Taxation - DT Ch 06: Capital Gains - Test 4: answer key

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

Scenario. Smt. Anuradha Sen, a resident individual, is engaged in financial consultancy and maintains a diversified investment portfolio. She follows the default tax regime under section 115BAC for T.Y. 2026-27. Her taxable income from sources other than capital gains is ₹3,10,000. During the year, she sold 2,000 equity shares of Pratham Digital Ltd. on a recognised stock exchange on 15 December 2026. These shares were acquired through an off-market transfer on 10 January 2026, and no securities transaction tax was paid at acquisition. However, STT was duly paid on their sale. Her resulting short-term capital gain, after deducting brokerage, was ₹2,40,000. Anuradha is also the karta of the Sen Family HUF, a resident HUF opting for the default tax regime. The HUF earned other taxable income of ₹3,25,000 during the year. It transferred two qualifying long-term investments on recognised stock exchanges. The first was equity shares of Aryan Steels Ltd., acquired and transferred in transactions on which STT was paid, resulting in LTCG of ₹1,80,000. The second was units of an equity-oriented mutual fund, on which STT was paid at transfer, resulting in LTCG of ₹1,20,000. The fund qualifies as an equity-oriented fund under the statutory definition. Both assessees have also made investments that would ordinarily qualify for certain deductions under the Income-tax Act. Their advisers must determine whether such deductions or a rebate can reduce tax payable on capital gains subject to special rates. For all computations, assume that the applicable basic exemption limit under the default tax regime is ₹4,00,000. Ignore surcharge and health and education cess unless specifically asked otherwise.

Determine the tax payable on Anuradha's short-term capital gain from Pratham Digital Ltd. She is a resident individual under the default regime, her other taxable income is ₹3,10,000, and STT was paid on the sale of the listed equity shares. Assume the applicable basic exemption limit is ₹4,00,000 and ignore surcharge and cess.

1. ₹30,000 under section 111A. (correct answer)
2. ₹48,000 under section 111A.
3. ₹24,000 under section 111A.
4. ₹18,000 under section 111A.

Answer: A — ₹30,000 under section 111A.

Explanation. The applicable basic exemption is ₹4,00,000. Other income is ₹3,10,000, leaving an unexhausted exemption of ₹90,000. Section 111A STCG = ₹2,40,000 − ₹90,000 = ₹1,50,000. Tax = ₹1,50,000 × 20% = ₹30,000. Since STT was paid on the sale of listed equity shares, the concessional section 111A rate applies. The acquisition transaction need not independently satisfy the STT condition applicable to section 112A.

Where it goes wrong. Calculating tax on the entire STCG without first adjusting the unexhausted basic exemption limit available to a resident individual.

Authority. Section 111A of the Income-tax Act, 1961; Section 115BAC of the Income-tax Act, 1961

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

Anuradha acquired her listed shares through an off-market transaction on which STT was not payable, but she subsequently sold them through a recognised stock exchange and paid STT on that sale. Which treatment is appropriate for her short-term capital gain, assuming all other conditions are satisfied?

1. Section 111A is unavailable because STT must be paid on both transactions.
2. Section 111A applies because STT is paid on the transfer. (correct answer)
3. Section 112A applies because the shares were listed on the sale date.
4. Section 112 applies because acquisition was made off-market.

Answer: B — Section 111A applies because STT is paid on the transfer.

Explanation. Section 111A applies to qualifying short-term capital gains where STT is paid on the transfer. For this purpose, the acquisition-side STT condition is not imposed in the same manner as under section 112A. Anuradha's sale through the recognised stock exchange attracts STT, so the short-term gain qualifies for the 20% rate. Section 112A is a long-term capital gains provision and cannot govern this short-term transaction.

Where it goes wrong. Importing the two-sided STT requirement applicable to equity shares under section 112A into section 111A.

Authority. Section 111A of the Income-tax Act, 1961; Section 112A of the Income-tax Act, 1961

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

Compute the tax payable on the Sen Family HUF's aggregate long-term capital gains from Aryan Steels Ltd. shares and equity-oriented mutual fund units. Other taxable income is ₹3,25,000. The HUF satisfies the STT conditions for both investments. Apply the applicable basic exemption adjustment and the annual threshold under section 112A. Ignore surcharge and cess.

1. ₹22,500.
2. ₹15,000.
3. ₹12,500. (correct answer)
4. ₹37,500.

Answer: C — ₹12,500.

Explanation. Aggregate qualifying LTCG = ₹1,80,000 + ₹1,20,000 = ₹3,00,000. Basic exemption remaining = ₹4,00,000 − ₹3,25,000 = ₹75,000. Adjusted LTCG = ₹3,00,000 − ₹75,000 = ₹2,25,000. Taxable amount under section 112A = ₹2,25,000 − ₹1,25,000 = ₹1,00,000. Tax = ₹1,00,000 × 12.5% = ₹12,500. The annual threshold applies to aggregate qualifying gains.

Where it goes wrong. Applying the ₹1,25,000 threshold separately to each investment instead of aggregating qualifying gains and adjusting the unexhausted exemption first.

Authority. Section 112A of the Income-tax Act, 1961; Section 115BAC of the Income-tax Act, 1961

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

The Sen Family HUF proposes to reduce its section 112A tax liability by claiming an eligible investment-related deduction and a rebate under section 87A. It follows the default regime under section 115BAC. Which conclusion correctly reflects the restrictions applicable to the special-rate capital gains in this case?

1. Both deductions and rebate are available against section 112A gains.
2. Only the deduction is available against section 112A gains.
3. Only the rebate is available against section 112A gains.
4. Neither Chapter VI-A deduction nor rebate reduces section 112A tax. (correct answer)

Answer: D — Neither Chapter VI-A deduction nor rebate reduces section 112A tax.

Explanation. The section 112A tax is computed on qualifying LTCG exceeding ₹1,25,000 after any permitted unexhausted basic exemption adjustment. Chapter VI-A deductions are not allowable against this special-rate gain. Further, the study material specifies that rebate under section 87A is unavailable against section 112A tax. The HUF's ₹12,500 tax computed on ₹1,00,000 of taxable gain therefore cannot be eliminated through either claimed deduction or rebate under the default regime.

Where it goes wrong. Assuming that ordinary deductions and the general rebate mechanism can automatically be applied against capital gains taxable at a special rate.

Authority. Section 112A of the Income-tax Act, 1961; Section 87A of the Income-tax Act, 1961; Section 115BAC of the Income-tax Act, 1961

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

Scenario. Vikramaditya Tech Labs LLP, a resident LLP, maintains a treasury portfolio consisting of listed equity shares and units of equity-oriented mutual funds. During T.Y. 2026-27, it sold listed equity shares of Meridian Technologies Ltd. through a recognised stock exchange. The shares had been held for eight months, and STT was paid on the sale. The resulting short-term capital gain after permissible transfer expenses was ₹7,50,000. The LLP also transferred certain equity-oriented mutual fund units after holding them for eighteen months. STT was paid on their transfer, and the resulting long-term capital gain was ₹2,80,000. Separately, Ms. Meera Kapoor, a resident individual following the default tax regime, sold units of an equity-oriented mutual fund on 18 January 2027. She acquired the units through a direct subscription, on which no STT was payable, and subsequently redeemed them through a transaction attracting STT. Her holding period exceeded twelve months. Her taxable income from sources other than capital gains was ₹4,60,000, and her LTCG from the units amounted to ₹3,25,000. Mr. Kabir Shah, another investor, acquired listed equity shares through a private off-market transaction for which STT was not paid. He subsequently sold the shares through a recognised stock exchange transaction attracting STT. The holding period exceeded twelve months, and the capital gain amounted to ₹5,00,000. The acquisition does not fall within any specifically notified exception to the acquisition-STT requirement. Assume that the prescribed conditions for classifying the relevant investments as capital assets are satisfied and no exemption under sections 54 to 54GB is claimed. The question is restricted to the applicable capital gains rates, eligibility conditions and basic exemption adjustments.

Compute the tax on the short-term capital gain of Vikramaditya Tech Labs LLP arising from its listed equity share transactions. The LLP earned a gain of ₹7,50,000, and STT was paid on sale through a recognised stock exchange. Assume no other adjustment or exemption applies. Ignore surcharge and cess.

1. ₹1,50,000 at 20%. (correct answer)
2. ₹1,12,500 at 15%.
3. ₹93,750 at 12.5%.
4. ₹75,000 at 10%.

Answer: A — ₹1,50,000 at 20%.

Explanation. The LLP transferred listed equity shares and STT was paid on the sale. The gain therefore qualifies under section 111A. The applicable rate for such short-term capital gains is 20%. Calculation: ₹7,50,000 × 20% = ₹1,50,000. The adjustment of an unexhausted basic exemption limit is restricted to resident individuals and HUFs. An LLP cannot claim that adjustment merely because its other income falls below the individual exemption threshold.

Where it goes wrong. Applying the resident individual or HUF basic exemption adjustment to an LLP.

Authority. Section 111A of the Income-tax Act, 1961

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

Meera Kapoor earned LTCG of ₹3,25,000 from equity-oriented mutual fund units. Her other taxable income is ₹4,60,000, and STT was paid on redemption. She follows the default regime. Calculate the tax on the qualifying long-term gain, ignoring surcharge and cess.

1. ₹40,625.
2. ₹25,000. (correct answer)
3. ₹20,312.50.
4. ₹28,125.

Answer: B — ₹25,000.

Explanation. Meera's other income of ₹4,60,000 exceeds the ₹4,00,000 basic exemption limit, so no unexhausted exemption remains. Qualifying LTCG = ₹3,25,000. Section 112A threshold = ₹1,25,000. Taxable LTCG = ₹3,25,000 − ₹1,25,000 = ₹2,00,000. Tax = ₹2,00,000 × 12.5% = ₹25,000. For an equity-oriented mutual fund unit, STT on transfer satisfies the relevant condition; STT on acquisition is not required.

Where it goes wrong. Reducing the capital gain by the ₹1,25,000 threshold and then incorrectly applying another exemption adjustment despite other income already exceeding the basic exemption limit.

Authority. Section 112A of the Income-tax Act, 1961; Section 115BAC of the Income-tax Act, 1961

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

Kabir's listed equity shares were acquired through an off-market transaction without STT and sold through a recognised stock exchange with STT paid. Their holding period exceeded twelve months. The acquisition does not fall within a notified exception. What is the appropriate classification of the resulting ₹5,00,000 long-term capital gain for rate purposes?

1. Section 112A at 12.5% on gains exceeding ₹1,25,000.
2. Section 111A at 20% because STT was paid on sale.
3. Section 112 at 12.5% without the section 112A threshold. (correct answer)
4. Normal slab rates because acquisition was off-market.

Answer: C — Section 112 at 12.5% without the section 112A threshold.

Explanation. For listed equity shares to qualify under section 112A, STT must ordinarily be paid both at acquisition and at transfer, subject to notified exceptions. Here, acquisition STT was not paid and no exception applies. Consequently, section 112A is unavailable. Since the asset is long-term, section 112 applies at 12.5% without indexation. Tax on ₹5,00,000 = ₹5,00,000 × 12.5% = ₹62,500, before surcharge and cess.

Where it goes wrong. Treating payment of STT on sale alone as sufficient for section 112A eligibility of listed equity shares.

Authority. Section 112A of the Income-tax Act, 1961; Section 112 of the Income-tax Act, 1961

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

A resident individual transfers units of an equity-oriented mutual fund after holding them for eleven months. STT is paid on redemption, and the resulting short-term capital gain is ₹1,80,000. The individual's other taxable income is ₹4,50,000. Determine the applicable rate and tax, assuming no other adjustment applies. Ignore surcharge and cess.

1. ₹22,500 at 12.5%.
2. ₹27,000 at 15%.
3. ₹18,000 at 10%.
4. ₹36,000 at 20%. (correct answer)

Answer: D — ₹36,000 at 20%.

Explanation. The units were held for eleven months and are therefore short-term. STT was paid on redemption, satisfying section 111A. The other income of ₹4,50,000 exceeds the default basic exemption limit of ₹4,00,000, so no exemption remains for adjustment. Taxable STCG = ₹1,80,000. Tax = ₹1,80,000 × 20% = ₹36,000. The ₹1,25,000 threshold is a section 112A LTCG threshold and is irrelevant to this short-term gain.

Where it goes wrong. Applying the ₹1,25,000 long-term threshold or the former 15% rate to a qualifying short-term gain arising in the current tax year.

Authority. Section 111A of the Income-tax Act, 1961

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

Scenario. Three investors have approached their tax adviser for determining the appropriate rate of tax on long-term capital gains arising during T.Y. 2026-27. Mr. Shalini Rao, a resident individual opting for the default tax regime, earned taxable income of ₹3,10,000 from sources other than capital gains. She sold unlisted equity shares of a closely held company after holding them for more than twenty-four months. The gain, computed after deducting eligible transfer expenditure and acquisition cost, was ₹5,50,000. The shares were not covered by the special conditions for taxation under section 112A. Mr. Kabir Mehta, a non-resident individual, transferred listed equity shares after holding them for more than twelve months. The shares were acquired through an off-market transaction without STT and were sold through an exchange transaction attracting STT. The acquisition did not qualify for any notified exception. His LTCG was ₹2,00,000, and his other taxable income was ₹3,00,000. The third investor, Aryan Family HUF, is resident and follows the default regime. Its taxable income other than capital gains was ₹4,40,000. It transferred physical gold held as an investment for more than twenty-four months and earned LTCG of ₹2,00,000. No STT was involved, and no exemption or deduction was claimed. A fourth illustration is also under consideration: another resident HUF has other taxable income of ₹3,60,000 and earns LTCG of ₹2,00,000 from a long-term investment in an asset outside section 112A. The adviser must distinguish section 112A gains from other long-term gains, apply the correct basic exemption adjustment and ensure that the special equity threshold is not incorrectly extended to unrelated assets.

Compute Shalini Rao's tax on the ₹5,50,000 LTCG from unlisted shares. She is resident, earns other taxable income of ₹3,10,000 and follows the default regime. The shares are not eligible for section 112A treatment. Apply the unexhausted basic exemption adjustment under section 112 and ignore surcharge and cess.

1. ₹57,500. (correct answer)
2. ₹68,750.
3. ₹50,000.
4. ₹75,000.

Answer: A — ₹57,500.

Explanation. Basic exemption limit = ₹4,00,000. Other income = ₹3,10,000. Unexhausted exemption = ₹90,000. Adjusted LTCG = ₹5,50,000 − ₹90,000 = ₹4,60,000. Section 112 applies at 12.5% without indexation because the shares do not qualify under section 112A. Tax = ₹4,60,000 × 12.5% = ₹57,500. There is no separate ₹1,25,000 threshold under section 112.

Where it goes wrong. Applying the section 112A threshold to unlisted shares that fall under the general long-term capital gains provision.

Authority. Section 112 of the Income-tax Act, 1961; Section 115BAC of the Income-tax Act, 1961

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

Kabir Mehta is a non-resident individual who earned LTCG of ₹2,00,000 from listed equity shares. STT was paid on sale, but not on acquisition, and the acquisition is not covered by a notified exception. His other taxable Indian income is ₹3,00,000. Determine the appropriate tax treatment, keeping in view both section 112A eligibility and the restriction on adjustment of the basic exemption limit for non-residents.

1. ₹9,375 under section 112A.
2. ₹25,000 under section 112. (correct answer)
3. ₹15,625 under section 112A.
4. Nil after adjusting unexhausted exemption.

Answer: B — ₹25,000 under section 112.

Explanation. The equity shares fail the acquisition-side STT condition under section 112A, and no exception applies. Therefore, section 112 taxes the full LTCG at 12.5%. Taxable gain = ₹2,00,000. Tax = ₹2,00,000 × 12.5% = ₹25,000. A non-resident cannot reduce this gain by an unexhausted basic exemption limit, even though other income of ₹3,00,000 is below the resident individual's default exemption threshold.

Where it goes wrong. Allowing a non-resident to use the unused basic exemption limit or applying the section 112A threshold despite failure of its acquisition-STT condition.

Authority. Section 112A of the Income-tax Act, 1961; Section 112 of the Income-tax Act, 1961

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

Aryan Family HUF, a resident HUF under the default tax regime, earned taxable income of ₹4,40,000 besides LTCG of ₹2,00,000 from physical gold held as an investment for more than twenty-four months. No STT is involved, and the investment is not covered by section 112A. Determine the tax payable on the capital gain, ignoring surcharge and cess.

1. ₹9,375.
2. ₹20,000.
3. ₹25,000. (correct answer)
4. Nil.

Answer: C — ₹25,000.

Explanation. Physical gold held as an investment is a capital asset. The holding period exceeds twenty-four months, making the asset long-term. The gain is not covered by section 112A and falls under section 112 at 12.5%. Other income ₹4,40,000 exceeds the ₹4,00,000 basic exemption limit; hence no unexhausted limit remains. Tax = ₹2,00,000 × 12.5% = ₹25,000. The section 112A threshold does not apply.

Where it goes wrong. Assuming that every long-term investment gain enjoys the ₹1,25,000 threshold available for qualifying equity-related assets.

Authority. Section 112 of the Income-tax Act, 1961; Section 115BAC of the Income-tax Act, 1961

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

A resident HUF under the default tax regime has other taxable income of ₹3,60,000 and LTCG of ₹2,00,000 from a long-term capital asset outside section 112A. The applicable basic exemption limit is ₹4,00,000. Determine the tax after applying the unexhausted exemption under section 112. Ignore surcharge and cess.

1. ₹25,000.
2. ₹12,500.
3. ₹15,000.
4. ₹20,000. (correct answer)

Answer: D — ₹20,000.

Explanation. The unexhausted basic exemption is ₹4,00,000 − ₹3,60,000 = ₹40,000. Adjusted LTCG = ₹2,00,000 − ₹40,000 = ₹1,60,000. Since the asset is outside section 112A, the entire adjusted gain is taxable under section 112 at 12.5%. Tax = ₹1,60,000 × 12.5% = ₹20,000. No separate ₹1,25,000 deduction is available under section 112.

Where it goes wrong. Subtracting the section 112A threshold from a gain that is chargeable under the general section 112 provision.

Authority. Section 112 of the Income-tax Act, 1961; Section 115BAC of the Income-tax Act, 1961

Question 13 · 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.

Mr. Vivek sells listed equity shares held for seven months through an off-market transaction to a private investor. No STT is chargeable on the transfer. The resulting short-term capital gain is ₹3,00,000. The shares are otherwise listed on a recognised stock exchange. Assume that the transaction does not qualify for the IFSC exception. Which tax treatment is appropriate under the provisions applicable to T.Y. 2026-27?

1. The gain is taxable at normal applicable rates. (correct answer)
2. The gain is taxable at 20% under section 111A.
3. The gain is taxable at 12.5% under section 112A.
4. The gain is exempt because the shares are listed.

Answer: A — The gain is taxable at normal applicable rates.

Explanation. Holding the shares for seven months results in short-term capital gains. However, the transfer was made off-market, and STT was not paid on that transfer. The transaction does not qualify for the IFSC exception. Therefore, section 111A's concessional 20% rate is unavailable. The ₹3,00,000 gain is taxable at the normal applicable rates. Listing status alone does not establish eligibility for section 111A.

Where it goes wrong. Treating listing status as sufficient for section 111A without checking the STT condition on transfer.

Authority. Section 111A of the Income-tax Act, 1961

Question 14 · 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 resident HUF following the default tax regime has other taxable income of ₹3,30,000 and short-term capital gains of ₹1,90,000 from qualifying listed equity shares. STT was paid on the sale. Assuming the applicable basic exemption limit is ₹4,00,000, determine the tax under section 111A before cess and surcharge.

1. ₹38,000.
2. ₹24,000. (correct answer)
3. ₹19,000.
4. ₹28,000.

Answer: B — ₹24,000.

Explanation. Basic exemption limit = ₹4,00,000. Other income = ₹3,30,000. Unexhausted exemption = ₹70,000. Adjusted STCG = ₹1,90,000 − ₹70,000 = ₹1,20,000. Section 111A rate = 20%. Tax = ₹1,20,000 × 20% = ₹24,000. The HUF qualifies for the exemption adjustment because it is resident. No ₹1,25,000 LTCG threshold can be deducted from this short-term gain.

Where it goes wrong. Deducting the section 112A threshold from STCG instead of only applying the unexhausted basic exemption.

Authority. Section 111A of the Income-tax Act, 1961; Section 115BAC of the Income-tax Act, 1961

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.

Ms. Kavya, a resident individual whose other income exceeds ₹4,00,000, transfers two qualifying long-term investments during T.Y. 2026-27. Her gain on listed equity shares satisfying the acquisition and transfer STT conditions is ₹85,000, while her gain on equity-oriented fund units satisfying the transfer-STT condition is ₹95,000. Determine the aggregate taxable amount under section 112A and the tax payable before cess and surcharge.

1. ₹85,000 and tax of ₹10,625.
2. ₹95,000 and tax of ₹11,875.
3. ₹55,000 and tax of ₹6,875. (correct answer)
4. ₹1,80,000 and tax of ₹22,500.

Answer: C — ₹55,000 and tax of ₹6,875.

Explanation. Aggregate qualifying LTCG = ₹85,000 + ₹95,000 = ₹1,80,000. Since other income exceeds ₹4,00,000, no basic exemption remains. The section 112A threshold is ₹1,25,000 for the assessee's aggregate qualifying gains. Taxable gain = ₹1,80,000 − ₹1,25,000 = ₹55,000. Tax = ₹55,000 × 12.5% = ₹6,875. The threshold is not separately available for each investment.

Where it goes wrong. Applying the ₹1,25,000 threshold independently to the equity shares and equity-oriented fund units.

Authority. Section 112A 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 resident investor transfers listed equity shares and units of an equity-oriented mutual fund, both held for more than twelve months. The investor paid STT on acquisition and transfer of the shares, but STT only on transfer of the mutual fund units. The transactions satisfy all other requirements for section 112A. Which statement correctly describes the STT conditions?

1. STT must be paid on acquisition and transfer of both categories.
2. STT is required only at acquisition for both categories.
3. STT is required only at transfer for both categories.
4. Shares require STT at acquisition and transfer; fund units require STT on transfer. (correct answer)

Answer: D — Shares require STT at acquisition and transfer; fund units require STT on transfer.

Explanation. Section 112A prescribes distinct STT conditions. For equity shares, STT must ordinarily have been paid on acquisition and transfer, subject to notified acquisition exceptions. For units of equity-oriented mutual funds, STT is required on transfer. Therefore, the investor satisfies the relevant conditions in both cases. The distinction arises from the statutory treatment of the two categories, not from their common long-term holding period.

Where it goes wrong. Applying the equity-share acquisition-STT condition indiscriminately to units of equity-oriented mutual funds.

Authority. Section 112A 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.

An Indian resident transfers qualifying listed equity shares through a recognised stock exchange situated in an International Financial Services Centre. The consideration is receivable in foreign currency. No STT was paid on the transaction. Assume the shares are long-term and all other statutory conditions are satisfied. Which treatment is applicable under the special provision for long-term gains?

1. Section 112A can apply at 12.5% without the STT requirement. (correct answer)
2. Section 112 must apply because STT was not paid.
3. Section 111A applies at 20% irrespective of holding period.
4. The gain is taxable at normal slab rates.

Answer: A — Section 112A can apply at 12.5% without the STT requirement.

Explanation. Section 112A provides an exception to the ordinary STT requirement for qualifying transactions undertaken on a recognised stock exchange in an IFSC where consideration is received or receivable in foreign currency. The transaction satisfies both specified IFSC conditions. Accordingly, the gain can qualify under section 112A at 12.5% on the amount exceeding ₹1,25,000, subject to other statutory requirements. The absence of STT does not automatically disqualify this transaction.

Where it goes wrong. Ignoring the IFSC exception and treating the ordinary STT condition as applicable without modification.

Authority. Section 112A of the Income-tax Act, 1961

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.

Mr. Dev transfers qualifying listed equity shares after holding them for more than twelve months. STT was paid on acquisition and transfer. His other taxable income is ₹4,50,000 and his LTCG is ₹3,25,000. He follows the default regime under section 115BAC. Calculate the tax under section 112A before cess and surcharge, considering the annual threshold.

1. ₹40,625.
2. ₹25,000. (correct answer)
3. ₹18,750.
4. ₹28,125.

Answer: B — ₹25,000.

Explanation. Other taxable income of ₹4,50,000 exceeds the default basic exemption limit of ₹4,00,000, leaving no unexhausted exemption. Qualifying LTCG = ₹3,25,000. Amount exceeding the section 112A threshold = ₹3,25,000 − ₹1,25,000 = ₹2,00,000. Tax = ₹2,00,000 × 12.5% = ₹25,000. The gain qualifies because both acquisition-side and transfer-side STT requirements are met.

Where it goes wrong. Applying an additional basic exemption adjustment even when the assessee's other income has already exhausted the basic exemption limit.

Authority. Section 112A of the Income-tax Act, 1961; Section 115BAC 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.

Mr. Pranav transfers a long-term investment in physical gold and earns capital gains of ₹7,00,000. The gold was held for more than twenty-four months and is not an asset covered by section 112A. His other taxable income is ₹5,20,000. Determine the capital gains tax before surcharge and cess, assuming no other adjustment. Pay attention to the distinction between section 112 and section 112A.

1. ₹71,875.
2. ₹75,000.
3. ₹87,500. (correct answer)
4. ₹70,000.

Answer: C — ₹87,500.

Explanation. The physical gold is a long-term capital asset but is outside section 112A. Therefore, section 112 applies at 12.5% without indexation. Other income of ₹5,20,000 exceeds the ₹4,00,000 basic exemption limit, so no adjustment remains. Unlike section 112A, section 112 does not provide the ₹1,25,000 annual threshold. Tax = ₹7,00,000 × 12.5% = ₹87,500.

Where it goes wrong. Allowing the section 112A annual threshold to reduce gains from an unrelated long-term capital asset.

Authority. Section 112 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.

Mrs. Nisha, a resident individual following the default tax regime, has other taxable income of ₹2,50,000 and LTCG of ₹3,00,000 from a long-term asset taxable under section 112. Assume the applicable basic exemption limit is ₹4,00,000. No section 112A eligibility exists. Determine the tax payable before surcharge and cess, applying the special-rate computation correctly.

1. ₹37,500.
2. ₹25,000.
3. ₹15,000.
4. ₹18,750. (correct answer)

Answer: D — ₹18,750.

Explanation. Basic exemption limit = ₹4,00,000. Other income = ₹2,50,000. Unexhausted exemption = ₹1,50,000. Adjusted LTCG = ₹3,00,000 − ₹1,50,000 = ₹1,50,000. Section 112 taxes this amount at 12.5% without indexation. Tax = ₹1,50,000 × 12.5% = ₹18,750. The additional ₹1,25,000 threshold is not available because this asset does not qualify under section 112A.

Where it goes wrong. Applying the section 112A threshold after the basic exemption adjustment even though the gain is taxable under section 112.

Authority. Section 112 of the Income-tax Act, 1961; Section 115BAC 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. Joseph is a non-resident individual with qualifying section 112A LTCG of ₹2,50,000 from listed equity shares. STT was paid on both acquisition and transfer. His other taxable income in India is ₹1,50,000. Determine the amount chargeable at 12.5%, considering the threshold under section 112A and the statutory treatment of unexhausted basic exemption limits for non-residents.

1. ₹15,625. (correct answer)
2. ₹6,250.
3. Nil.
4. ₹31,250.

Answer: A — ₹15,625.

Explanation. The non-resident is not permitted to adjust an unexhausted basic exemption limit against these capital gains. Qualifying LTCG = ₹2,50,000. Section 112A threshold = ₹1,25,000. Taxable LTCG = ₹2,50,000 − ₹1,25,000 = ₹1,25,000. Tax = ₹1,25,000 × 12.5% = ₹15,625. The other income of ₹1,50,000 does not create an exemption adjustment for a non-resident.

Where it goes wrong. Extending the resident individual/HUF basic exemption adjustment to a non-resident.

Authority. Section 112A 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.

A resident individual earns short-term capital gains of ₹4,00,000 under section 111A and also has other income of ₹6,00,000. The individual follows the default tax regime and seeks to deduct an eligible Chapter VI-A amount from the special-rate gains before applying the 20% rate. Which statement correctly reflects the computation of these short-term capital gains?

1. The entire eligible deduction reduces section 111A gains before tax.
2. Chapter VI-A deductions cannot be claimed against section 111A gains. (correct answer)
3. Only half of the deduction can reduce section 111A gains.
4. The deduction is applied after calculating section 111A tax.

Answer: B — Chapter VI-A deductions cannot be claimed against section 111A gains.

Explanation. Section 111A special-rate short-term capital gains are not reduced by deductions under Chapter VI-A. Here, other income of ₹6,00,000 exceeds the assumed ₹4,00,000 basic exemption limit, so no exemption adjustment remains either. Accordingly, the special-rate gain remains ₹4,00,000. Tax before cess and surcharge = ₹4,00,000 × 20% = ₹80,000. The default regime also independently restricts several Chapter VI-A deductions.

Where it goes wrong. Treating deductions from gross total income as though they can directly reduce capital gains chargeable at a special rate.

Authority. Section 111A of the Income-tax Act, 1961; Section 115BAC 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.

A resident taxpayer earns qualifying long-term capital gains of ₹1,25,000 from listed equity shares satisfying the STT conditions under section 112A. Other taxable income is above the applicable basic exemption limit, and no basic exemption adjustment is therefore available. Determine the tax payable on these gains before cess and surcharge.

1. ₹15,625.
2. ₹12,500.
3. Nil. (correct answer)
4. ₹7,812.50.

Answer: C — Nil.

Explanation. Section 112A taxes qualifying LTCG only to the extent that it exceeds ₹1,25,000. Here, capital gain = ₹1,25,000 and the threshold = ₹1,25,000. Excess gain = ₹1,25,000 − ₹1,25,000 = Nil. Therefore, tax under section 112A is Nil. The taxpayer has no unexhausted basic exemption, but this does not change the result because the gain itself does not exceed the statutory threshold.

Where it goes wrong. Treating the threshold as a taxable amount or assuming that gains equal to ₹1,25,000 are subject to 12.5% tax.

Authority. Section 112A 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. Sarthak transfers an unlisted long-term capital asset and earns LTCG of ₹1,00,000. The gain is not covered under section 112A and his other taxable income exceeds the basic exemption limit. Determine the tax payable before surcharge and cess. The question tests whether section 112 carries a minimum capital gains threshold similar to section 112A.

1. Nil because LTCG is below ₹1,25,000.
2. ₹6,250 at 6.25%.
3. ₹20,000 at 20%.
4. ₹12,500 at 12.5%. (correct answer)

Answer: D — ₹12,500 at 12.5%.

Explanation. The asset is long-term but does not qualify under section 112A. The gain is therefore taxable under section 112 at 12.5% without indexation. Since other taxable income exceeds the basic exemption limit, no exemption adjustment remains. Section 112 does not prescribe the ₹1,25,000 threshold applicable to qualifying assets under section 112A. Calculation: ₹1,00,000 × 12.5% = ₹12,500.

Where it goes wrong. Mistaking the section 112A threshold for a general exemption applicable to every long-term capital gain.

Authority. Section 112 of the Income-tax Act, 1961; Section 112A 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.

A resident individual transfers listed equity shares after holding them for nine months. STT was paid on the sale through a recognised stock exchange. The resulting gain is ₹1,20,000, and other taxable income exceeds the basic exemption limit. Determine the appropriate special-rate tax treatment before cess and surcharge, paying attention to the distinction between the short-term and long-term provisions.

1. ₹24,000 under section 111A at 20%. (correct answer)
2. Nil under section 112A because gain is below ₹1,25,000.
3. ₹15,000 under section 112 at 12.5%.
4. ₹18,000 under section 111A at 15%.

Answer: A — ₹24,000 under section 111A at 20%.

Explanation. The shares were held for nine months, so the resulting gain is short-term. STT was paid on the sale through a recognised stock exchange, satisfying the relevant section 111A condition. The gain is taxable at 20%. Calculation: ₹1,20,000 × 20% = ₹24,000. The ₹1,25,000 threshold belongs to section 112A and applies to qualifying long-term gains, not to short-term gains under section 111A.

Where it goes wrong. Applying the section 112A long-term threshold to short-term equity gains merely because the gain is below ₹1,25,000.

Authority. Section 111A of the Income-tax Act, 1961; Section 112A of the Income-tax Act, 1961