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.

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