NISM Series X-B Chapter 11: Taxation of Equity Products Practice Questions

Question 1

Which of the following income types, when earned by a Real Estate Investment Trust (REIT) and distributed to its unit-holders, is NOT accorded pass-through status according to the provided text, meaning it is generally taxed at the REIT level itself?

Accepted Answer

Capital gains from the transfer of real estate property. The text states: "The pass-through status is provided only in respect of income covered under point (a) [Rental income], (c) [Dividend from SPV] and (d) [Interest from SPV] above." It further clarifies, "Thus, any capital gain arising on transfer of real estate properties (including securities) by REIT shall be charged to tax in its own hands and not in the hands of the unit-holders."

Question 2

Mr. Anil acquired 500 units of a listed REIT on January 15, 2017, at an actual cost of ₹300 per unit. He sold these units on March 10, 2024, for ₹790 per unit. The highest price of these units quoted on a recognized stock exchange on January 31, 2018, was ₹450 per unit. Assuming STT was paid on transfer and ignoring surcharge and cess, what is Mr. Anil's long-term capital gains tax liability?

Accepted Answer

₹5,625. 1.  **Identify holding period and type of gain:** Units are listed and acquired before 31-01-2018. Held for more than 12 months (Jan 2017 to March 2024), so it's a Long-Term Capital Gain (LTCG). STT was paid. Grandfathering rules apply.
2.  **Determine Cost of Acquisition (CoA) using Grandfathering:**
    The cost of acquisition shall be higher of:
    a) Actual cost of acquisition: ₹300 per unit
    b) Lower of (Fair Market Value (FMV) on 31-01-2018 or Full Value of Consideration (FVC)):
        - FMV on 31-01-2018 = ₹450 per unit
        - FVC = ₹790 per unit
        - Lower of (₹450, ₹790) = ₹450 per unit
    Higher of (a) ₹300 or (b) ₹450 = ₹450 per unit. So, the effective Cost of Acquisition (CoA) for tax calculation is ₹450 per unit.
3.  **Calculate Total Sale Consideration:** 500 units * ₹790/unit = ₹3,95,000
4.  **Calculate Total Cost of Acquisition:** 500 units * ₹450/unit = ₹2,25,000
5.  **Calculate Long-Term Capital Gain (LTCG):** ₹3,95,000 - ₹2,25,000 = ₹1,70,000
6.  **Apply Tax Rate:** As per Section 112A, for listed REIT units with STT paid, LTCG in excess of ₹1,25,000 is taxable at 12.50%.
    Taxable LTCG = ₹1,70,000 - ₹1,25,000 (exemption limit) = ₹45,000
    Tax Liability = ₹45,000 * 12.50% = ₹5,625

Question 3

Mr. Sharma sold 1,000 units of a listed REIT on which STT was paid, for ₹600 per unit. He had acquired these units 18 months ago for ₹400 per unit. What is the tax liability on this transaction for Mr. Sharma, assuming no other capital gains from REIT units in the financial year and ignoring surcharge and cess?

Accepted Answer

₹9,375. 1.  **Identify holding period and type of gain:** Units are listed and held for 18 months (>12 months), so it's a Long-Term Capital Gain (LTCG). STT was paid.
2.  **Calculate Total Sale Consideration:** 1,000 units * ₹600/unit = ₹6,00,000
3.  **Calculate Total Cost of Acquisition:** 1,000 units * ₹400/unit = ₹4,00,000
4.  **Calculate Long-Term Capital Gain (LTCG):** ₹6,00,000 - ₹4,00,000 = ₹2,00,000
5.  **Apply Tax Rate:** As per Section 112A, for listed REIT units with STT paid, LTCG in excess of ₹1,25,000 is taxable at 12.50%.
    Taxable LTCG = ₹2,00,000 - ₹1,25,000 = ₹75,000
    Tax Liability = ₹75,000 * 12.50% = ₹9,375

Question 4

Which of the following types of income distributed by a Real Estate Investment Trust (REIT) to its unit-holders is considered 'pass-through' income, meaning it is taxable in the hands of the unit-holder and exempt at the REIT level?

Accepted Answer

Rental income from real estate property earned by the REIT.. The text states: 'The pass-through status is provided only in respect of income covered under point (a), (c) and (d) above [referring to Rental income, Dividend received from SPV, and Interest received from SPV]. Thus, if REIT distributes any rental, dividend or interest income to its unit-holder then tax shall be charged at the level of unit-holder and not in the hands of the REIT.' Capital gains are taxable at the REIT level (Option A). Interest income from sources other than SPV is taxable at the REIT level (Option C). Any other income is also taxable at the REIT level (Option D)

Question 5

Mr. Singh sold his units of an unlisted Real Estate Investment Trust (REIT) after holding them for 30 months. He did not pay Security Transaction Tax (STT) on this transfer. Which of the following statements correctly describes the tax treatment of the capital gains arising from this transaction?

Accepted Answer

The capital gains will be treated as Long-Term Capital Gains (LTCG) and taxed at 12.50% for a resident under Section 112.. 1.  **Holding Period:** Units of an unlisted REIT held for 30 months. The text states that for unlisted REITs, if the holding period is more than 24 months, the gains are Long-Term Capital Gains (LTCG).
2.  **STT Payment:** STT was *not* paid on the transfer.
3.  **Tax Treatment:** The text states, 'If STT has not been paid on the transfer of units of REIT... Long-term capital gains shall be taxable at the rate of 12.50% under Section 112 of the Act in case of a resident.'
Therefore, option B is correct. Option C is incorrect as Section 112A (with the ₹1,25,000 exemption) applies when STT is paid. Option D would apply if it were STCG with no STT paid. Option A is incorrect as it's LTCG, not STCG, and the rate/section is wrong for no STT

Question 6

Which of the following statements regarding the tax treatment of sums received from NPS is correct?

Accepted Answer

In case of partial withdrawal by an employee, the amount is exempt to the extent of 25% of the employee's contribution to NPS.. As per the text, 'Any amount withdrawn from NPS before the closure of account or opting out of the scheme shall be exempt only in case of employees to the extent of 25% of employee’s contribution to NPS.' Option A is incorrect as 'Where the amount standing to the credit of an assessee in NPS is received by his nominee on the death of the subscriber, it shall be fully exempt from tax.' Option C is incorrect as 'the annuity income received shall be taxable in the hands of the recipient.' Option D is incorrect as 'Any payment from the National Pension System Trust to an assessee on closure of his account or on his opting out of the pension scheme is exempt from tax to the extent of 60% of the total corpus. Thus, the total amount withdrawn by an assessee at the time of closure of NPS account or opting out of the scheme shall be completely tax-free.'

Question 7

Ms. Pooja sold 1,000 units of a listed REIT on 15th April 2024 for ₹250 per unit. She had acquired these units on 1st January 2018 at an actual cost of ₹180 per unit. The highest quoted price for these units on 31st January 2018 was ₹220 per unit. Security Transaction Tax (STT) was paid on the transfer. Calculate Ms. Pooja's Long-Term Capital Gains (LTCG) tax liability, assuming her total LTCG from REIT units exceeds ₹1,25,000.

Accepted Answer

₹3,750. 1.  **Determine Holding Period:** Units acquired on 1st January 2018 and sold on 15th April 2024. This is more than 12 months for a listed REIT, so the gain is Long-Term Capital Gain (LTCG).
2.  **Calculate Cost of Acquisition (CoA) using Grandfathering Rule (acquired on or before 31-01-2018):** The CoA is the higher of:
    a) Actual cost of acquisition = ₹180 per unit.
    b) Lower of (Fair Market Value (FMV) on 31-01-2018 or Full Value of Consideration (FVC) on transfer).
        - FMV on 31-01-2018 = ₹220 per unit.
        - FVC per unit = ₹250 per unit.
        - Lower of (₹220, ₹250) = ₹220 per unit.
    Therefore, the CoA per unit = Higher of (₹180, ₹220) = ₹220 per unit.
3.  **Calculate Long-Term Capital Gain (LTCG):**
    - Full Value of Consideration (FVC) = 1,000 units × ₹250/unit = ₹2,50,000.
    - Total Cost of Acquisition = 1,000 units × ₹220/unit = ₹2,20,000.
    - LTCG = FVC - CoA = ₹2,50,000 - ₹2,20,000 = ₹30,000.
4.  **Calculate Tax Liability:**
    - Since STT was paid on the transfer of listed REIT units, LTCG in excess of ₹1,25,000 is taxable at 12.50% under Section 112A.
    - The question states that her *total* LTCG from REIT units exceeds ₹1,25,000, implying this ₹30,000 gain is part of the taxable portion.
    - Tax Liability = ₹30,000 × 12.50% = ₹3,750

Question 8

Which of the following income types earned by a Real Estate Investment Trust (REIT) is typically considered a 'pass-through income' and is therefore taxable at the unit-holder level, rather than at the REIT level?

Accepted Answer

Rental income from real estate property.. The text states: 'The pass-through status is provided only in respect of income covered under point (a), (c) and (d) above [referring to Rental income, Dividend received from SPV, and Interest received from SPV]. Thus, if REIT distributes any rental, dividend or interest income to its unit-holder then tax shall be charged at the level of unit-holder and not in the hands of the REIT.' Capital gains are explicitly stated as 'chargeable to tax in its own hands and not in the hands of the unit-holders.' Any other interest/dividend income (not from SPV) is also taxable at the REIT level

Question 9

Mr. Rakesh withdraws a portion of his NPS corpus and immediately utilizes the entire withdrawn amount to purchase an annuity plan from an insurer in the same previous year. How will the amount withdrawn and the subsequent annuity income be treated for tax purposes?

Accepted Answer

The withdrawn amount is exempt, but the annuity income is taxable in the hands of the recipient.. The text states: 'No tax shall be charged on such amount withdrawn if it is utilized for purchasing the annuity plan of LIC or some other insurer.' However, 'when a pension is received out of fund contributed to NPS, it will be chargeable to tax in the hands of the recipient.' This implies that the annuity income received will be taxable

Question 10

Ms. Ritu, an employee, has contributed a total of ₹8,00,000 to her NPS account. After 5 years, she decides to make a partial withdrawal of ₹2,50,000 for her child's education, adhering to PFRDA regulations. What portion of this partial withdrawal will be exempt from tax?

Accepted Answer

₹2,00,000. As per the text, 'Any amount withdrawn from NPS before the closure of account or opting out of the scheme shall be exempt only in case of employees to the extent of 25% of employee’s contribution to NPS.'
1.  Employee's total contribution: ₹8,00,000
2.  Exemption limit: 25% of ₹8,00,000 = ₹2,00,000
3.  Partial withdrawal amount: ₹2,50,000
4.  The exempt portion is the lower of the withdrawal amount or the exemption limit.
5.  Exempt amount = Lower of (₹2,50,000 or ₹2,00,000) = ₹2,00,000

Question 11

According to the provided text, which of the following types of income earned by a Real Estate Investment Trust (REIT) is granted pass-through status, meaning it is exempt at the REIT level and taxable in the hands of the unit-holder?

Accepted Answer

Rental income from real estate property.. The text explicitly states: 'The pass-through status is provided only in respect of income covered under point (a), (c) and (d) above [Rental income from real estate property; Dividend received from SPV; and Interest received from SPV].' It further clarifies that 'Capital Gains' and 'Any other interest income earned by REITs (other than from SPV)' are not exempt at the REIT level and thus not pass-through in the same manner

Question 12

Which of the following income types distributed by a Real Estate Investment Trust (REIT) to its unit-holders is *not* accorded pass-through status and is therefore taxable at the REIT level, with the unit-holder being exempt (assuming the REIT has paid tax on it)?

Accepted Answer

Capital gains from the transfer of real estate property by the REIT.. The text states: 'The pass-through status is provided only in respect of income covered under point (a) [Rental], (c) [Dividend received from SPV] and (d) [Interest received from SPV] above.' It further clarifies, 'Capital Gains: ... any capital gain arising on transfer of real estate properties (including securities) by REIT shall be charged to tax in its own hands and not in the hands of the unit-holders.' Therefore, capital gains arising from the transfer of real estate property by the REIT are taxable at the REIT level and are not pass-through

Question 13

Mr. Gupta acquired 5,000 units of a listed REIT on January 15, 2018, for ₹150 per unit. He sold all these units on March 10, 2024, for ₹350 per unit. The highest quoted price of the units on a recognized stock exchange as of January 31, 2018, was ₹180 per unit. Security Transaction Tax (STT) was paid on the transfer. Calculate the Long-Term Capital Gains (LTCG) tax payable by Mr. Gupta.

Accepted Answer

₹90,625. 1.  **Holding Period:** Acquired Jan 15, 2018, sold March 10, 2024. This is more than 12 months, so it's a Long-Term Capital Gain (LTCG).
2.  **Cost of Acquisition (Grandfathering):** Units acquired before Jan 31, 2018.
    *   Actual cost of acquisition: ₹150 per unit.
    *   Fair Market Value (FMV) on Jan 31, 2018: ₹180 per unit.
    *   Full Value of Consideration: ₹350 per unit.
    *   Cost of Acquisition = Higher of (Actual cost OR Lower of FMV on 31-01-2018 or Full Value of Consideration).
    *   Cost of Acquisition = Higher of (₹150 OR Lower of ₹180 or ₹350)
    *   Cost of Acquisition = Higher of (₹150 OR ₹180) = ₹180 per unit.
3.  **Total Sales Consideration:** 5,000 units * ₹350/unit = ₹17,50,000
4.  **Total Cost of Acquisition:** 5,000 units * ₹180/unit = ₹9,00,000
5.  **Long-Term Capital Gain (LTCG):** ₹17,50,000 - ₹9,00,000 = ₹8,50,000
6.  **Taxable LTCG:** Since STT was paid, LTCG exceeding ₹1,25,000 is taxable at 12.50% under Section 112A.
    *   Taxable LTCG = ₹8,50,000 - ₹1,25,000 (exemption) = ₹7,25,000
    *   LTCG Tax = ₹7,25,000 * 12.50% = ₹90,625

Question 14

Mr. Sharma, an employee, has contributed a total of ₹8,00,000 to his NPS account. After 4 years, he makes a partial withdrawal of ₹2,50,000 in accordance with PFRDA regulations. Based on the provided text, what is the maximum amount of this partial withdrawal that will be exempt from tax?

Accepted Answer

₹2,00,000. The text states that for partial withdrawal from NPS, "Any amount withdrawn from NPS before the closure of account or opting out of the scheme shall be exempt only in case of employees to the extent of 25% of employee’s contribution to NPS."
Employee's total contribution = ₹8,00,000
Exempt amount = 25% of ₹8,00,000 = ₹2,00,000.
The withdrawal amount is ₹2,50,000, but only up to ₹2,00,000 is exempt

Question 15

According to the provided text, what is the tax treatment for the amount received by a nominee upon the death of an NPS subscriber?

Accepted Answer

Fully exempt from tax in the hands of the receiver.. The text states: 'Where the amount standing to the credit of an assessee in NPS is received by his nominee on the death of the subscriber, it shall be fully exempt from tax.'

Question 16

Mr. Sharma sold 1,000 units of a listed REIT on 15th July 2024 for ₹400 per unit. He had acquired these units on 10th January 2018 for ₹180 per unit. The highest quoted price of these units on a recognized stock exchange as on 31st January 2018 was ₹220 per unit. Security Transaction Tax (STT) was paid at the time of transfer. What is Mr. Sharma's Long-Term Capital Gain (LTCG) tax liability for this transaction, considering Budget 2024 rates?

Accepted Answer

₹6,875. 1.  **Determine Cost of Acquisition (COA) using Grandfathering:**
    Units were acquired before 31-01-2018. The COA will be the higher of:
    a) Actual cost of acquisition: ₹180 per unit
    b) Lower of (Fair Market Value (FMV) on 31-01-2018 or Full Value of Consideration (FVC))
       - FMV on 31-01-2018: ₹220 per unit
       - FVC per unit: ₹400 per unit
       - Lower of (₹220, ₹400) = ₹220 per unit
    So, COA per unit = Higher of (₹180, ₹220) = ₹220 per unit.
    Total COA = 1,000 units * ₹220/unit = ₹2,20,000.
2.  **Calculate Full Value of Consideration (FVC):**
    Total FVC = 1,000 units * ₹400/unit = ₹4,00,000.
3.  **Calculate Long-Term Capital Gain (LTCG):**
    LTCG = FVC - COA = ₹4,00,000 - ₹2,20,000 = ₹1,80,000.
4.  **Apply Tax Rate (STT paid, Budget 2024 rates):**
    As per the special notes for Module 9, for equity/REITs with STT paid, LTCG is taxable at 12.5% above ₹1,25,000.
    Taxable LTCG = ₹1,80,000 - ₹1,25,000 = ₹55,000.
    LTCG Tax Liability = ₹55,000 * 12.50% = ₹6,875

Question 17

According to the provided text, what is the tax treatment for the amount standing to the credit of an assessee in NPS when it is received by a nominee on the death of the subscriber?

Accepted Answer

It is fully exempt from tax.. The text states, "Where the amount standing to the credit of an assessee in NPS is received by his nominee on the death of the subscriber, it shall be fully exempt from tax."

Question 18

According to the SEBI (REITs) Regulations, 2014, which of the following 'Infrastructure' assets CAN be considered as Real Estate property for REITs?

Accepted Answer

Common infrastructure for composite real estate projects. The text states: 'However, assets falling under the preview of “Infrastructure” shall not be considered as Real Estate property except following: a) hotels, hospitals and convention centres forming part of composite real estate projects, whether rent generating or income-generating; b) common infrastructure for composite real estate projects, industrial parks and SEZ.' Options A and B are general infrastructure types that are not explicitly listed as exceptions. Option D is too broad and not an exception. Option C directly matches one of the stated exceptions

Question 19

A Real Estate Investment Trust (REIT) earns interest income from an entity that is not a Special Purpose Vehicle (SPV). This specific interest income is generally taxable in the hands of the REIT. If, however, for some reason this income is *not* chargeable to tax in the hands of the REIT itself, and the REIT subsequently distributes this income to its unit-holders, what will be the tax treatment for the unit-holders?

Accepted Answer

The distributed income will be taxable in the hands of the unit-holders under the head "other sources" as per Section 56(2)(xii).. The text states under "Interest Income" (and similarly for "Dividend Income"): "Any other interest income earned by REITs (other than from SPV) is not exempt at the level of REITs. Consequently, such interest income is taxable in the hands of REITs and when such income is further distributed, it is exempt from tax under Section 10(23FD) in the hands of unit-holders. However, if such interest income is not chargeable to tax in the hands of the REIT, it shall be taxable in the hands of the unit holder under the head “other sources” as per Section 56(2)(xii)." This specific scenario (income not chargeable to tax at REIT level, then distributed) triggers taxability at the unit-holder level under Section 56(2)(xii)

Question 20

An investor sold 1,000 units of a listed REIT for ₹5,00,000. These units were acquired 3 years ago for ₹3,00,000. Security Transaction Tax (STT) was paid on the transfer. Calculate the Long-Term Capital Gains (LTCG) taxable amount and the tax payable by the investor (excluding surcharge and cess), applying the rates mentioned in the exam context.

Accepted Answer

Taxable LTCG: ₹75,000; Tax Payable: ₹9,375. 1.  **Calculate Long-Term Capital Gain (LTCG):**
    *   Sale Consideration = ₹5,00,000
    *   Cost of Acquisition = ₹3,00,000
    *   LTCG = Sale Consideration - Cost of Acquisition = ₹5,00,000 - ₹3,00,000 = ₹2,00,000
2.  **Apply Exemption under Section 112A (as STT is paid):**
    *   As per the exam context and text, LTCG on listed REIT units (where STT is paid) is exempt up to ₹1,25,000.
    *   Taxable LTCG = Total LTCG - Exemption = ₹2,00,000 - ₹1,25,000 = ₹75,000
3.  **Calculate Tax Payable:**
    *   The tax rate for LTCG in excess of ₹1,25,000 (with STT paid) is 12.50%.
    *   Tax Payable = Taxable LTCG × Rate = ₹75,000 × 12.50% = ₹9,375

Question 21

When an amount standing to the credit of an assessee in NPS is received by their nominee upon the subscriber's death, what is its tax treatment?

Accepted Answer

It is fully exempt from tax in the hands of the receiver.. The text states: 'Where the amount standing to the credit of an assessee in NPS is received by his nominee on the death of the subscriber, it shall be fully exempt from tax.' This is also confirmed in the 'Summary of Taxability of NPS' table under 'Amount received by a nominee on death of the subscriber'

Question 22

A Real Estate Investment Trust (REIT) earns 'other interest income' (not from an SPV) which is taxable in the hands of the REIT. When this income is subsequently distributed to its unit-holders, what is its tax treatment for the unit-holders?

Accepted Answer

It shall be exempt from tax in the hands of the unit-holders under Section 10(23FD).. The text states: 'Any other interest income earned by REITs (other than from SPV) is not exempt at the level of REITs. Consequently, such interest income is taxable in the hands of REITs and when such income is further distributed, it is exempt from tax under Section 10(23FD) in the hands of unit-holders.' The condition for taxability under Section 56(2)(xii) applies only if the income 'is not chargeable to tax in the hands of the REIT'

Question 23

Mr. Anil, an employee, has contributed a total of ₹8,00,000 to his NPS account. After 5 years of joining, he decides to make a partial withdrawal. What is the maximum amount he can withdraw tax-free from his NPS account in this partial withdrawal?

Accepted Answer

₹2,00,000. As per the text, 'Any amount withdrawn from NPS before the closure of account or opting out of the scheme shall be exempt only in case of employees to the extent of 25% of employee’s contribution to NPS.'
Employee's total contribution = ₹8,00,000.
Maximum tax-free partial withdrawal = 25% of ₹8,00,000 = ₹2,00,000

Question 24

Mr. Sharma, an employee, has contributed ₹8,00,000 to his NPS account. After 5 years of joining, he decides to make a partial withdrawal, adhering to all PFRDA terms and conditions. What is the maximum amount of this partial withdrawal that will be exempt from tax?

Accepted Answer

₹2,00,000. As per the text, 'Any amount withdrawn from NPS before the closure of account or opting out of the scheme shall be exempt only in case of employees to the extent of 25% of employee’s contribution to NPS.'

Employee's total contribution = ₹8,00,000
Exempt portion of partial withdrawal = 25% of ₹8,00,000 = ₹2,00,000

Question 25

Mr. Sharma, an NPS subscriber, passed away. His nominee, Mrs. Sharma, received the entire corpus of ₹50 Lakhs from his NPS account. What is the taxability of this amount in the hands of Mrs. Sharma?

Accepted Answer

Fully exempt from tax.. As per the text, 'Where the amount standing to the credit of an assessee in NPS is received by his nominee on the death of the subscriber, it shall be fully exempt from tax.'

Ch.11: Taxation of Equity Products

What You Will Learn in This Chapter

Multiple Choice Questions (25)

Case-Based Questions (1 sets)

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