Taxation - DT Ch 06: Capital Gains - Test 2: answer key

Question 1 · 2 marks · Taxation - DT Ch 06: Capital Gains · hard

Scenario. Nandini Real Estates Pvt. Ltd., an Indian company, transferred three investment properties during T.Y. 2026-27. The company maintains separate records for the acquisition cost, improvement expenditure and transfer expenses of each property. Property A was sold for ₹1,20,00,000 under an agreement dated 14 August 2026. Registration took place on 9 December 2026. The stamp duty value was ₹1,31,00,000 on the agreement date and ₹1,42,00,000 on the registration date. The purchaser transferred an advance of ₹8,00,000 through UPI on 13 August 2026, before execution of the agreement. Property B was sold for ₹80,00,000 under an agreement dated 1 September 2026 and registered on 18 November 2026. Its stamp duty value was ₹86,40,000 on the agreement date and ₹94,00,000 on the registration date. The purchaser paid the first instalment on 4 September 2026 through an account-payee cheque. No consideration was received through a specified banking or online mode on or before the agreement date. Property C was sold for ₹70,00,000. The stamp duty value on the transfer date was ₹82,00,000. Nandini claimed that the stamp duty value exceeded the property's fair market value of ₹76,00,000. The value was not disputed in any appeal or revision, nor was a reference made to another authority. Following a reference by the Assessing Officer, the Valuation Officer determined the property's value at ₹76,00,000. For Property C, brokerage incurred wholly and exclusively in connection with the transfer was 1% of the actual sale consideration. Its acquisition cost was ₹45,00,000 and qualifying capital improvement expenditure was ₹6,00,000. No other adjustment is required for these transactions.

For Property A, determine the full value of consideration to be adopted under section 50C. In particular, consider the agreement-date stamp duty value, the registration-date stamp duty value, the mode and timing of receipt of the advance, and the prescribed tolerance threshold.

1. ₹1,20,00,000, being the actual consideration. (correct answer)
2. ₹1,31,00,000, being the agreement-date stamp duty value.
3. ₹1,42,00,000, being the registration-date stamp duty value.
4. ₹1,32,00,000, being 110% of the actual consideration.

Answer: A — ₹1,20,00,000, being the actual consideration.

Explanation. The advance was received through UPI on 13 August, before the agreement dated 14 August. UPI is a specified electronic mode. The agreement-date stamp duty value can therefore be considered. Calculation: ₹1,20,00,000 × 110% = ₹1,32,00,000. The agreement-date value of ₹1,31,00,000 does not exceed this threshold. Hence, the actual consideration of ₹1,20,00,000 is adopted under section 50C. The higher registration-date value is not substituted.

Where it goes wrong. Using the registration-date stamp duty value without considering the permitted agreement-date valuation and the specified-mode advance received before the agreement.

Authority. Section 48 of the Income-tax Act, 1961; Section 50C(1) and its first proviso of the Income-tax Act, 1961; Rule 6ABBA of the Income-tax Rules, 1962

Question 2 · 2 marks · Taxation - DT Ch 06: Capital Gains · medium

Determine the deemed full value of consideration for Property B. The purchaser paid the first instalment after execution of the agreement. Consequently, the conditions for adopting the agreement-date stamp duty value must be examined separately from the 110% tolerance test.

1. ₹80,00,000, being the actual sale consideration.
2. ₹86,40,000, being the agreement-date stamp duty value.
3. ₹94,00,000, being the registration-date stamp duty value. (correct answer)
4. ₹88,00,000, being 110% of the actual consideration.

Answer: C — ₹94,00,000, being the registration-date stamp duty value.

Explanation. The agreement date is 1 September, but the first account-payee cheque was received only on 4 September. The agreement-date substitution condition is therefore not satisfied. The relevant stamp duty value is ₹94,00,000 on registration. The tolerance threshold is ₹80,00,000 × 110% = ₹88,00,000. Since ₹94,00,000 exceeds ₹88,00,000, section 50C substitutes ₹94,00,000 as full value of consideration.

Where it goes wrong. Applying the agreement-date stamp duty value merely because an agreement precedes registration, although no specified-mode consideration was received by the agreement date.

Authority. Section 50C(1) of the Income-tax Act, 1961; Section 50C, first proviso, of the Income-tax Act, 1961

Question 3 · 2 marks · Taxation - DT Ch 06: Capital Gains · hard

In respect of Property C, the Assessing Officer makes a reference to the Valuation Officer after considering Nandini's claim regarding the property's fair market value. The Valuation Officer determines the value at ₹76,00,000, which is lower than the stamp duty value of ₹82,00,000 but higher than the actual consideration of ₹70,00,000. Determine the full value of consideration to be adopted.

1. ₹70,00,000, being the amount actually received.
2. ₹82,00,000, being the stamp duty value. (correct answer)
3. ₹76,00,000, being the Valuation Officer's determination.
4. ₹74,00,000, being the midpoint of both valuations.

Answer: B — ₹82,00,000, being the stamp duty value.

Explanation. Section 50C permits a valuation reference where the assessee claims that stamp duty value exceeds fair market value and the statutory conditions regarding disputes are satisfied. Under section 50C(3), if the Valuation Officer's value exceeds the stamp duty value, the stamp duty value is retained. If it is lower, the Valuation Officer's value is adopted. Here, ₹76,00,000 is below ₹82,00,000, so the proper value is ₹76,00,000. The actual consideration is ₹70,00,000.

Where it goes wrong. Reversing the effect of the Valuation Officer's report and adopting the higher stamp duty value even when the DVO's value is lower.

Authority. Section 50C(2) of the Income-tax Act, 1961; Section 50C(3) of the Income-tax Act, 1961

Question 4 · 2 marks · Taxation - DT Ch 06: Capital Gains · medium

Compute the capital gain arising from Property C after applying the Valuation Officer's report. Brokerage is calculated at 1% of the actual consideration. The acquisition cost and qualifying improvement expenditure are ₹45,00,000 and ₹6,00,000 respectively. Ignore indexation and exemptions and apply the ordinary computation provisions.

1. ₹25,00,000.
2. ₹26,30,000.
3. ₹23,60,000.
4. ₹24,30,000. (correct answer)

Answer: D — ₹24,30,000.

Explanation. The adopted consideration is ₹76,00,000 under section 50C(3). Brokerage is 1% of ₹70,00,000 = ₹70,000. Net sale consideration = ₹76,00,000 − ₹70,000 = ₹75,30,000. Less acquisition cost of ₹45,00,000 and improvement cost of ₹6,00,000. Capital gain = ₹75,30,000 − ₹51,00,000 = ₹24,30,000. Indexation is not applied in this computation.

Where it goes wrong. Calculating brokerage on the substituted stamp-duty or DVO value rather than on the actual amount of the transaction, as specified in the case.

Authority. Section 48 of the Income-tax Act, 1961; Section 50C(3) of the Income-tax Act, 1961

Question 5 · 2 marks · Taxation - DT Ch 06: Capital Gains · medium

Scenario. Smt. Kavita Mehra, a resident individual, holds investments in several companies and proposes to restructure her portfolio during T.Y. 2026-27. Her holdings include unquoted equity shares, unquoted preference shares and regularly quoted shares of a company listed on a recognised stock exchange. On 10 October 2026, Kavita transferred 4,000 unquoted equity shares of Vikramaditya Components Pvt. Ltd. for total consideration of ₹24,00,000. The fair market value of these shares, determined in the prescribed manner, was ₹31,20,000. Their cost of acquisition was ₹17,00,000. She incurred brokerage of ₹24,000 wholly and exclusively in connection with the transfer. On 15 December 2026, she transferred unquoted preference shares of Meridian Electronics Pvt. Ltd. for ₹18,00,000. The prescribed fair market value on that date was ₹16,50,000. The cost of acquisition was ₹10,00,000 and transfer-related brokerage was ₹30,000. On 10 February 2027, she sold regularly quoted equity shares of Aryan Steels Ltd. for ₹12,00,000. Their prescribed fair market value was ₹15,00,000, while their cost of acquisition was ₹8,00,000. Brokerage on the sale was ₹20,000. The shares were quoted regularly on a recognised stock exchange, with quotations based on current transactions made in the ordinary course of business. Kavita's tax consultant must determine the appropriate full value of consideration for each transaction before applying the ordinary computation provisions. All three holdings are capital assets. There are no exemptions, special cost provisions or deductions other than the stated transfer expenses. The prescribed fair market values furnished in the case of the unquoted shares are to be accepted for the questions.

Determine the capital gain arising on Kavita's transfer of 4,000 unquoted equity shares of Vikramaditya Components Pvt. Ltd. Apply section 50CA to determine the full value of consideration and then compute the gain after deducting eligible transfer expenses and acquisition cost.

1. ₹6,76,000.
2. ₹13,96,000. (correct answer)
3. ₹14,20,000.
4. ₹7,00,000.

Answer: B — ₹13,96,000.

Explanation. Actual consideration is ₹24,00,000, whereas prescribed FMV is ₹31,20,000. Section 50CA therefore substitutes ₹31,20,000. Deduct brokerage ₹24,000 and acquisition cost ₹17,00,000. Capital gain = ₹31,20,000 − ₹24,000 − ₹17,00,000 = ₹13,96,000. Section 50CA uses prescribed FMV where actual consideration is lower for an unquoted share; the difference is included in full value of consideration.

Where it goes wrong. Computing the gain using actual consideration instead of the prescribed FMV for an unquoted share.

Authority. Section 48 of the Income-tax Act, 1961; Section 50CA of the Income-tax Act, 1961

Question 6 · 2 marks · Taxation - DT Ch 06: Capital Gains · hard

Kavita's consultant argues that the 110% tolerance band applicable to transfers of land and buildings should also apply when consideration for unquoted shares is lower than prescribed fair market value. Which treatment is correct for the unquoted equity shares transferred on 10 October 2026?

1. The actual consideration is accepted whenever the difference is below 110%.
2. The actual consideration is accepted if the difference is below 10%.
3. The stamp duty value is adopted where the prescribed FMV is higher.
4. The prescribed FMV is adopted without a 110% tolerance test. (correct answer)

Answer: D — The prescribed FMV is adopted without a 110% tolerance test.

Explanation. Section 50CA applies where consideration for transfer of an unquoted share is lower than prescribed FMV. Here, actual consideration = ₹24,00,000 and prescribed FMV = ₹31,20,000. Difference = ₹7,20,000. Section 50CA adopts ₹31,20,000 as full value. Unlike section 50C for land or building, section 50CA does not provide the 110% tolerance band. The property safe-harbour test cannot be imported into the unquoted-share provision.

Where it goes wrong. Transferring the 110% safe-harbour protection under section 50C to section 50CA.

Authority. Section 50CA of the Income-tax Act, 1961; Section 50C of the Income-tax Act, 1961

Question 7 · 2 marks · Taxation - DT Ch 06: Capital Gains · hard

For the transfer of Meridian Electronics Pvt. Ltd.'s unquoted preference shares, determine the full value of consideration and resultant capital gain. The actual consideration exceeds the prescribed fair market value. Brokerage incurred wholly and exclusively for the transfer is ₹30,000, and the acquisition cost is ₹10,00,000.

1. ₹7,70,000. (correct answer)
2. ₹6,20,000.
3. ₹8,00,000.
4. ₹7,40,000.

Answer: A — ₹7,70,000.

Explanation. Actual consideration is ₹18,00,000 and prescribed FMV is ₹16,50,000. Since actual consideration exceeds FMV, section 50CA does not substitute the lower FMV. Full value remains ₹18,00,000. Deduct brokerage of ₹30,000 and cost of ₹10,00,000. Capital gain = ₹18,00,000 − ₹30,000 − ₹10,00,000 = ₹7,70,000. The substitution mechanism operates only when consideration is below prescribed FMV.

Where it goes wrong. Assuming that section 50CA always substitutes prescribed FMV, even when actual consideration is higher.

Authority. Section 48 of the Income-tax Act, 1961; Section 50CA of the Income-tax Act, 1961

Question 8 · 2 marks · Taxation - DT Ch 06: Capital Gains · medium

Kavita transfers regularly quoted shares of Aryan Steels Ltd. for ₹12,00,000, although the prescribed fair market value is ₹15,00,000. The shares are quoted regularly on a recognised stock exchange on the basis of current transactions in the ordinary course of business. Determine the proper full value of consideration and capital gain.

1. ₹15,00,000 as consideration and ₹6,80,000 as gain.
2. ₹13,20,000 as consideration and ₹4,80,000 as gain.
3. ₹12,00,000 as consideration and ₹3,80,000 as gain. (correct answer)
4. ₹12,00,000 as consideration and ₹4,00,000 as gain.

Answer: C — ₹12,00,000 as consideration and ₹3,80,000 as gain.

Explanation. Section 50CA concerns unquoted shares and does not substitute FMV for regularly quoted shares. Full value therefore remains ₹12,00,000. Deduct acquisition cost ₹8,00,000 and brokerage ₹20,000. Capital gain = ₹12,00,000 − ₹8,00,000 − ₹20,000 = ₹3,80,000. The quoted-share status is determined by regular quotation on a recognised exchange based on current ordinary-course transactions, not merely by the company's corporate status.

Where it goes wrong. Applying section 50CA to every share that has a prescribed valuation, without first determining whether the share is quoted.

Authority. Section 48 of the Income-tax Act, 1961; Section 50CA of the Income-tax Act, 1961

Question 9 · 2 marks · Taxation - DT Ch 06: Capital Gains · hard

Scenario. Smt. Malini Sen, a resident individual, purchased a residential property on 12 July 1998 for ₹18,00,000. The fair market value of the property as on 1 April 2001 was ₹82,00,000, whereas its stamp duty value on that date was ₹76,00,000. Malini proposes to exercise the option of adopting the fair market value as on 1 April 2001, subject to the statutory restriction applicable to land or building. During the period of ownership, she incurred ₹14,00,000 in T.Y. 2011-12 for constructing an additional floor and ₹9,00,000 in T.Y. 2019-20 for a permanent structural extension. In T.Y. 2021-22, she spent ₹3,00,000 on routine repairs and repainting. She had also paid housing-loan interest of ₹1,20,000, which was claimed as a deduction while computing income under the head Income from House Property. Malini sold the property on 15 January 2027 for ₹2,40,00,000. The stamp duty value on the transfer date was ₹2,55,00,000. She incurred brokerage of ₹2,40,000 and legal conveyance charges of ₹60,000, both wholly and exclusively in connection with the transfer. The property was acquired before 23 July 2024 and the transfer takes place after that date. Malini's adviser is required to compute capital gains for inclusion in total income and separately consider the transitional tax protection available to resident individuals and HUFs for qualifying land or building acquired before 23 July 2024. No deductions under sections 54 to 54GB are to be considered.

Malini wishes to substitute the fair market value as on 1 April 2001 for the original acquisition cost of her residential property. The property is land or building, and the stamp duty value as on 1 April 2001 is lower than the stated fair market value. What amount should be taken as cost of acquisition under the statutory option?

1. ₹18,00,000, being the actual purchase price.
2. ₹82,00,000, being the stated fair market value.
3. ₹76,00,000, being the capped fair market value. (correct answer)
4. ₹58,00,000, being the difference between both values.

Answer: C — ₹76,00,000, being the capped fair market value.

Explanation. For an asset acquired before 1 April 2001, the assessee may elect actual cost or FMV on 1 April 2001. For land or building, the elected FMV cannot exceed stamp duty value where available. Actual cost = ₹18,00,000; FMV = ₹82,00,000; stamp duty value = ₹76,00,000. The permitted substituted cost is the lower of ₹82,00,000 and ₹76,00,000, namely ₹76,00,000. The statutory cap prevents adopting the higher valuation.

Where it goes wrong. Adopting the unrestricted fair market value without applying the stamp duty value ceiling applicable to land or building.

Authority. Section 55(2)(b) of the Income-tax Act, 1961

Question 10 · 2 marks · Taxation - DT Ch 06: Capital Gains · medium

Compute Malini's long-term capital gain arising from the sale of the residential property. Adopt the permitted substituted cost of acquisition, include the eligible capital improvement expenditure, deduct eligible expenses of transfer and apply the section 50C tolerance provision. Indexation is not to be applied in arriving at income under the head Capital Gains.

1. ₹1,38,00,000. (correct answer)
2. ₹1,41,00,000.
3. ₹1,62,00,000.
4. ₹1,46,00,000.

Answer: A — ₹1,38,00,000.

Explanation. Stamp duty value is ₹2,55,00,000, which is below 110% of actual consideration: ₹2,40,00,000 × 110% = ₹2,64,00,000. Actual consideration is retained. Transfer expenses = ₹2,40,000 + ₹60,000 = ₹3,00,000. Acquisition cost = ₹76,00,000; eligible improvement = ₹14,00,000 + ₹9,00,000 = ₹23,00,000. Gain = ₹2,40,00,000 − ₹3,00,000 − ₹76,00,000 − ₹23,00,000 = ₹1,38,00,000.

Where it goes wrong. Indexing acquisition and improvement costs while computing the capital gain included in total income, instead of using unindexed costs.

Authority. Section 48 of the Income-tax Act, 1961; Section 50C of the Income-tax Act, 1961; Section 55(2)(b) of the Income-tax Act, 1961

Question 11 · 2 marks · Taxation - DT Ch 06: Capital Gains · hard

Malini incurred ₹14,00,000 for an additional floor, ₹9,00,000 for a permanent structural extension, ₹3,00,000 for routine repairs and repainting, and ₹1,20,000 as housing-loan interest already claimed as a deduction under the head Income from House Property. Determine the expenditure allowable as cost of improvement for capital gains computation.

1. ₹27,00,000.
2. ₹24,00,000.
3. ₹14,00,000.
4. ₹23,00,000. (correct answer)

Answer: D — ₹23,00,000.

Explanation. Capital additions qualify as improvement expenditure: additional floor ₹14,00,000 plus structural extension ₹9,00,000 = ₹23,00,000. Routine repairs and repainting of ₹3,00,000 are not capital improvements. Housing-loan interest of ₹1,20,000 already deducted under section 24(b) cannot be deducted again under section 48. Thus, allowable cost of improvement is ₹23,00,000, not ₹27,20,000 or ₹24,00,000.

Where it goes wrong. Treating routine repair expenditure as capital improvement and claiming housing-loan interest again after already obtaining a deduction under another head.

Authority. Section 48 of the Income-tax Act, 1961; Section 55(1)(b) of the Income-tax Act, 1961; Section 24(b) of the Income-tax Act, 1961

Question 12 · 2 marks · Taxation - DT Ch 06: Capital Gains · medium

Malini is a resident individual and her property was acquired before 23 July 2024. The transfer occurs during T.Y. 2026-27. Which statement correctly distinguishes the computation of capital gains included in total income from the separate transitional tax protection available for qualifying land or building?

1. Indexed cost is mandatory while computing capital gains included in gross total income.
2. Unindexed capital gain is computed, with a separate comparison for transitional tax relief. (correct answer)
3. Indexation is permitted for every resident individual selling any long-term capital asset.
4. The transitional protection applies only to properties acquired after 23 July 2024.

Answer: B — Unindexed capital gain is computed, with a separate comparison for transitional tax relief.

Explanation. Malini's capital gain remains ₹1,38,00,000 under the unindexed section 48 computation. The transitional protection is a separate tax comparison for a resident individual or HUF transferring qualifying land or building acquired before 23 July 2024. The comparison is tax at 12.5% without indexation against tax at 20% with indexation. Any excess tax under the former computation is ignored. It does not reduce the capital gain included in total income.

Where it goes wrong. Confusing the transitional tax comparison with permission to claim indexed cost while computing capital gains for total income.

Authority. Section 48 of the Income-tax Act, 1961; Section 112(1) and its relevant proviso of the Income-tax Act, 1961

Question 13 · 2 marks · Taxation - DT Ch 06: Capital Gains · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Mr. Raghav transfers a building during T.Y. 2026-27 for ₹1,00,00,000. Its stamp duty value on the transfer date is ₹1,10,00,000. No agreement-date valuation or Valuation Officer reference is involved. Determine whether the stamp duty value must replace the actual consideration under section 50C, keeping in view the prescribed tolerance band and the statutory wording concerning the threshold.

1. ₹1,10,00,000, because the stamp duty value equals 110% of consideration.
2. ₹1,05,00,000, being the average of both values.
3. ₹1,10,00,000, because any difference triggers substitution.
4. ₹1,00,00,000, because the stamp duty value does not exceed 110%. (correct answer)

Answer: D — ₹1,00,00,000, because the stamp duty value does not exceed 110%.

Explanation. Actual consideration = ₹1,00,00,000. Threshold at 110% = ₹1,00,00,000 × 110% = ₹1,10,00,000. Stamp duty value is also ₹1,10,00,000. The statutory test substitutes stamp duty value only where it exceeds 110% of actual consideration. Equality does not exceed the threshold. Accordingly, full value remains ₹1,00,00,000. The equality point is included within the tolerance band.

Where it goes wrong. Treating the 110% threshold as a trigger at equality instead of requiring the stamp duty value to exceed it.

Authority. Section 50C(1) of the Income-tax Act, 1961

Question 14 · 2 marks · Taxation - DT Ch 06: Capital Gains · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

On 12 August 2026, Ms. Ritu entered into an agreement to sell land for ₹90,00,000. The stamp duty value was ₹99,00,000 on the agreement date and ₹1,12,00,000 on the registration date of 20 November 2026. Ritu received ₹7,00,000 through NEFT on 10 August 2026. Assuming NEFT is a specified electronic mode, determine the full value of consideration.

1. ₹90,00,000, being the actual consideration. (correct answer)
2. ₹99,00,000, being the agreement-date value.
3. ₹1,12,00,000, being the registration-date value.
4. ₹99,00,000, being 110% of the consideration.

Answer: A — ₹90,00,000, being the actual consideration.

Explanation. NEFT was received before the agreement date, satisfying the specified-mode condition. The agreement-date stamp value is therefore relevant. Threshold = ₹90,00,000 × 110% = ₹99,00,000. Since the stamp duty value equals this amount, it does not exceed the tolerance threshold. The actual consideration of ₹90,00,000 is adopted. The registration-date value of ₹1,12,00,000 is not used because the agreement-date conditions are met.

Where it goes wrong. Selecting the registration-date value despite satisfying the prescribed payment and agreement-date conditions.

Authority. Section 50C(1), first proviso, of the Income-tax Act, 1961; Rule 6ABBA of the Income-tax Rules, 1962

Question 15 · 2 marks · Taxation - DT Ch 06: Capital Gains · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

An assessee transfers land for ₹75,00,000 when its stamp duty value is ₹1,00,00,000. The assessee claims that the stamp duty value exceeds the property's fair market value. The stamp duty value has not been disputed in any appeal or revision and no reference has been made to another authority. Which statement correctly describes the Assessing Officer's power under section 50C?

1. The Assessing Officer must always accept the actual sale consideration.
2. The Assessing Officer may refer the valuation to a Valuation Officer. (correct answer)
3. The Assessing Officer must automatically adopt the assessee's proposed value.
4. The Assessing Officer cannot make a valuation reference after registration.

Answer: B — The Assessing Officer may refer the valuation to a Valuation Officer.

Explanation. Actual consideration is ₹75,00,000; stamp duty value is ₹1,00,00,000. The statutory conditions for considering a valuation reference are satisfied: the assessee claims that stamp duty value exceeds FMV, and no appeal, revision or other-authority reference concerning that value exists. Accordingly, the Assessing Officer may refer valuation to a Valuation Officer. The reference is discretionary, not automatic acceptance of the assessee's proposed amount.

Where it goes wrong. Assuming that the assessee's assertion alone compels the Assessing Officer to adopt the lower claimed value.

Authority. Section 50C(2) of the Income-tax Act, 1961

Question 16 · 2 marks · Taxation - DT Ch 06: Capital Gains · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A building is transferred for actual consideration of ₹70,00,000. The stamp duty value is ₹1,00,00,000 and the assessee successfully seeks a valuation reference. The Valuation Officer determines its fair market value at ₹91,00,000. The statutory tolerance threshold has been exceeded. What is the appropriate full value of consideration under section 50C?

1. ₹70,00,000, being actual consideration.
2. ₹1,00,00,000, being stamp duty value.
3. ₹91,00,000, being Valuation Officer's value. (correct answer)
4. ₹85,50,000, being the average of both values.

Answer: C — ₹91,00,000, being Valuation Officer's value.

Explanation. The stamp duty value of ₹1,00,00,000 exceeds 110% of the actual consideration of ₹70,00,000 (threshold ₹77,00,000). A valuation reference is permissible. The Valuation Officer determines FMV at ₹91,00,000, which is below the stamp duty value of ₹1,00,00,000. Section 50C(3) consequently adopts ₹91,00,000 as full value. The actual sale price and the higher stamp duty value are not used.

Where it goes wrong. Continuing to adopt stamp duty value after a lower Valuation Officer determination.

Authority. Section 50C(1), (2) and (3) of the Income-tax Act, 1961

Question 17 · 2 marks · Taxation - DT Ch 06: Capital Gains · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Mr. Saurabh transfers 2,000 unquoted equity shares of a private company for ₹42,00,000. The prescribed fair market value of the shares on the transfer date is ₹48,00,000. Their acquisition cost was ₹29,00,000 and transfer-related brokerage was ₹1,00,000. Assume the prescribed valuation has been determined in accordance with the applicable rule and there is no prescribed class-based exclusion. Compute the resulting capital gain.

1. ₹18,00,000. (correct answer)
2. ₹12,00,000.
3. ₹13,00,000.
4. ₹17,00,000.

Answer: A — ₹18,00,000.

Explanation. Actual consideration is ₹42,00,000, lower than prescribed FMV of ₹48,00,000. Under section 50CA, substitute ₹48,00,000. Deduct brokerage of ₹1,00,000 and acquisition cost of ₹29,00,000. Gain = ₹48,00,000 − ₹1,00,000 − ₹29,00,000 = ₹18,00,000. No 110% tolerance test is available for this substitution. The prescribed valuation is accepted as given.

Where it goes wrong. Using the actual consideration of ₹42,00,000 as the full value despite the lower transfer price and higher prescribed FMV.

Authority. Section 48 of the Income-tax Act, 1961; Section 50CA of the Income-tax Act, 1961; Rule 11UAA of the Income-tax Rules, 1962

Question 18 · 2 marks · Taxation - DT Ch 06: Capital Gains · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

An assessee transfers unquoted preference shares for ₹65,00,000. The fair market value determined in the prescribed manner is ₹61,00,000. The shares were held as an investment, and the assessee incurred brokerage of ₹50,000. Which full value of consideration should be used before deducting transfer expenses and cost of acquisition?

1. ₹61,00,000, because prescribed FMV always replaces actual consideration.
2. ₹64,00,000, after applying a 110% tolerance adjustment.
3. ₹63,00,000, after reducing the transfer expenses.
4. ₹65,00,000, because actual consideration exceeds prescribed FMV. (correct answer)

Answer: D — ₹65,00,000, because actual consideration exceeds prescribed FMV.

Explanation. Section 50CA substitutes prescribed FMV only where consideration is lower than FMV. Here, actual consideration = ₹65,00,000 and FMV = ₹61,00,000. Since ₹65,00,000 exceeds ₹61,00,000, no substitution arises. The full value remains ₹65,00,000. Brokerage of ₹50,000 is then deducted separately under section 48, giving net sale consideration of ₹64,50,000 before reducing acquisition cost.

Where it goes wrong. Reducing full value of consideration by brokerage before applying the section 50CA comparison.

Authority. Section 48 of the Income-tax Act, 1961; Section 50CA of the Income-tax Act, 1961

Question 19 · 2 marks · Taxation - DT Ch 06: Capital Gains · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A taxpayer transfers shares of a company regularly quoted on a recognised stock exchange for ₹36,00,000. Prescribed FMV is ₹42,00,000. The shares are quoted based on current transactions made in the ordinary course of business. The assessee argues that section 50CA should apply because the consideration is below FMV. Which treatment is correct?

1. Adopt ₹42,00,000 because every share is subject to section 50CA.
2. Adopt ₹36,00,000 because regularly quoted shares fall outside section 50CA. (correct answer)
3. Adopt ₹39,00,000 as the average of the quoted value and sale price.
4. Adopt ₹40,00,000 after applying the section 50C tolerance provision.

Answer: B — Adopt ₹36,00,000 because regularly quoted shares fall outside section 50CA.

Explanation. Section 50CA concerns unquoted shares. The shares in the question are regularly quoted on a recognised stock exchange on the basis of current ordinary-course transactions. They therefore do not fall within the specified unquoted-share category. Full value remains ₹36,00,000 despite the prescribed FMV of ₹42,00,000. There is no averaging mechanism or application of the section 50C tolerance band to this transaction.

Where it goes wrong. Confusing a regularly quoted share with an unquoted share merely because the prescribed fair market value exceeds its transfer price.

Authority. Section 48 of the Income-tax Act, 1961; Section 50CA of the Income-tax Act, 1961

Question 20 · 2 marks · Taxation - DT Ch 06: Capital Gains · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Aryan transfers a long-term capital asset for ₹30,00,000. Brokerage is ₹45,000, legal expenses incurred exclusively for the transfer are ₹15,000, and securities transaction tax paid is ₹5,000. Acquisition cost is ₹17,00,000 and qualifying improvement cost is ₹4,00,000. Assuming no special computation rule applies, determine the capital gain under section 48.

1. ₹8,35,000.
2. ₹8,40,000. (provisional)
3. ₹8,40,000. (correct answer)
4. ₹8,35,000. (provisional)

Answer: C — ₹8,40,000.

Explanation. Eligible transfer expenditure = brokerage ₹45,000 + legal expenses ₹15,000 = ₹60,000. STT of ₹5,000 is not deductible. Net sale consideration = ₹30,00,000 − ₹60,000 = ₹29,40,000. Deduct acquisition cost ₹17,00,000 and improvement cost ₹4,00,000. Capital gain = ₹29,40,000 − ₹21,00,000 = ₹8,40,000. Thus, the STT payment does not reduce taxable capital gain.

Where it goes wrong. Including securities transaction tax among expenses deductible under section 48.

Authority. Section 48 of the Income-tax Act, 1961

Question 21 · 2 marks · Taxation - DT Ch 06: Capital Gains · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Mr. Prateek sells a residential property for ₹75,00,000. Brokerage of ₹75,000 is incurred exclusively for transfer. Acquisition cost is ₹22,00,000 and capital improvement expenditure is ₹5,00,000. Interest of ₹3,00,000 on the acquisition loan was already claimed as a deduction under the head Income from House Property. Determine the capital gain, assuming there is no other adjustment.

1. ₹44,25,000, after deducting all amounts including interest.
2. ₹47,25,000, after excluding the already deducted interest.
3. ₹41,25,000, after deducting interest and acquisition cost twice.
4. ₹45,00,000, after disallowing transfer brokerage. (correct answer)

Answer: D — ₹45,00,000, after disallowing transfer brokerage.

Explanation. The capital gain computation is ₹75,00,000 less brokerage of ₹75,000, acquisition cost ₹22,00,000 and improvement cost ₹5,00,000. Therefore, gain = ₹75,00,000 − ₹75,000 − ₹22,00,000 − ₹5,00,000 = ₹47,25,000. Interest of ₹3,00,000 previously deducted under section 24(b) cannot be claimed again under section 48. The correct computation consequently excludes that interest.

Where it goes wrong. Deducting interest a second time under capital gains after claiming it under the house-property head.

Authority. Section 48 of the Income-tax Act, 1961; Section 24(b) of the Income-tax Act, 1961

Question 22 · 2 marks · Taxation - DT Ch 06: Capital Gains · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Ms. Tanya inherited a plot in 2014 from her mother, who had purchased it in 1995. Her mother spent ₹9,00,000 on a permanent structural addition in 2008. Tanya subsequently spent ₹6,00,000 on another capital addition in 2019 and ₹2,00,000 on routine repairs in 2021. Determine the amount allowable as cost of improvement when Tanya transfers the inherited plot.

1. ₹6,00,000.
2. ₹15,00,000. (correct answer)
3. ₹17,00,000.
4. ₹9,00,000.

Answer: B — ₹15,00,000.

Explanation. The property was acquired by the previous owner before 1 April 2001 and devolved on Tanya after that date. In this case, capital additions made after 1 April 2001 by both the previous owner and the assessee qualify. Previous owner's improvement = ₹9,00,000; Tanya's improvement = ₹6,00,000. Routine repairs of ₹2,00,000 are excluded. Total allowable improvement cost = ₹9,00,000 + ₹6,00,000 = ₹15,00,000.

Where it goes wrong. Excluding the previous owner's post-1 April 2001 capital improvement merely because the assessee acquired the property through inheritance.

Authority. Section 49(1) of the Income-tax Act, 1961; Section 55(1)(b) of the Income-tax Act, 1961

Question 23 · 2 marks · Taxation - DT Ch 06: Capital Gains · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Mr. Vivek received ₹4,00,000 as advance money during negotiations for transferring a capital asset in February 2025. The negotiations failed, and he forfeited the amount on 15 March 2025. He transferred the capital asset in T.Y. 2026-27. How should the forfeited amount be treated when computing the cost of acquisition of the asset under the capital gains provisions?

1. It is not reduced from cost; it is chargeable as income from other sources. (correct answer)
2. It must be reduced from cost because all forfeited advances reduce acquisition cost.
3. It is added to the acquisition cost as an improvement expenditure.
4. It is deducted from full value of consideration on the subsequent transfer.

Answer: A — It is not reduced from cost; it is chargeable as income from other sources.

Explanation. The forfeiture occurred on 15 March 2025, after 1 April 2014. Section 56(2)(ix) taxes such forfeited advance money as income from other sources when negotiations fail. Therefore, the ₹4,00,000 is not deducted from the cost of acquisition under section 51. The cost remains unchanged for the subsequent transfer during T.Y. 2026-27. The earlier cost-reduction treatment applies to advances forfeited before 1 April 2014.

Where it goes wrong. Applying the former cost-reduction rule to advance money forfeited after 31 March 2014.

Authority. Section 51 of the Income-tax Act, 1961; Section 56(2)(ix) of the Income-tax Act, 1961

Question 24 · 2 marks · Taxation - DT Ch 06: Capital Gains · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Mr. Karan transfers self-generated goodwill of his business for ₹40,00,000 and incurs brokerage of ₹1,00,000 exclusively in connection with the transfer. He also incurred ₹8,00,000 on expenditure described as improvement of that goodwill. The goodwill was not purchased from any previous owner. Determine the capital gain under the ordinary provisions.

1. ₹31,00,000, after deducting acquisition and improvement costs.
2. ₹39,00,000, after deducting both acquisition and improvement costs.
3. ₹39,00,000, after treating both acquisition cost and improvement cost as nil. (correct answer)
4. ₹32,00,000, after allowing the improvement expenditure only.

Answer: C — ₹39,00,000, after treating both acquisition cost and improvement cost as nil.

Explanation. Self-generated goodwill not purchased from a previous owner has nil cost of acquisition. Cost of improvement for goodwill or other specified business intangible assets is also nil. Therefore, acquisition cost = Nil and improvement cost = Nil, irrespective of the ₹8,00,000 expenditure described as improvement. Deduct only brokerage of ₹1,00,000 from consideration of ₹40,00,000. Capital gain = ₹40,00,000 − ₹1,00,000 = ₹39,00,000.

Where it goes wrong. Assuming that every capital expenditure incurred on self-generated goodwill increases its statutory cost of improvement.

Authority. Section 48 of the Income-tax Act, 1961; Section 55(1)(b) and Section 55(2)(a) of the Income-tax Act, 1961

Question 25 · 2 marks · Taxation - DT Ch 06: Capital Gains · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Mrs. Shalini, a resident individual, acquired a long-term land parcel on 15 March 2020 and transferred it in T.Y. 2026-27. The capital gain computed without indexation is ₹90,00,000. For the limited transitional tax comparison, assume the capital gain computed under the indexed method is ₹50,00,000 using the applicable indexation computation. Determine the treatment of tax and the capital gain included in total income.

1. Capital gain of ₹50,00,000 is included in total income and tax is computed at 20%.
2. Capital gain of ₹90,00,000 is indexed before inclusion in total income.
3. Capital gain of ₹90,00,000 is included, but tax is payable only at 20%.
4. Capital gain of ₹90,00,000 is included, and the excess tax of ₹1,25,000 is ignored. (correct answer)

Answer: D — Capital gain of ₹90,00,000 is included, and the excess tax of ₹1,25,000 is ignored.

Explanation. The unindexed gain included in total income is ₹90,00,000. Tax under the 12.5% method = ₹90,00,000 × 12.5% = ₹11,25,000. Comparative tax using indexed gain = ₹50,00,000 × 20% = ₹10,00,000. Excess tax = ₹11,25,000 − ₹10,00,000 = ₹1,25,000. This excess is ignored under the transitional protection for a resident individual transferring qualifying land acquired before 23 July 2024. The capital gain included in total income remains ₹90,00,000.

Where it goes wrong. Reducing the capital gain included in total income to the indexed amount instead of using indexation solely for the separate transitional tax comparison.

Authority. Section 48 of the Income-tax Act, 1961; Section 112(1) and its relevant proviso of the Income-tax Act, 1961