Multiple Choice Questions (20)
Q1
MCQ · 1 mark
MediumCost of Acquisition - Bonus Shares
Mr. P received bonus shares from Company X. If these bonus shares were issued on April 15, 2005, what would be the cost of acquisition for these shares when Mr. P sells them?
AThe Fair Market Value of the shares as on April 1, 2001.
BThe actual price paid by Mr. P for these bonus shares.
✓Nil.
DThe Fair Market Value of the shares as on January 31, 2018.
💡 According to Table 8.4, under the 'Bonus share' situation, it states: 'If bonus shares issued on or after 01-04-2001: Nil'. Since the bonus shares were issued on April 15, 2005 (which is after April 1, 2001), their cost of acquisition is Nil.
Q2
MCQ · 1 mark
EasyExpenditure Incurred in Connection with Transfer
Which of the following expenses incurred in connection with the transfer of a capital asset is NOT allowed as a deduction when computing capital gain?
ABrokerage paid on the sale of shares.
BStamp duty incurred for the transfer of property.
CLegal expenses directly related to the transfer.
✓Securities Transaction Tax (STT) paid on the sale of equity shares.
💡 The text states, 'However, no deduction is allowed in respect of any sum paid on account of Securities Transaction Tax (STT), Commodities Transaction Tax (CTT) while calculating the capital gains from sale of securities.' Brokerage, stamp duty, and legal expenses are allowed deductions.
Q3
MCQ · 1 mark
HardFull Value of Consideration - Special Cases
A non-resident investor holds Rupee Denominated Bonds of an Indian company. Upon redemption of these bonds, how is the 'full value of consideration' calculated for capital gains purposes?
AThe full redemption value received in foreign currency.
BThe full redemption value received in Indian Rupees.
CThe full redemption value, excluding the amount equal to the depreciation of the rupee against a foreign currency from the date of issue to the date of redemption.
✓The full redemption value, excluding the amount equal to the appreciation of the rupee against a foreign currency from the date of issue to the date of redemption.
💡 As per Table 8.3, for 'Redemption of rupee denominated bonds by non-resident', the 'Full value of consideration' is defined as: 'An amount equal to the value of appreciation of rupee against a foreign currency from the date of issue to the date of redemption shall be excluded for the purpose of computing the full value of consideration.'
Q4
MCQ · 1 mark
EasyTransactions not regarded as transfer
Which of the following transactions is NOT regarded as a 'transfer' for the purpose of computing capital gains under the Income Tax Act?
ARedemption or maturity of a zero-coupon bond issued by an infrastructure capital fund.
BRelinquishment of rights by a partner in a firm in favour of another partner upon retirement.
✓Conversion of Gold into an Electronic Gold Receipt (EGR) issued by a vault manager.
DReceipt of shares of a company in exchange for shares of another company during business reconstruction.
💡 The text explicitly states under section 8.4.1 (x) that 'Conversion of Gold into Electronic Gold Receipt (EGR) issued by a vault manager, or conversion of EGR into Gold, is not treated as transfer for the purpose of computing capital gain.' Options A, B, and D are all described as transfers or covered in the definition of exchange of asset in the provided text.
Q5
MCQ · 1 mark
MediumTransactions not regarded as transfer - Exceptions
According to the Income Tax Act, a transfer of a capital asset under a gift or will or an irrevocable trust is generally excluded from the ambit of transfer for capital gains purposes. However, this exclusion does NOT apply to:
ALand and building transferred as a gift to a family member.
✓Shares allotted by a company to its employees under an Employees' Stock Option Plan (ESOP) and subsequently transferred under an irrevocable trust.
CUnits of a mutual fund transferred via a will to a legal heir.
DJewellery transferred as a gift to a friend.
💡 Section 8.4.1 (ii) states that 'Any transfer of a capital asset under a gift or will or an irrevocable trust is excluded from the ambit of transfer, except shares, debentures or warrants allotted by a company directly or indirectly to its employees under any Employees' Stock Option Plan or Scheme of the company offered to such employees in accordance with prescribed guidelines.' Therefore, the exclusion does not apply to ESOP shares transferred under an irrevocable trust.
Q6
MCQ · 1 mark
EasyComputation of Capital Gains - Deductible Expenses
When computing capital gains from the sale of securities, which of the following expenses is explicitly NOT allowed as a deduction?
ABrokerage paid for the sale of securities.
BStamp duty incurred during the transfer.
CLegal expenses directly connected with the transfer.
✓Securities Transaction Tax (STT) paid on the sale.
💡 Under the section 'Expenditure incurred in connection with transfer', the text explicitly states: 'However, no deduction is allowed in respect of any sum paid on account of Securities Transaction Tax (STT), Commodities Transaction Tax (CTT) while calculating the capital gains from sale of securities.'
Q7
MCQ · 1 mark
EasyTransactions Not Regarded as Transfer
Which of the following transactions is NOT regarded as a 'transfer' for the purpose of capital gains under the Income Tax Act, as per the provided text?
✓Redemption of Sovereign Gold Bonds by an individual.
BRelinquishment of rights in a partnership asset by a retiring partner.
CExchange of shares of one company for shares of another during business reconstruction.
DMaturity of zero-coupon bonds issued by an infrastructure capital company.
💡 As per the text, 'Redemption of Sovereign Gold Bond issued by the Reserve Bank of India under the Sovereign Gold Bond Scheme, by an individual will not be regarded as transfer.' Options B, C, and D are explicitly mentioned as transactions that amount to transfer.
Q8
MCQ · 1 mark
EasyTransactions Not Regarded as Transfer
Which of the following transactions is generally NOT regarded as a 'transfer' for the purpose of computing capital gains under the Income Tax Act?
ARedemption of a zero-coupon bond issued by an infrastructure capital company.
BRelinquishment of rights in a partnership asset by a retiring partner.
✓Distribution of capital assets on the total partition of a Hindu Undivided Family (HUF).
DExchange of shares of one company for shares of another company during business reconstruction.
💡 The text explicitly states under '8.4.1 Transactions not regarded as transfer' that 'Distribution of capital asset on the total and partial partition of a Hindu undivided family' is not regarded as a transfer for capital gains purposes. Redemption of zero-coupon bonds, relinquishment of assets, and exchange of shares during business reconstruction are generally covered under the definition of 'transfer'.
Q9
MCQ · 1 mark
MediumCost of Acquisition - Bonus Shares
Mr. P received bonus shares from ABC Ltd. on October 15, 2005. What would be the cost of acquisition for these bonus shares when calculating capital gains upon their sale?
AThe Fair Market Value of the shares as on April 1, 2001.
BThe price actually paid for the acquisition of the original shares.
✓Nil.
DThe Fair Market Value of the shares as on October 15, 2005.
💡 According to Table 8.4, under the 'Bonus share' situation, it is stated: 'If bonus shares issued on or after 01-04-2001: Nil.' Since Mr. P received the bonus shares on October 15, 2005, which is after April 1, 2001, their cost of acquisition is Nil.
Q10
MCQ · 1 mark
MediumFull Value of Consideration
When a capital asset is converted into stock-in-trade by the assessee, how is the 'full value of consideration' determined for capital gains purposes?
AThe actual cost of acquisition of the capital asset.
✓The Fair Market Value of the capital asset on the date of conversion.
CThe sale price when the stock-in-trade is eventually sold.
DThe Fair Market Value of the capital asset on the date of its original acquisition.
💡 As per Table 8.3, for 'Conversion of capital asset into stock-in-trade', the full value of consideration is the 'Fair market value of capital asset on the date of conversion.'
Q11
MCQ · 1 mark
MediumComputation of Capital Gains - Deductions
Mr. C sells an unlisted share and incurs brokerage charges, stamp duty, and Securities Transaction Tax (STT). Which of these expenses are allowed as deductions when computing capital gains?
✓Brokerage charges and stamp duty only.
BSTT only.
CBrokerage charges, stamp duty, and STT.
DNone of the above, as only cost of acquisition is deductible.
💡 The text states, 'Any expenditure, incurred wholly and exclusively, in connection with transfer of a capital asset is allowed as a deduction... Thus, the brokerage or commission, stamp duty, registration fee, travelling expenses and legal expenses, etc., incurred in connection with transfer are allowed to be deducted... However, no deduction is allowed in respect of any sum paid on account of Securities Transaction Tax (STT), Commodities Transaction Tax (CTT) while calculating the capital gains from sale of securities.'
Q12
MCQ · 1 mark
MediumCost of Acquisition
Mr. Sharma received bonus shares from Company X on June 15, 2005. How will the cost of acquisition for these bonus shares be determined for capital gains computation when Mr. Sharma sells them?
AThe fair market value of the shares as on April 1, 2001.
BThe actual price paid for the acquisition of the bonus shares.
✓Nil.
DThe fair market value of the shares on the date of issue of bonus shares.
💡 According to Table 8.4, under 'Bonus share', if bonus shares are issued on or after 01-04-2001, the cost of acquisition is 'Nil'. Since June 15, 2005, is after April 1, 2001, the cost of acquisition for these bonus shares will be Nil.
Q13
MCQ · 1 mark
EasyTransactions Not Regarded as Transfer
Which of the following transactions is NOT regarded as a 'transfer' for the purpose of capital gains under the Income Tax Act?
ARelinquishment of rights in a partnership asset upon retirement.
✓Redemption of Sovereign Gold Bonds by an individual.
CReceipt of shares of one company in exchange for shares of another during business reconstruction.
DMaturity of a zero-coupon bond issued by an infrastructure capital company.
💡 As per the text, 'Redemption of Sovereign Gold Bond issued by the Reserve Bank of India under the Sovereign Gold Bond Scheme, by an individual will not be regarded as transfer.' Options A, C, and D are explicitly or implicitly covered under the definition of 'transfer' or 'exchange of asset' as per the initial sections of the chapter.
Q14
MCQ · 1 mark
HardCost of Acquisition - Equity-oriented Mutual Fund Units
Mr. S acquired 1000 units of an equity-oriented mutual fund on January 10, 2017, for ₹50 per unit. The Fair Market Value (FMV) of these units on January 31, 2018, was ₹70 per unit. Mr. S sold these units on June 15, 2024, for ₹90 per unit. Assuming STT was paid on acquisition and sale, what would be the cost of acquisition for calculating the Long-Term Capital Gain?
A₹50 per unit
✓₹70 per unit
C₹90 per unit
DNil
💡 As per Table 8.4, for 'Equity shares, units of equity oriented mutual fund or units of business trust (being long-term capital asset) chargeable to STT acquired on or before 31-01-2018 and sold after 01-04-2018', the cost of acquisition is the higher of:
a) Actual cost of acquisition
b) Fair Market value as on 31-01-2018 or full value of consideration, whichever is lower
Given:
Actual cost of acquisition = ₹50 per unit
Fair Market Value (FMV) as on 31-01-2018 = ₹70 per unit
Full value of consideration = ₹90 per unit
Step 1: Determine the lower of FMV as on 31-01-2018 or full value of consideration.
Lower of (₹70, ₹90) = ₹70
Step 2: Determine the higher of Actual cost of acquisition or the result from Step 1.
Higher of (₹50, ₹70) = ₹70
Therefore, the cost of acquisition for calculating Long-Term Capital Gain is ₹70 per unit.
Q15
MCQ · 1 mark
MediumTransactions Not Regarded as Transfer - Exceptions
According to the Income Tax Act, which of the following scenarios involving a transfer of a capital asset under a gift or will or an irrevocable trust would still be considered a 'transfer' for capital gains purposes?
ATransfer of a residential property under a registered gift deed.
BTransfer of equity shares of a listed company through an irrevocable trust to a family member.
✓Transfer of shares allotted by a company to its employees under an Employees' Stock Option Plan (ESOP) through an irrevocable trust.
DTransfer of a debt mutual fund unit via a will to a legal heir.
💡 The text states: 'Any transfer of a capital asset under a gift or will or an irrevocable trust is excluded from the ambit of transfer, except shares, debentures or warrants allotted by a company directly or indirectly to its employees under any Employees' Stock Option Plan or Scheme of the company offered to such employees in accordance with prescribed guidelines.' Option C directly matches this exception, making it a transfer for capital gains.
Q16
MCQ · 1 mark
HardTransactions Not Regarded as Transfer & Current Relevance
Which of the following statements regarding transactions not regarded as transfer for capital gains purposes is most accurate, considering the current provisions mentioned in the text?
AConsolidation of units of different similar schemes of a mutual fund is always treated as a transfer, unless explicitly exempted by SEBI.
BThe rollover of Fixed Maturity Plans (FMPs) is generally not treated as a transfer, and this exemption remains highly relevant for all types of FMPs.
CTransfer of shares, debentures, or warrants allotted under an Employees' Stock Option Plan (ESOP) as a gift or under an irrevocable trust is excluded from the ambit of transfer.
✓Conversion of Gold into Electronic Gold Receipt (EGR) issued by a vault manager is not treated as a transfer for computing capital gain.
💡 A) The text states: 'To promote consolidation of different similar scheme of transfer of mutual fund, Income Tax Act provides that consolidation of units shall not be treated as transfer.' So, A is incorrect. B) The text states that while rollover of FMPs is not treated as a transfer, 'this exemption is no longer relevant' for schemes investing 65% or more in debt due to Section 50AA, making the statement 'highly relevant for all types of FMPs' inaccurate. C) The text states that transfers under gift/will/irrevocable trust are excluded 'except shares, debentures or warrants allotted by a company... under any Employees' Stock Option Plan or Scheme...', meaning ESOP shares transferred as gift/trust *are* considered a transfer, making C incorrect. D) The text explicitly states: 'Conversion of Gold into Electronic Gold Receipt (EGR) issued by a vault manager, or conversion of EGR into Gold, is not treated as transfer for the purpose of computing capital gain.' This statement is accurate.
Q17
MCQ · 1 mark
EasyCost of Acquisition
According to the Income Tax Act, what is the cost of acquisition for bonus shares issued on or after April 1, 2001?
AThe Fair Market Value as on April 1, 2001.
BThe actual price paid for the acquisition of the original shares.
✓Nil.
DThe Fair Market Value on the date of issue of bonus shares.
💡 As per Table 8.4 under 'Cost of Acquisition' for 'Bonus share', if bonus shares are issued on or after 01-04-2001, the cost of acquisition is Nil.
Q18
MCQ · 1 mark
HardComputation of Capital Gains - Indexation
According to the provided text, for which specific long-term capital asset is the indexation benefit still available, albeit as a parallel calculation to determine tax liability?
AEquity shares of a listed company.
BUnits of an equity-oriented mutual fund.
✓Land and building bought before July 23, 2024.
DFixed Maturity Plans (FMPs) rolled over in accordance with SEBI regulations.
💡 The text states: 'In case of a long-term capital asset the indexation benefit is no longer available except as a parallel calculation to determine capital gains tax liability in respect of long-term capital gains arising from sale of land and building bought before July 23, 2024.'
Q19
MCQ · 1 mark
MediumFull Value of Consideration
Ms. Priya was allotted shares under an Employees' Stock Option Plan (ESOP). She later transferred these shares as a gift to her family member. For the purpose of computing capital gains, how will the 'full value of consideration' be determined for this transfer?
AThe price at which Ms. Priya originally acquired the shares under the ESOP.
BThe fair market value of the shares on the date of exercise of the option by Ms. Priya.
✓The market value of such securities on the date of transfer.
DNil, as it is a gift and gifts are generally not regarded as transfers.
💡 Table 8.3, 'Calculation of full value of consideration in special cases', specifies for 'Transfer of securities allotted under ESOPs as gift or under irrevocable trust', the 'Full value of consideration' is the 'Market value of such securities on the date of transfer'. Although gifts are generally excluded from transfer, ESOP shares transferred as gift are an exception and are considered a transfer.
Q20
MCQ · 1 mark
EasyExpenditure in connection with transfer
Mr. S sold shares of a listed company. While calculating the capital gains, which of the following expenses incurred by Mr. S is NOT allowed as a deduction?
ABrokerage paid for the sale of shares.
BLegal expenses directly related to the transfer of shares.
CStamp duty paid on the transfer.
✓Securities Transaction Tax (STT) paid on the sale of shares.
💡 Under point 2, 'Expenditure incurred in connection with transfer', the text states: 'Thus, the brokerage or commission, stamp duty, registration fee, travelling expenses and legal expenses, etc., incurred in connection with transfer are allowed to be deducted in computing capital gain. However, no deduction is allowed in respect of any sum paid on account of Securities Transaction Tax (STT), Commodities Transaction Tax (CTT) while calculating the capital gains from sale of securities.'
About this content: These practice questions are based on the
NISM-Series-X-B: Investment Adviser (Level 2) Certification Examination Workbook
published by the National Institute of Securities Markets (NISM), Mumbai.
NISM is a SEBI-established institution. Questions cover Concepts of Taxation with verified answers and explanations.
BullWiser is an independent exam preparation platform — not affiliated with NISM or SEBI.
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