ₹50,000) × 331/109} 31,88,532
Long Term Capital Gains 8,11,468

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

CA NISHANT KUMAR 1
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

Computation of Capital Gains

Particulars ₹
Original 1,000 Shares
Full Value of Consideration 2,80,000
Less: Transfer Expenses -
Net Consideration 2,80,000
Less: Cost of Acquisition
Less: FMV as on 31-01-2018 1,50,000
Less: Full Value of Consideration 2,80,000
Less: Whichever is Lower 1,50,000
Less: Actual Cost of Acquisition 1,00,000
Less: Whichever is Higher 1,50,000
Long Term Capital Gains 1,30,000
.
500 Bonus Shares
Full Value of Consideration 1,40,000
Less: Transfer Expenses -
Net Consideration 1,40,000
Less: Cost of Acquisition -
Short Term Capital Gains 1,40,000
.
500 Right Shares
Full Value of Consideration 1,40,000
Less: Transfer Expenses -
Net Consideration 1,40,000
Less: Cost of Acquisition 45,000
Short Term Capital Gains 95,000
.
Sale of Right Entitlement
Full Value of Consideration 67,500
Less: Transfer Expenses -
Net Consideration 67,500
Less: Cost of Acquisition -
Short Term Capital Gains 67,500
.
Short Term Capital Gains 3,02,500
Long Term Capital Gains 1,30,000

Computation of Tax Payable

CA NISHANT KUMAR 2
 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

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.

Computation of Capital Gains

Particulars ₹
Full Value of Consideration 12,00,000
Less: Cost of Acquisition 10,00,000
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

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 Computation of Capital Gains
Particulars ₹
Full Value of Consideration 16,20,000
Less: Transfer Expenses -
Net Consideration 16,20,000
Less: Indexed Cost of Acquisition (40 × ₹10,000 × 331/137) 9,66,423
Long Term Capital Gains 6,53,577
Less: Exemption u/s 54EC (Note 1) -
Long Term Capital Gains 6,53,577
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
Less: Cost of Acquisition 4,00,000
Gross Capital Gains 12,20,000
10% thereof (A) 1,22,000
.
20% of Capital Gains (After Basic Exemption)
Long Term Capital Gains 6,53,577
Less: Basic Exemption Limit 2,50,000
Taxable Long Term Capital Gains 4,03,577
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)

Question 64 – November, 2010 – 7 Marks

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.
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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
Net Consideration 73,90,000
Less: Indexed Cost of Acquisition (₹14,50,000 × 331/113) 42,47,345
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
Long Term Capital Gains 6,42,655
Less: Basic Exemption Limit (Note 4) 2,50,000
Taxable Long Term Capital Gains 3,92,655
Tax @ 20% 78,531
Add: Health and Education Cess @ 4% 3,141
Total Tax Liability 81,672
Tax Liability (Rounded Off) 81,670
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.

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