📊 NISM Series X-BChapter 8 of 20⚖ 5 marks weightageCase-Based ✓
Ch.8: Capital Gains
Practice questions for NISM-Series-X-B: Investment Adviser (Level 2) Certification Examination
(mandated by SEBI under the Investment Advisers Regulations, 2013).
Chapter 8 carries 5 out of 150 marks
in the final examination. The exam has 90 MCQs + 9 case-based sets (5 sub-questions each, mixed 1-mark
and 2-mark weighting), 180-minute duration, 60% passing score, and 25% negative marking on the marks
of each wrong answer.
30
MCQ
1
Case Sets
35
Total Qs
5
Exam Marks
60%
Pass Score
−25%
Neg. Marking
What You Will Learn in This Chapter
Understand short-term versus long-term capital gains classification
Know the computation of capital gains and applicable exemptions
Understand indexation benefits and their impact on tax liability
Key Terms:short-term capital gainslong-term capital gainsindexationcost of acquisitionSection 54holding period
Multiple Choice Questions (30)
Q1MCQ · 1 markEasyIncome Classification
Under what head of income is profit from the sale of securities taxed if those securities are held as an investment by the assessee?
AIncome from Other Sources
BProfits and Gains from Business or Profession
✓Capital Gains
DSalary Income
💡 The text states, 'If securities are held as an investment, any profit arising from the sale of such securities is chargeable to tax under the head capital gains.'
Q2MCQ · 1 markMediumCapital Gains on Bonds
Mr. Q purchased 300 unlisted bonds of XYZ Ltd. at Rs. 900 each on April 15, 2020. He sold these bonds on September 10, 2024, at Rs. 1,100 each. What will be the nature of the capital gain arising from this transaction?
ALong-term capital gain, taxed at 12.5%
✓Short-term capital gain, taxed at normal slab rates
CLong-term capital gain, with indexation benefit
DShort-term capital gain, taxed at 20%
💡 The text states: 'Unlisted bonds or unlisted debentures or Market linked debentures... Irrespective of the period of holding, gains arising on transfer will be considered as short-term capital gains and will be taxed at applicable rates'. Since the bonds are unlisted, the capital gain will be classified as short-term capital gain, regardless of the holding period, and taxed at normal slab rates applicable to the assessee.
Q3MCQ · 1 markHardCapital Gains on Listed Bonds
Ms. R purchased 500 listed bonds of PQR Ltd. at Rs. 1,050 each on October 1, 2022. She sold all these bonds on July 15, 2024, at Rs. 1,300 each. There were no transfer expenses. Compute the Long-Term Capital Gain (LTCG) and the tax payable on it for Ms. R.
✓LTCG: ₹1,25,000; Tax: ₹15,625
BLTCG: ₹1,25,000; Tax: ₹25,000
CLTCG: ₹1,10,000; Tax: ₹13,750
DLTCG: ₹1,10,000; Tax: ₹22,000
💡 1. **Period of Holding:** From October 1, 2022, to July 15, 2024, which is 1 year, 9 months, and 15 days. Since this is greater than 12 months for listed bonds, it qualifies as a Long-Term Capital Gain (LTCG).
2. **Full Value of Consideration:** 500 bonds * Rs. 1,300/bond = Rs. 6,50,000.
3. **Cost of Acquisition:** 500 bonds * Rs. 1,050/bond = Rs. 5,25,000.
4. **Long-Term Capital Gain (LTCG):** Rs. 6,50,000 (Consideration) - Rs. 5,25,000 (Cost) = Rs. 1,25,000.
5. **Tax Rate:** For listed bonds or debentures, the LTCG is taxed at 12.5% without indexation benefit. (As per Table 10.1 in the text).
6. **Tax Payable:** Rs. 1,25,000 * 12.5% = Rs. 15,625.
Q4MCQ · 1 markMediumTaxation of Debt Products - Unlisted Bonds
Mr. D sold unlisted debentures that he had held for 3 years. Which of the following statements accurately describes the tax treatment of the gain arising from this sale, as per the provided text?
AThe gain will be treated as Long-Term Capital Gain and taxed at 12.5%.
✓The gain will be treated as Short-Term Capital Gain and taxed at normal slab rates applicable to Mr. D.
CThe gain will be treated as Long-Term Capital Gain and taxed at normal slab rates applicable to Mr. D after indexation benefit.
DThe gain will be treated as Short-Term Capital Gain and taxed at 20%.
💡 According to Table 10.1 and Example 3 in the text, for unlisted bonds or unlisted debentures, 'Irrespective of the period of holding, gains arising on transfer will be considered as short-term capital gains and will be taxed at applicable rates'. Therefore, even though Mr. D held the debentures for 3 years (which would typically qualify as long-term for other assets), the gain from unlisted debentures is always treated as Short-Term Capital Gain and taxed at normal slab rates applicable to the assessee.
Mr. C, a resident individual, purchased 500 unlisted bonds of PQR Ltd. at ₹900 each on May 15, 2023. The face value of each bond is ₹1,000. He sold these bonds on August 20, 2024, at ₹1,100 each. Assuming all conditions are met, what is the nature and amount of capital gain chargeable to tax in Mr. C's hands for the financial year 2024-25?
ALong-Term Capital Gain of ₹100,000, taxable at 12.5%.
✓Short-Term Capital Gain of ₹100,000, taxable at applicable normal rates.
CLong-Term Capital Gain of ₹50,000, taxable at 12.5%.
DShort-Term Capital Gain of ₹50,000, taxable at applicable normal rates.
💡 1. **Period of Holding**: Mr. C purchased the bonds on May 15, 2023, and sold them on August 20, 2024. The period of holding is more than 12 months (approximately 1 year and 3 months).
2. **Nature of Asset**: The bonds are 'unlisted bonds'.
3. **Tax Treatment for Unlisted Bonds**: As per Table 10.1 in the text, for unlisted bonds, 'Irrespective of the period of holding, gains arising on transfer will be considered as short-term capital gains and will be taxed at applicable rates'. Therefore, the gain is Short-Term Capital Gain (STCG).
4. **Computation of Capital Gain**:
* Full value of consideration = 500 bonds * ₹1,100/bond = ₹550,000
* Less: Cost of acquisition = 500 bonds * ₹900/bond = ₹450,000
* Capital Gain = ₹550,000 - ₹450,000 = ₹100,000
Thus, the capital gain is a Short-Term Capital Gain of ₹100,000, taxable at applicable normal rates.
Q6MCQ · 1 markMediumGift of Securities Taxation
Mr. B received shares of a company from a non-relative for an inadequate consideration during the financial year. The fair market value (FMV) of these shares was ₹1,80,000, and Mr. B paid ₹1,35,000 for them. What amount will be chargeable to tax in Mr. B's hands under the head 'income from other sources' for this transaction?
A₹1,80,000
✓₹0
C₹45,000
D₹1,35,000
💡 According to the text under '9.4 Gift of Securities', where shares and securities are received for inadequate consideration, the difference between the fair market value and consideration shall be chargeable to tax if the aggregate amount of difference between the fair market value of properties received during the year and consideration paid in respect thereof exceeds ₹50,000.
Calculation:
Fair Market Value (FMV) = ₹1,80,000
Consideration Paid = ₹1,35,000
Difference = FMV - Consideration Paid = ₹1,80,000 - ₹1,35,000 = ₹45,000.
Since the difference of ₹45,000 does not exceed ₹50,000, no tax shall be charged on this transaction.
Q7MCQ · 1 markEasyGift of Securities
As per the Income Tax Act provisions for 'Gift of Securities', which of the following scenarios would NOT lead to income being charged to tax in the hands of the recipient?
AShares received from a cousin without consideration, with a Fair Market Value (FMV) of ₹75,000.
BShares received from a nephew without consideration, with an FMV of ₹60,000.
✓Shares received from a sister-in-law without consideration, with an FMV of ₹80,000.
DShares received from a step-brother without consideration, with an FMV of ₹90,000.
💡 As per the text, income from gifts of shares and securities is not charged to tax if received from a 'specified relative'. The list of specified relatives includes 'Sister-in-law (and her husband)'. Cousins, nephews/nieces, and step-brothers/sisters are explicitly listed as 'not deemed as relatives' for this provision. Since the shares in option C are received from a specified relative (sister-in-law), no tax shall be charged, irrespective of the fair market value exceeding ₹50,000.
Q8MCQ · 1 markEasyGift of Securities
As per the Income Tax Act provisions regarding the gift of shares and securities, when is the aggregate amount of difference between the fair market value of properties received during the year and the consideration paid in respect thereof *not* chargeable to tax in the hands of the recipient?
AIf the aggregate difference exceeds Rs. 1,00,000.
✓If the aggregate difference does not exceed Rs. 50,000.
CIf the aggregate difference is exactly Rs. 75,000.
DIf the aggregate difference is received from a non-relative.
💡 The text states: 'However, no tax shall be charged if the aggregate amount of difference between the fair market value of properties received during the year and the amount of consideration paid in respect thereof, if any, does not exceed Rs. 50,000.'
Q9MCQ · 1 markMediumCapital Gains on Bonds
Mr. D, a resident individual, purchased 200 listed bonds of XYZ Ltd. at Rs. 1,500 each on July 1, 2018. The face value of each bond is Rs. 1,000. He sold all these bonds on January 15, 2025, for Rs. 2,200 each. Assuming no other expenditures, what will be the Long-Term Capital Gain (LTCG) chargeable to tax for Mr. D for the financial year 2024-25, and at what rate?
✓LTCG Rs. 1,40,000, taxed at 12.50%
BLTCG Rs. 1,40,000, taxed at normal slab rates
CLTCG Rs. 1,00,000, taxed at 12.50%
DSTCG Rs. 1,40,000, taxed at normal slab rates
💡 1. Period of Holding: From July 1, 2018, to January 15, 2025, which is more than 12 months. Since these are listed bonds, the gain qualifies as Long-Term Capital Gain (LTCG).
2. Full Value of Consideration: 200 bonds * Rs. 2,200 = Rs. 4,40,000
3. Cost of Acquisition: 200 bonds * Rs. 1,500 = Rs. 3,00,000
4. Long-Term Capital Gain = Full Value of Consideration - Cost of Acquisition = Rs. 4,40,000 - Rs. 3,00,000 = Rs. 1,40,000
5. Tax Rate: For listed bonds, LTCG is taxable at 12.50% without indexation benefit. (As per Module 9 special notes and text Table 10.1)
Q10MCQ · 1 markHardTaxation of Debt Products - Capital Gains
Ms. C purchased 200 unlisted bonds of PQR Ltd. at Rs. 1,500 each on April 1, 2020. The face value of each bond is Rs. 1,000. She sold all these bonds on July 31, 2024, at Rs. 2,500 each. Assuming Ms. C is a resident individual and the applicable tax rate for short-term capital gains for her is 30%, compute the capital gain chargeable to tax and the tax liability for the financial year 2024-25.
💡 1. **Computation of Capital Gain:**
Number of bonds = 200
Cost of acquisition per bond = Rs. 1,500
Total Cost of Acquisition = 200 bonds * Rs. 1,500/bond = Rs. 3,00,000
Selling price per bond = Rs. 2,500
Total Full Value of Consideration = 200 bonds * Rs. 2,500/bond = Rs. 5,00,000
Capital Gain = Full Value of Consideration - Cost of Acquisition
Capital Gain = Rs. 5,00,000 - Rs. 3,00,000 = Rs. 2,00,000
2. **Nature of Capital Gain:**
The bonds are 'unlisted bonds'. As per the text, 'Unlisted bonds or unlisted debentures or Market linked debentures... Irrespective of the period of holding, gains arising on transfer will be considered as short-term capital gains and will be taxed at applicable rates'. Therefore, even though Ms. C held the bonds for more than 12 months (April 1, 2020, to July 31, 2024, is over 4 years), the gain is treated as Short-Term Capital Gain (STCG).
3. **Tax Liability:**
STCG is taxable at normal slab rates applicable to the taxpayer. Given tax rate for STCG is 30%.
Tax Liability = Capital Gain * Applicable Tax Rate
Tax Liability = Rs. 2,00,000 * 30% = Rs. 60,000.
Q11MCQ · 1 markHardGift of Securities - Exemptions
Mr. P received a gift of shares worth Rs. 1,50,000 from his wife's grandfather on his 50th birthday. No consideration was paid for these shares. Under the provisions of the Income Tax Act regarding gifts of movable property, how will this gift be treated for tax purposes in Mr. P's hands?
AThe entire Rs. 1,50,000 will be taxable as income from other sources.
BOnly the amount exceeding Rs. 50,000, i.e., Rs. 1,00,000, will be taxable.
✓The gift will not be chargeable to tax as it is received from a specified relative.
DThe gift will not be chargeable to tax as it is received on the occasion of a birthday.
💡 The text lists 'Spouse’s Grandfather' as a specified relative. Gifts received from any specified relative are exempt from tax, irrespective of the amount or occasion. Therefore, the gift of shares from Mr. P's wife's grandfather will not be chargeable to tax.
Q12MCQ · 1 markEasyTaxability of Securities Income
Mr. S, a stockbroker, regularly buys and sells securities as part of his business operations. In the financial year 2024-25, he makes a profit from the sale of these securities. Under which head of income will this profit be chargeable to tax?
AIncome from Capital Gains
✓Profits and Gains from Business or Profession
CIncome from Other Sources
DIncome from Salary
💡 The text states: 'If securities are held as stock-in-trade, any profit arising from the sale of securities is chargeable to tax under the head profits and gains from business or profession.' Since Mr. S holds securities as stock-in-trade, his profits will be taxed under this head.
Q13MCQ · 1 markMediumTaxation of Debt Products - Interest Income
Mr. A, a resident in India, purchased 1,000 bonds of an Indian Company at ₹100 each on 01-01-2024. The bonds have a face value of ₹100 each, a coupon rate of 7.50% per annum, and mature on 31-12-2029. Interest is paid half-yearly on June 30 and Dec 31. If Mr. A follows the mercantile system of accounting, what is the amount of interest income chargeable to tax in his hands for the financial year 2024-25?
A₹3,750
B₹5,625
✓₹7,500
D₹9,375
💡 Under the mercantile system of accounting, interest income is taxable on an accrual basis. The financial year 2024-25 runs from April 1, 2024, to March 31, 2025.
Total face value of bonds = 1,000 bonds * ₹100/bond = ₹100,000.
Annual interest = ₹100,000 * 7.50% = ₹7,500.
Interest chargeable for FY 2024-25:
1. Interest for the period April 2024 to June 2024 (accrued in FY 2024-25, part of half-yearly payment on June 30, 2024): ₹100,000 * 7.50% * (3/12) = ₹1,875.
2. Interest for the period July 2024 to December 2024 (accrued and received in FY 2024-25 on December 31, 2024): ₹100,000 * 7.50% * (6/12) = ₹3,750.
3. Interest for the period January 2025 to March 2025 (accrued in FY 2024-25, to be received on June 30, 2025): ₹100,000 * 7.50% * (3/12) = ₹1,875.
Total interest income chargeable to tax for FY 2024-25 = ₹1,875 + ₹3,750 + ₹1,875 = ₹7,500. This calculation aligns with Example 1 in the provided text.
Q14MCQ · 1 markEasyGift of Securities Exemption
Which of the following relationships is NOT considered a 'specified relative' for the purpose of exemption from tax on gifted shares and securities under the Income Tax Act, as per the provided text?
AFather's Brother (Chacha – Tau)
BMother-In-Law
✓Nephew
DGrandfather
💡 The text under '9.4.3 Cases when income is not chargeable to tax' specifies a list of persons treated as 'relative'. It explicitly states, 'The following persons are not deemed as ‘relatives’ for this provision: a) Step-brother/sister b) Nephew/Niece c) Cousins'. Therefore, Nephew is not considered a specified relative.
Q15MCQ · 1 markMediumInterest Income from Bonds
Mr. C, a resident in India, purchased 500 listed bonds of an Indian Company at Rs. 100 each on October 1, 2023. The face value of each bond is Rs. 100, and the coupon rate is 8% per annum. Interest is paid half-yearly on March 31 and September 30 every year. If Mr. C follows the mercantile system of accounting, what amount of interest income will be chargeable to tax in his hands for the financial year 2024-25?
ARs. 2,000
✓Rs. 4,000
CRs. 6,000
DRs. 8,000
💡 Under the mercantile system, income is taxed on an accrual basis.
Total Face Value of Bonds = 500 bonds * Rs. 100 = Rs. 50,000
Annual Interest = Rs. 50,000 * 8% = Rs. 4,000
Half-yearly Interest = Rs. 4,000 / 2 = Rs. 2,000
For FY 2024-25 (April 1, 2024, to March 31, 2025):
1. Interest accrued for April 1, 2024, to September 30, 2024 (received on Sep 30, 2024) = Rs. 2,000
2. Interest accrued for October 1, 2024, to March 31, 2025 (received on Mar 31, 2025) = Rs. 2,000
Total interest chargeable to tax for FY 2024-25 = Rs. 2,000 + Rs. 2,000 = Rs. 4,000.
Q16MCQ · 1 markMediumCapital Gains on Debt Products
According to the NISM guidelines provided, what is the correct tax treatment for gains arising from the transfer of unlisted bonds or market-linked debentures?
AThey are always treated as long-term capital gains and taxed at a concessional rate of 12.5% without indexation.
BThey are treated as long-term capital gains if held for more than 12 months, otherwise short-term capital gains.
✓They are always treated as short-term capital gains, irrespective of the period of holding, and taxed at applicable normal rates.
DThey are exempt from capital gains tax if held for more than 36 months.
💡 Table 10.1 in the provided text, under 'Holding period of Coupon Bonds and tax rates thereon', states for 'Unlisted bonds or unlisted debentures or Market linked debentures': 'Not applicable. Irrespective of the period of holding, gains arising on transfer will be considered as short-term capital gains and will be taxed at applicable rates'.
Q17MCQ · 1 markEasyTaxability of Income
If an individual holds securities as an investment rather than stock-in-trade, under which head of income is any profit arising from the sale of such securities primarily chargeable to tax?
AProfits and gains from business or profession
BIncome from other sources
✓Capital gains
DSalary income
💡 The text states: 'If securities are held as an investment, any profit arising from the sale of such securities is chargeable to tax under the head capital gains.'
Q18MCQ · 1 markMediumForeign Currency Conversion
For income from securities earned in foreign currency that is taxable in India, what is the general rule for converting it into Indian Rupees?
AIt shall be converted at the exchange rate prevailing on the date the income is received.
BIt shall be converted at the RBI reference rate on the last day of the financial year.
✓It shall be converted at the SBI telegraphic transfer buying rate that existed on the last day of the month immediately preceding the month in which income is due.
DIt shall be converted at the average exchange rate for the quarter in which the income accrued.
💡 The text states: 'If any income from securities, earned in foreign currency, is taxable in India it shall be converted into Indian Rupees at SBI telegraphic transfer buying rate that existed on the last day of the month immediately preceding the month in which income is due.' It also mentions an exception for TDS, but the question asks for the general rule.
Q19MCQ · 1 markEasyGift of Securities
As per the provisions for 'Gift of Securities', under what condition is tax NOT charged on movable property (including shares and securities) received for inadequate consideration?
AIf the fair market value of the property is less than ₹50,000.
BIf the consideration paid exceeds the fair market value by ₹50,000.
✓If the aggregate amount of difference between the fair market value and the consideration paid during the year does not exceed ₹50,000.
DIf the property is received from a non-relative and the difference is exactly ₹50,000.
💡 The text states: 'However, no tax shall be charged if the aggregate amount of difference between the fair market value of properties received during the year and the amount of consideration paid in respect thereof, if any, does not exceed Rs. 50,000.'
Q20MCQ · 1 markEasyGift of Securities
Ms. Priya received shares worth ₹75,000 as a gift from her maternal uncle's son (cousin) during the financial year. Assuming no other gifts were received, how will this gift be treated for tax purposes in Ms. Priya's hands?
AThe entire amount of ₹75,000 will be exempt from tax as it is a gift from a relative.
BThe amount of ₹25,000 (₹75,000 - ₹50,000) will be taxable as income from other sources.
✓The entire amount of ₹75,000 will be taxable as income from other sources.
DThe gift will be taxed as short-term capital gains at applicable slab rates.
💡 As per the text, 'Cousins' are not deemed as 'relatives' for the purpose of gift tax exemption. Since the aggregate fair market value of shares received without consideration (₹75,000) exceeds the threshold of ₹50,000, the whole of the aggregate fair market value of such properties received during the year shall be chargeable to tax as income from other sources.
Q21MCQ · 1 markEasyTaxability of Income
If securities are held by an assessee as an investment, any profit arising from their sale is chargeable to tax under which head of income?
AProfits and gains from business or profession
BIncome from other sources
✓Capital gains
DIncome from house property
💡 The text states: 'If securities are held as an investment, any profit arising from the sale of such securities is chargeable to tax under the head capital gains.'
Q22MCQ · 1 markEasyTaxability of Securities
When securities are held by an assessee as an investment, any profit arising from their sale is chargeable to tax under which head?
AProfits and gains from business or profession
BIncome from other sources
✓Capital gains
DSalaries
💡 The text states: 'If securities are held as an investment, any profit arising from the sale of such securities is chargeable to tax under the head capital gains.'
Q23MCQ · 1 markMediumInterest Income from Debt Products
Mr. P purchased 1,500 bonds of an Indian Company at Rs. 100 each on January 1, 2024. The bonds have a face value of Rs. 100 each and a coupon rate of 8% per annum. Interest is paid half-yearly on June 30 and December 31 every year. If Mr. P follows the mercantile system of accounting, what is the amount of interest income chargeable to tax for the financial year 2024-25?
A₹6,000
B₹9,000
✓₹12,000
D₹15,000
💡 Under the mercantile system, income is recognized on an accrual basis.
Total Face Value = 1,500 bonds * Rs. 100/bond = Rs. 1,50,000
Annual Interest = Rs. 1,50,000 * 8% = Rs. 12,000
Half-yearly Interest = Rs. 12,000 / 2 = Rs. 6,000
Quarterly Interest = Rs. 12,000 / 4 = Rs. 3,000
Financial Year 2024-25 spans from April 1, 2024, to March 31, 2025.
1. Interest accrued for April 2024 to June 2024 (part of the June 30, 2024 payment which covers Jan-Jun 2024): (Rs. 6,000 / 6 months) * 3 months = Rs. 3,000.
2. Interest accrued for July 2024 to December 2024 (full half-yearly period ending Dec 31, 2024): Rs. 6,000.
3. Interest accrued for January 2025 to March 2025 (part of the June 30, 2025 payment which covers Jan-Jun 2025): (Rs. 6,000 / 6 months) * 3 months = Rs. 3,000.
Total interest chargeable to tax for FY 2024-25 = Rs. 3,000 (Apr-Jun) + Rs. 6,000 (Jul-Dec) + Rs. 3,000 (Jan-Mar) = Rs. 12,000.
Q24MCQ · 1 markHardTaxation of Debt Products - Listed Bonds
Mr. C, a resident in India and following the mercantile system of accounting, purchased 500 listed bonds of XYZ Ltd. at ₹1,100 each on October 1, 2018. The face value of each bond is ₹1,000, carrying a coupon rate of 8% per annum. Interest is paid half-yearly on March 31 and September 30. Mr. C sold all these bonds on August 15, 2024, for ₹1,500 each. Compute the amount of interest income and capital gain chargeable to tax in Mr. C's hands for the financial year 2024-25.
AInterest: ₹20,000; Capital Gain: ₹2,00,000
BInterest: ₹16,667; Capital Gain: ₹2,00,000
CInterest: ₹20,000; Capital Gain: ₹2,00,000 taxed at 12.5%
✓Interest: ₹16,667; Capital Gain: ₹2,00,000 taxed at 12.5%
💡 1. **Computation of Interest Income for FY 2024-25 (Mercantile System):**
* Total annual interest = 500 bonds * ₹1,000 (face value) * 8% = ₹40,000.
* Monthly interest = ₹40,000 / 12 = ₹3,333.33.
* Mr. C follows the mercantile system, so interest is taxable on an accrual basis. The financial year 2024-25 is from April 1, 2024, to March 31, 2025. Mr. C sold the bonds on August 15, 2024. Therefore, interest accrued from April 1, 2024, to August 15, 2024, is taxable.
* This period is 4 full months (April, May, June, July) and 15 days of August. For MCQ purposes, this is often approximated to 5 full months.
* Accrued interest (approx. 5 months) = ₹3,333.33 * 5 = ₹16,666.67.
2. **Computation of Capital Gain for FY 2024-25:**
* **Period of Holding:** From October 1, 2018, to August 15, 2024. This period is 5 years, 10 months, and 15 days, which is greater than 12 months. As the bonds are listed, the gain is classified as Long-Term Capital Gain (LTCG).
* **Full Value of Consideration:** 500 bonds * ₹1,500 (sale price per bond) = ₹7,50,000.
* **Cost of Acquisition:** 500 bonds * ₹1,100 (purchase price per bond) = ₹5,50,000.
* **Long-term Capital Gain:** ₹7,50,000 - ₹5,50,000 = ₹2,00,000.
* **Tax Rate:** As per Table 10.1 and Example 2 in the text, LTCG from listed bonds is taxable at a concessional rate of 12.5% (without indexation benefit).
Therefore, Interest: ₹16,667; Capital Gain: ₹2,00,000 taxed at 12.5%.
Q25MCQ · 1 markMediumTaxation of Debt Products - Interest Income
Mr. B, an Indian resident, purchased 500 listed bonds of XYZ Ltd. at Rs. 100 each on October 1, 2023. The bonds have a face value of Rs. 100 each and a coupon rate of 8% per annum. Interest is paid half-yearly on March 31 and September 30 every year. If Mr. B follows the mercantile system of accounting, what amount of interest income will be chargeable to tax in his hands for the financial year 2024-25?
ARs. 2,000
✓Rs. 4,000
CRs. 6,000
DRs. 8,000
💡 Number of bonds = 500
Face Value per bond = Rs. 100
Total Face Value = 500 * Rs. 100 = Rs. 50,000
Coupon Rate = 8% per annum
Annual Interest = Rs. 50,000 * 8% = Rs. 4,000
Mr. B follows the mercantile system, so interest is taxable on an accrual basis.
Financial Year 2024-25 covers April 1, 2024, to March 31, 2025.
1. Interest accrued for April 1, 2024 to September 30, 2024 (6 months) = (Rs. 50,000 * 8% * 6/12) = Rs. 2,000. This accrues and is received within FY 2024-25.
2. Interest accrued for October 1, 2024 to March 31, 2025 (6 months) = (Rs. 50,000 * 8% * 6/12) = Rs. 2,000. This accrues and is received within FY 2024-25.
Total interest chargeable to tax for FY 2024-25 = Rs. 2,000 (for April-Sep 2024) + Rs. 2,000 (for Oct 2024-Mar 2025) = Rs. 4,000.
Q26MCQ · 1 markEasyGift of Securities
As per the Income Tax Act, if an individual receives shares and securities from a non-relative for inadequate consideration, the difference between the fair market value and the consideration paid is chargeable to tax as income from other sources. What is the aggregate threshold for this difference to become taxable in a financial year?
ARs. 25,000
✓Rs. 50,000
CRs. 1,00,000
DNo threshold; any difference is taxable.
💡 The text states: 'However, no tax shall be charged if the aggregate amount of difference between the fair market value of properties received during the year and the amount of consideration paid in respect thereof, if any, does not exceed Rs. 50,000.' This means if the aggregate difference exceeds Rs. 50,000, it becomes taxable.
Q27MCQ · 1 markMediumGift of Securities - Relative Definition
According to the Income Tax provisions for the gift of securities, which of the following persons is *not* treated as a 'relative' for the purpose of exemption from tax on gifts?
AFather's Brother (Chacha – Tau)
BMother's Sister (Mausi)
✓Step-brother
DGrandfather
💡 The text explicitly lists 'Step-brother/sister' under 'The following persons are not deemed as ‘relatives’ for this provision'. Options A, B, and D are listed as specified relatives.
Q28MCQ · 1 markEasyCapital Gains - FPIs
How are securities held by Foreign Portfolio Investors (FPIs) always treated for the purpose of income tax in India?
AAs stock-in-trade, with profits taxed under 'profits and gains from business or profession'.
✓As capital assets, with profits taxed under the head 'capital gains'.
CAs income from other sources, regardless of the holding period.
DAs a hybrid of capital assets and stock-in-trade, depending on the volume of transactions.
💡 The text explicitly states: 'Securities held by the foreign portfolio investors (FPIs) are always treated as a capital asset. Therefore, income arising from transfer or redemption of securities by FPIs shall always be taxed under the head capital gain.'
Q29MCQ · 1 markHardCapital Gains on Bonds
Ms. Rina, a resident individual, undertook the following transactions during the financial year 2024-25:
1. Purchased 200 listed bonds of XYZ Ltd. at ₹1,100 each on January 1, 2023, and sold them on October 31, 2024, at ₹1,500 each.
2. Purchased 100 unlisted debentures of PQR Ltd. at ₹800 each on June 1, 2023, and sold them on November 30, 2024, at ₹1,200 each.
Assuming Ms. Rina's applicable slab rate for short-term capital gains is 20% and ignoring any other expenses, what is the total capital gain and the applicable tax rates for these transactions?
✓Listed Bonds: LTCG of ₹80,000 taxed at 12.5%. Unlisted Debentures: STCG of ₹40,000 taxed at 20%.
BListed Bonds: STCG of ₹80,000 taxed at 20%. Unlisted Debentures: LTCG of ₹40,000 taxed at 12.5%.
CListed Bonds: LTCG of ₹80,000 taxed at 20%. Unlisted Debentures: STCG of ₹40,000 taxed at 12.5%.
DListed Bonds: STCG of ₹80,000 taxed at 12.5%. Unlisted Debentures: STCG of ₹40,000 taxed at 20%.
💡 1. **Listed Bonds of XYZ Ltd.:**
- Period of holding: January 1, 2023, to October 31, 2024 = 22 months.
- Since the holding period is more than 12 months, it's a Long-Term Capital Gain (LTCG).
- Full value of consideration = 200 bonds * ₹1,500 = ₹3,00,000
- Cost of acquisition = 200 bonds * ₹1,100 = ₹2,20,000
- LTCG = ₹3,00,000 - ₹2,20,000 = ₹80,000
- As per the text, LTCG from listed bonds is taxed at 12.5% (without indexation benefit).
2. **Unlisted Debentures of PQR Ltd.:**
- Period of holding: June 1, 2023, to November 30, 2024 = 18 months.
- As per the text, 'Unlisted bonds or unlisted debentures... Irrespective of the period of holding, gains arising on transfer will be considered as short-term capital gains and will be taxed at applicable rates'.
- Full value of consideration = 100 debentures * ₹1,200 = ₹1,20,000
- Cost of acquisition = 100 debentures * ₹800 = ₹80,000
- STCG = ₹1,20,000 - ₹80,000 = ₹40,000
- This STCG will be taxed at Ms. Rina's applicable slab rate, which is given as 20%.
Therefore, the correct option is A: Listed Bonds: LTCG of ₹80,000 taxed at 12.5%. Unlisted Debentures: STCG of ₹40,000 taxed at 20%.
Q30MCQ · 1 markMediumInterest Income from Debt Products
Mr. Sunder, a resident individual, purchased 500 listed bonds of an Indian Company at ₹150 each on April 1, 2024. The bonds have a face value of ₹100 each and carry a coupon rate of 8% per annum, paid half-yearly on September 30 and March 31. Mr. Sunder follows the mercantile system of accounting. What is the amount of interest income chargeable to tax in his hands for the financial year 2024-25?
A₹2,000
✓₹4,000
C₹6,000
D₹8,000
💡 Mr. Sunder follows the mercantile (accrual) system of accounting. The financial year 2024-25 runs from April 1, 2024, to March 31, 2025.
Total face value of bonds = 500 bonds * ₹100/bond = ₹50,000
Annual interest = ₹50,000 * 8% = ₹4,000
Half-yearly interest = ₹4,000 / 2 = ₹2,000
Interest for the period April 1, 2024 to September 30, 2024 (accrued and received on Sep 30, 2024) = ₹2,000
Interest for the period October 1, 2024 to March 31, 2025 (accrued and received on Mar 31, 2025) = ₹2,000
Total interest income chargeable to tax for FY 2024-25 (accrual basis) = ₹2,000 + ₹2,000 = ₹4,000.
Case-Based Questions (1 sets)
Case 1Case-Based · 1 mark eachCapital Gains and Gift of Securities Taxation
Mr. Rajesh Sharma, a 45-year-old resident individual, is reviewing his investment portfolio for the Financial Year 2024-25. He is an astute investor who maintains a diverse portfolio of debt instruments. He follows the mercantile system of accounting. His taxable income, excluding capital gains, falls into the 30% tax bracket. For the purpose of this examination, assume STCG on debt instruments is taxed at a flat rate of 20% as per Budget 2024 provisions for certain non-equity assets.
His transactions for FY 2024-25 include:
1. **Listed Government Bond:** On April 1, 2018, Rajesh purchased 500 units of 7.5% Government of India Listed Bonds, with a face value of ₹1,000 each, for ₹980 per bond. These bonds pay interest annually on March 31. On October 15, 2024, he sold all these bonds at ₹1,150 per bond.
2. **Unlisted Corporate Debenture:** On July 1, 2023, he invested in 200 units of 'Alpha Corp' Unlisted Debentures, face value ₹1,000 each, at ₹1,050 per debenture. These debentures do not pay periodic interest but are redeemable at a premium. On February 20, 2025, he sold these debentures for ₹1,180 per debenture.
3. **Market-Linked Debenture (MLD):** On June 1, 2024, Rajesh purchased 100 units of 'Innovate MLD' at ₹2,500 per unit. These MLDs are listed on a recognized stock exchange. He sold them on January 10, 2025, for ₹2,700 per unit.
4. **Gift of Unlisted Shares:** On August 1, 2024, Rajesh acquired 1,000 unlisted shares of 'Beta Solutions Pvt. Ltd.' from his close friend, Mr. Amit, for a consideration of ₹50 per share. The Fair Market Value (FMV) of these shares on the date of acquisition was ₹120 per share as per Rule 11UA.
Easy Sub-question 1
Compute the interest income chargeable to tax for Mr. Rajesh Sharma from the Government of India Listed Bonds for the Financial Year 2024-25.
A₹18,750
✓₹21,370
C₹37,500
D₹1,541
💡 Mr. Rajesh Sharma follows the mercantile system of accounting, so interest is taxable on an accrual basis for the period he held the bonds in the financial year.
Annual interest from Government Bonds = Number of bonds × Face Value × Coupon Rate
= 500 bonds × ₹1,000/bond × 7.5% = ₹37,500
Period of holding in FY 2024-25 = April 1, 2024, to October 15, 2024.
Number of days in this period:
April: 30 days
May: 31 days
June: 30 days
July: 31 days
August: 31 days
September: 30 days
October: 15 days
Total days = 208 days
Interest income chargeable to tax = Annual Interest × (Days held / 365)
= ₹37,500 × (208 / 365) = ₹21,369.86
Rounding off to the nearest rupee, the interest income chargeable to tax is ₹21,370.
Easy Sub-question 2
Determine the nature of capital gain (Short-Term Capital Gain or Long-Term Capital Gain) for the sale of the Government of India Listed Bonds and the 'Alpha Corp' Unlisted Debentures.
AGoI Bonds: LTCG, Alpha Corp Debentures: LTCG
BGoI Bonds: STCG, Alpha Corp Debentures: STCG
✓GoI Bonds: LTCG, Alpha Corp Debentures: STCG
DGoI Bonds: STCG, Alpha Corp Debentures: LTCG
💡 1. **Government of India Listed Bonds:**
* Date of acquisition: April 1, 2018
* Date of sale: October 15, 2024
* Period of holding = 6 years and 6 months (more than 12 months).
* For listed bonds, if the holding period exceeds 12 months, the gain is classified as Long-Term Capital Gain (LTCG).
2. **'Alpha Corp' Unlisted Debentures:**
* Date of acquisition: July 1, 2023
* Date of sale: February 20, 2025
* Period of holding = 1 year and 7 months (more than 12 months).
* However, as per the Income Tax Act, capital gains arising from unlisted bonds or debentures are always taxed as Short-Term Capital Gains (STCG) irrespective of the period of holding.
Therefore, GoI Bonds result in LTCG, and Alpha Corp Debentures result in STCG.
Hard Sub-question 3
Determine the income chargeable to tax in the hands of Mr. Rajesh Sharma due to the acquisition of 'Beta Solutions Pvt. Ltd.' unlisted shares and the head of income under which it will be taxed.
A₹50,000 under Capital Gains
✓₹70,000 under Income from Other Sources
C₹1,20,000 under Income from Other Sources
DNo income chargeable to tax as it is a gift.
💡 1. **Fair Market Value (FMV) of shares received:**
* Number of shares = 1,000
* FMV per share = ₹120
* Total FMV = 1,000 × ₹120 = ₹1,20,000
2. **Consideration paid for shares:**
* Number of shares = 1,000
* Consideration per share = ₹50
* Total Consideration = 1,000 × ₹50 = ₹50,000
3. **Difference between FMV and Consideration:**
* Difference = Total FMV - Total Consideration
= ₹1,20,000 - ₹50,000 = ₹70,000
4. **Taxability under 'Income from Other Sources':**
* As per the provisions for 'Gift of Securities' (Section 9.4 in the chapter text), if movable property (shares and securities) is received for inadequate consideration, the difference between the FMV and consideration is chargeable to tax if this difference exceeds ₹50,000.
* In this case, the difference of ₹70,000 exceeds the threshold of ₹50,000.
* Mr. Amit (a close friend) is not a 'specified relative' as per the definition provided in the chapter text, so the exemption for gifts from relatives does not apply.
* Therefore, the entire difference of ₹70,000 is chargeable to tax under the head 'Income from Other Sources'.
Medium Sub-question 4
Calculate the Long-Term Capital Gain (LTCG) arising from the sale of the Government of India Listed Bonds and the tax payable on this gain.
✓LTCG: ₹85,000; Tax: ₹10,625
BLTCG: ₹85,000; Tax: ₹17,000
CLTCG: ₹1,75,000; Tax: ₹21,875
DLTCG: ₹1,75,000; Tax: ₹35,000
💡 1. **Computation of Long-Term Capital Gain (LTCG) for GoI Listed Bonds:**
* Full Value of Consideration = Number of bonds × Sale Price per bond
= 500 bonds × ₹1,150 = ₹5,75,000
* Cost of Acquisition = Number of bonds × Purchase Price per bond
= 500 bonds × ₹980 = ₹4,90,000
* Long-Term Capital Gain (LTCG) = Full Value of Consideration - Cost of Acquisition
= ₹5,75,000 - ₹4,90,000 = ₹85,000
2. **Tax on LTCG:**
* For listed bonds, LTCG is taxable at a rate of 12.5% without indexation benefit (as per the provided chapter text and Budget 2024 context).
* Tax Payable = LTCG × Tax Rate
= ₹85,000 × 12.5% = ₹10,625
Medium Sub-question 5
Calculate the total Short-Term Capital Gain (STCG) arising from the sale of 'Alpha Corp' Unlisted Debentures and 'Innovate MLDs' and the total tax payable on this gain. Assume STCG on these debentures is taxed at 20%.
✓Total STCG: ₹46,000; Tax: ₹9,200
BTotal STCG: ₹46,000; Tax: ₹13,800
CTotal STCG: ₹26,000; Tax: ₹5,200
DTotal STCG: ₹20,000; Tax: ₹4,000
💡 1. **Computation of STCG for 'Alpha Corp' Unlisted Debentures:**
* Full Value of Consideration = 200 debentures × ₹1,180 = ₹2,36,000
* Cost of Acquisition = 200 debentures × ₹1,050 = ₹2,10,000
* STCG = ₹2,36,000 - ₹2,10,000 = ₹26,000
* (Note: Unlisted debentures are always treated as STCG, irrespective of holding period).
2. **Computation of STCG for 'Innovate MLDs':**
* Full Value of Consideration = 100 units × ₹2,700 = ₹2,70,000
* Cost of Acquisition = 100 units × ₹2,500 = ₹2,50,000
* STCG = ₹2,70,000 - ₹2,50,000 = ₹20,000
* (Note: Market-Linked Debentures (MLDs) are always treated as STCG, irrespective of holding period, as per the provided chapter text).
3. **Total STCG = STCG (Alpha Corp) + STCG (Innovate MLDs)**
= ₹26,000 + ₹20,000 = ₹46,000
4. **Tax on Total STCG:**
* As per Budget 2024 provisions for certain non-equity assets and the problem statement, STCG on these debentures is taxed at a flat rate of 20%.
* Tax Payable = Total STCG × Tax Rate
= ₹46,000 × 20% = ₹9,200
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 Capital Gains with verified answers and explanations.
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