50 interview questions with answers on Income from Capital Gains

 Here are 50 interview questions with answers on Income from Capital Gains under the Indian Income-tax Act, 1961.

🔹 Section 1: Basic Concepts (Q1–Q10)

1.      Q: What is "Capital Gain" under the Income-tax Act?
A: Profit or gain arising from the transfer of a capital asset is called capital gain and is taxable under Section 45.

2.      Q: What are the types of capital gains?
A: (i) Short-Term Capital Gain (STCG), (ii) Long-Term Capital Gain (LTCG).

3.      Q: What is a capital asset?
A: Property of any kind held by a person, whether or not connected with business or profession, excluding stock-in-trade, personal effects, etc.

4.      Q: What is the holding period for short-term capital asset?
A: Less than 36 months (12 months or 24 months for specified assets like shares, securities, and immovable property).

5.      Q: What is the holding period for long-term capital asset?
A: More than 36/24/12 months depending on the nature of the asset.

6.      Q: What are examples of capital assets?
A: Land, building, shares, mutual funds, jewellery, trademarks, goodwill.

7.      Q: What is indexed cost of acquisition?
A: Adjusted purchase cost based on inflation using Cost Inflation Index (CII), used in computing LTCG.

8.      Q: Are gains from agricultural land taxable?
A: Urban agricultural land is taxable; rural agricultural land is not a capital asset.

9.      Q: What is the tax rate for STCG?
A: 15% under Section 111A for equity-oriented assets; normal slab rates for other assets.

10.  Q: What is the tax rate for LTCG?
A: 20% with indexation or 10% without indexation on listed equity above ₹1 lakh.

🔹 Section 2: Transfer & Exemptions (Q11–Q25)

11.  Q: What constitutes a 'transfer' of capital asset?
A: Sale, exchange, relinquishment, extinguishment of rights, or compulsory acquisition.

12.  Q: Is conversion of capital asset into stock-in-trade a transfer?
A: Yes, it is treated as a transfer under Section 2(47)(iv).

13.  Q: What is Section 54 exemption?
A: LTCG on sale of residential house is exempt if reinvested in another residential property.

14.  Q: What is Section 54F exemption?
A: LTCG from sale of non-residential asset invested in residential house within 1 year before or 2 years after transfer.

15.  Q: What is Section 54EC?
A: Exemption of LTCG from land/building if invested in REC/NHAI bonds within 6 months (up to ₹50 lakh).

16.  Q: Can exemption under 54 and 54EC be claimed together?
A: Yes, if conditions are satisfied.

17.  Q: What is the time limit to invest under Section 54?
A: 1 year before or 2 years after purchase or 3 years if constructing a new house.

18.  Q: What is the Capital Gains Account Scheme?
A: Unutilized capital gain can be deposited in CGAS before due date of return to claim exemption.

19.  Q: Is self-occupied residential house eligible under Section 54?
A: Yes, exemption applies regardless of whether the property is self-occupied or let out.

20.  Q: Is demolition of property a transfer?
A: No, demolition itself does not constitute a transfer.

21.  Q: Are bonus shares taxable on sale?
A: Yes, entire sale value is capital gain since acquisition cost is NIL.

22.  Q: Is inheritance considered a transfer?
A: No, transfer through gift, will, or inheritance is not taxable.

23.  Q: Can losses under capital gains be set off?
A: STCL can be set off against STCG and LTCG; LTCL only against LTCG.

24.  Q: What is the carry-forward period for capital loss?
A: 8 assessment years, subject to return being filed in time.

25.  Q: What happens to exemption under 54 if new house is sold within 3 years?
A: Exemption claimed earlier becomes taxable as LTCG in year of sale.

🔹 Section 3: Computation & Taxability (Q26–Q40)

26.  Q: What is full value of consideration?
A: The total amount received or receivable by the seller on transfer of capital asset.

27.  Q: What are deductible expenses from full value?
A: Expenses wholly and exclusively in connection with the transfer (e.g., brokerage, legal fee).

28.  Q: What is Cost of Improvement?
A: Capital expenditure incurred to make additions/improvements to the asset.

29.  Q: Can indexation be applied to STCG?
A: No, only LTCG qualifies for indexation.

30.  Q: Can depreciable assets result in LTCG?
A: No, gain on depreciable assets is always STCG as per Section 50.

31.  Q: What is the base year for indexation?
A: FY 2001–02. CII of 2001–02 is taken as base (100).

32.  Q: What is the treatment of goodwill on sale?
A: Taxable as capital gain; no indexation for self-generated goodwill.

33.  Q: What is the cost of acquisition for inherited property?
A: Cost to previous owner; indexation available from date of acquisition by previous owner.

34.  Q: What is the treatment of compensation on compulsory acquisition?
A: Taxable as capital gain in the year of receipt under Section 45(5).

35.  Q: What is Section 50C?
A: If sale value is less than stamp duty value, the stamp duty value is deemed consideration.

36.  Q: What is Section 112A?
A: Tax on LTCG on sale of listed equity shares/unit of equity-oriented fund @ 10% exceeding ₹1 lakh.

37.  Q: Is exemption available under new regime for LTCG?
A: Most exemptions like 54, 54F continue under new regime.

38.  Q: Is gift of capital asset taxable?
A: Not taxable in hands of donor; recipient may be taxed under section 56(2)(x) if not relative.

39.  Q: Is capital gain on sale of jewellery taxable?
A: Yes, taxed as capital gain; jewellery is a capital asset.

40.  Q: How is capital gain computed on sale of mutual funds?
A: Depends on type (equity vs. debt) and holding period (12 months/36 months).

 Section 4: Miscellaneous & Practical Questions (Q41–Q50)

41.  Q: Are ESOPs taxable under capital gains?
A: On sale of shares, capital gains arise. Cost = FMV at exercise date (perquisite taxed earlier).

42.  Q: What is the holding period for rights shares?
A: From date of allotment.

43.  Q: What is the cost of acquisition for bonus shares?
A: NIL.

44.  Q: What is the cost of rights shares?
A: Amount paid to acquire the rights.

45.  Q: Are digital assets (like crypto) taxed under capital gains?
A: No, they are taxed under special provisions (Section 115BBH) @ 30%.

46.  Q: Are gains on sale of rural agricultural land taxable?
A: No, rural agricultural land is not a capital asset.

47.  Q: What is the treatment of capital gain on slump sale?
A: Entire undertaking sold without assigning individual value; gains are LTCG/STCG u/s 50B.

48.  Q: Is capital gain on buy-back of shares taxable?
A: Yes, company pays tax u/s 115QA; exempt in hands of shareholder.

49.  Q: Can reinvestment be made in two properties under Section 54?
A: Yes, only once in lifetime for LTCG up to ₹2 crore.

50.  Q: Are capital gains included in total income?
A: Yes, after computing capital gain, tax is calculated and added to gross total income for final tax liability.

Comments

Post a Comment

Popular posts from this blog

Unified vs Dual GST Model

    Unified vs Dual GST Model Aspect Unified GST Model Dual GST Model Definition A single tax levied and collected by central authority Two-level tax : levied by both Centre and States Tax Authority Only central/federal government Both central and state/provincial governments Structure One law, one administration, one tax rate Separate levies: CGST + SGST (intra-state), IGST (inter-state) Compliance Easier, as businesses deal with only one authority More complex, requires dealing with both Centre and State authorities Input Tax Credit Seamless across the country ITC available separately under CGST & SGST; cross-utilization restricted Uniformity High – same rates across the country Rates can vary if states have flexibility (though GST Council striv...
Read more

A person includes an individual, Hindu Undivided Family (HUF), Association of Persons (AOP), Body of Individuals (BOI), a firm, a company etc. elaborate

 Under the Income Tax Act, 1961 of India, the term "person" is defined in a broad and inclusive manner to ensure that all entities and individuals earning income can be brought under the tax net. This definition is given in Section 2(31) of the Act. Definition of Person [Section 2(31) of the Income Tax Act, 1961] A "person" includes: An Individual A single human being who may be a resident or non-resident, male or female, minor or major. Example: Mr. Rajesh Sharma filing his personal income tax return. A Hindu Undivided Family (HUF) A family consisting of all persons lineally descended from a common ancestor, including their wives and unmarried daughters. It is treated as a separate tax entity. Example: The Mehra HUF earning rental and business income is taxed separately from its individual members. A Company Includes both Indian and foreign companies. A company is a separate legal entity under the Companies Act, and it is ta...
Read more

Exceptions to the General Rule: Previous year Assessment

  General Rule: Income of a previous year is assessed in the assessment year following the previous year. Previous Year (PY): The financial year in which the income is earned (e.g., 1st April 2024 to 31st March 2025). Assessment Year (AY): The year immediately following the previous year when income is assessed and taxed (e.g., AY 2025-26).   Example: Income earned during FY 2024-25 (PY) will be assessed in AY 2025-26. Exceptions to the General Rule: There are certain situations where the income of a previous year is assessed in the same previous year itself , and not deferred to the following assessment year . These exceptions are provided to protect revenue interests , especially when there's a risk of the income escaping assessment.  1. Shipping Business of Non-Resident [Section 172] Applies to non-resident owners/charterers operating ships in India. Since these individuals may not be traceable in the next year,...
Read more