NISM Series X-B Chapter 9: Income from Other Sources Practice Questions

Question 1

Mr. P purchased 500 unlisted equity shares of XYZ Ltd. on 01-01-2023 for ₹200 each. He sold all these shares on 01-10-2024 for ₹250 each. What will be the nature of capital gain and its tax treatment for Mr. P?

Accepted Answer

Short-term capital gain of ₹25,000, taxable at normal slab rates.. 1.  **Holding Period:** Mr. P held the shares from 01-01-2023 to 01-10-2024, which is 21 months. 
2.  **Nature of Asset:** For unlisted equity shares, if held for not more than 24 months, they are treated as a short-term capital asset. 
3.  **Nature of Gain:** Therefore, the gain is a Short-term Capital Gain. 
4.  **Capital Gain Calculation:** 
    Full Value of Consideration = 500 shares * ₹250/share = ₹1,25,000 
    Cost of Acquisition = 500 shares * ₹200/share = ₹1,00,000 
    Capital Gain = ₹1,25,000 - ₹1,00,000 = ₹25,000 
5.  **Tax Rate:** As per the text, 'Short-term capital gain arising from the transfer of unlisted shares shall be taxable at the normal rate as applicable in case of an assessee.'

Question 2

Mr. S was allotted 50,000 listed share warrants of XYZ Ltd. on 15-01-2023, each with a strike price of Rs. 150. He paid the upfront 25% subscription on the same date. On 20-02-2024, Mr. S exercised his warrants and paid the remaining consideration. On the date of allotment of 50,000 equity shares, the fair market value (FMV) of the share was Rs. 200. Compute the amount of long-term capital gain chargeable to tax in the hands of Mr. S from this conversion.

Accepted Answer

Rs. 25,00,000. 1.  **Holding Period:** Warrants allotted on 15-01-2023 and converted on 20-02-2024. This period is more than 12 months, classifying the gain as long-term capital gain.
2.  **Full Value of Consideration:** As per Section 50D, the full value of consideration is the Fair Market Value (FMV) of shares on the date of conversion. FMV = 50,000 shares * Rs. 200/share = Rs. 1,00,00,000.
3.  **Cost of Acquisition:** This is the strike price of share warrants = 50,000 warrants * Rs. 150/warrant = Rs. 75,00,000.
4.  **Long-term Capital Gain:** Full Value of Consideration - Cost of Acquisition = Rs. 1,00,00,000 - Rs. 75,00,000 = Rs. 25,00,000

Question 3

What is the compulsory lock-in period for Equity Linked Saving Scheme (ELSS) funds, as mentioned in the text?

Accepted Answer

3 years. As per Section 11.6, 'ELSS funds... have a compulsory lock-in period of 3 years, which is the shortest amongst all tax-saving instruments.'

Question 4

For unlisted equity shares to be treated as a long-term capital asset, what is the minimum holding period immediately preceding the date of transfer?

Accepted Answer

More than 24 months. As per the text, 'Unlisted shares of a company are treated as short-term capital asset if they are held for not more than 24 months immediately preceding the date of transfer; whereas, if the shares are held for more than 24 months then long-term capital gain arises.'

Question 5

Ms. R (resident in India) acquired 1,000 listed preference shares of PQR Ltd. at ₹110 each on 01-01-2024. She transferred these shares on 01-10-2024 at ₹130 per share. Compute the amount of capital gain chargeable to tax and its nature.

Accepted Answer

₹20,000 as Short-term capital gain, taxable at applicable rates.. 1.  **Holding Period:** Ms. R held the shares from 01-01-2024 to 01-10-2024, which is 9 months. 
2.  **Nature of Asset:** For listed preference shares, a holding period of more than 12 months is required for long-term capital gain. Since the shares were held for less than 12 months, the gain is a Short-term Capital Gain. 
3.  **Capital Gain Calculation:** 
    Full Value of Consideration [A] = 1,000 shares * ₹130/share = ₹1,30,000 
    Cost of Acquisition [B] = 1,000 shares * ₹110/share = ₹1,10,000 
    Capital Gain [A-B] = ₹1,30,000 - ₹1,10,000 = ₹20,000 
4.  **Tax Rate:** Short-term capital gains from listed preference shares are taxable at applicable rates

Question 6

According to the Income Tax Act provisions discussed, what is the minimum holding period for unlisted equity shares to be classified as a long-term capital asset?

Accepted Answer

More than 24 months. The text states: 'Unlisted shares of a company are treated as short-term capital asset if they are held for not more than 24 months immediately preceding the date of transfer; whereas, if the shares are held for more than 24 months then long-term capital gain arises.'

Question 7

Mr. P purchased 500 unlisted equity shares on 15th January 2023 and sold them on 10th December 2023. How will the capital gains from this sale be taxed in his hands?

Accepted Answer

As short-term capital gains taxable at normal slab rates applicable to Mr. P.. The holding period is from 15th January 2023 to 10th December 2023, which is less than 24 months. Therefore, the gain is short-term capital gain. For unlisted shares, the text states: 'Short-term capital gain arising from the transfer of unlisted shares shall be taxable at the normal rate as applicable in case of an assessee.'

Question 8

In the context of share warrants, what is the tax treatment for a loss arising from the forfeiture of premium paid for share warrants, if the warrant holder does not exercise the option to take equity shares?

Accepted Answer

It is ignored for the calculation of taxable income and has no tax treatment.. As per the section 'Forfeiture of premium paid for share warrants' under 11.5.2, 'The loss arising from such forfeiture of the premium will have no tax treatment and it will be ignored for calculation of taxable income.'

Question 9

Mr. Y received 50,000 listed share warrants of MNO Ltd. on 15-01-2023, with a strike price of ₹150 per warrant. On 15-03-2024, Mr. Y exercised the warrants and paid the remaining consideration, and was allotted 50,000 equity shares. The fair market value of MNO Ltd. shares on the date of allotment (15-03-2024) was ₹200 per share. Compute the capital gain and its tax rate for Mr. Y on this conversion.

Accepted Answer

Long-term capital gain of ₹25,00,000, taxable at 12.50%.. 1.  **Period of Holding:** Warrants were received on 15-01-2023 and converted on 15-03-2024. This period is 14 months, which is more than 12 months. For listed share warrants, if conversion is done after 12 months, the resultant capital gain is treated as Long-term Capital Gain. 
2.  **Full Value of Consideration:** As per Section 50D, the full value of consideration on conversion is the fair market value (FMV) of shares on the date of conversion. 
    FMV = 50,000 shares * ₹200/share = ₹1,00,00,000. 
3.  **Cost of Acquisition:** The cost of acquisition is the strike price of the share warrants. 
    Cost = 50,000 warrants * ₹150/warrant = ₹75,00,000. 
4.  **Capital Gain:** 
    Long-term Capital Gain = Full Value of Consideration - Cost of Acquisition 
    Long-term Capital Gain = ₹1,00,00,000 - ₹75,00,000 = ₹25,00,000. 
5.  **Tax Rate:** Long-term capital gains from listed share warrants on conversion are taxable at 12.50%

Question 10

Mr. Y subscribed to share warrants but failed to exercise his option to take equity shares within the stipulated time, leading to the forfeiture of the consideration paid for the warrants by the issuer. What is the tax treatment for the loss arising from this forfeiture?

Accepted Answer

The loss is ignored for the calculation of taxable income and has no tax treatment.. The text explicitly states: 'The loss arising from such forfeiture of the premium will have no tax treatment and it will be ignored for calculation of taxable income.'

Question 11

Mr. Z was allotted 50,000 listed share warrants of PQR Ltd. at a strike price of Rs. 150 each on 01-02-2023. He paid the initial 25% upfront. On 01-03-2025, he exercised the warrants, paid the remaining consideration, and received 50,000 equity shares. The fair market value of the shares on the date of allotment was Rs. 200 per share. Compute the Long-Term Capital Gain (LTCG) arising from the conversion of share warrants into shares.

Accepted Answer

Rs. 25,00,000. 1. Period of Holding: Warrants allotted on 01-02-2023, converted on 01-03-2025. This period (25 months) is more than 12 months, so the resultant gain is a Long-Term Capital Gain (LTCG).
2. Full Value of Consideration (FMV of shares on conversion date): 50,000 shares * Rs. 200 = Rs. 1,00,00,000
3. Cost of Acquisition (Strike Price of Share Warrants): 50,000 warrants * Rs. 150 = Rs. 75,00,000
4. Long-Term Capital Gain: Rs. 1,00,00,000 - Rs. 75,00,000 = Rs. 25,00,000
(As per Section 11.5.1, the full value of consideration is the fair market value of shares on the date of conversion of warrants into shares, and the cost of acquisition is the strike price of the share warrant.)

Question 12

Mr. A purchased 1,000 unlisted equity shares of XYZ Ltd. at Rs. 120 each on 01-01-2024. He sold all these shares on 01-11-2024 at Rs. 135 per share. Assuming these are his only capital gains and he falls under the normal slab rate for short-term capital gains, what is the amount of capital gain chargeable to tax?

Accepted Answer

Rs. 15,000. 1. Period of Holding: 01-01-2024 to 01-11-2024 is 10 months. Since it's less than 24 months for unlisted shares, it's a Short-Term Capital Gain (STCG).
2. Full Value of Consideration: 1,000 shares * Rs. 135 = Rs. 1,35,000
3. Cost of Acquisition: 1,000 shares * Rs. 120 = Rs. 1,20,000
4. Capital Gain: Rs. 1,35,000 - Rs. 1,20,000 = Rs. 15,000
As per Section 11.3.3, short-term capital gain from unlisted shares is taxable at the normal rate. The amount of capital gain chargeable to tax is Rs. 15,000

Question 13

Which of the following mutual fund tools allows an investor to transfer a fixed amount of money from one scheme to another scheme, provided both schemes belong to the same Asset Management Company (AMC)?

Accepted Answer

Systematic Transfer Plan (STP). The text states: 'Systematic Transfer Plan (STP) allows the investor to transfer amount from one scheme to another scheme of the same mutual fund house. An STP transfers a fixed amount of money from one mutual fund to another. STPs can only transfer money between two mutual fund schemes of the same Asset Management Company (AMC).'

Question 14

Identify the correct statement regarding the holding period for preference shares to qualify as a long-term capital asset for taxation purposes.

Accepted Answer

Listed preference shares qualify as long-term capital assets if held for more than 12 months, while unlisted preference shares require a holding period of more than 24 months.. The table under '11.4.2 Tax on long-term and short-term capital gain from preference share' clearly states: 'Listed shares: 12 months' and 'Unlisted shares: 24 months' for the holding period to qualify as a long-term capital asset

Question 15

According to the Income Tax Act, unlisted shares of a company are treated as a short-term capital asset if they are held for not more than how many months immediately preceding the date of transfer?

Accepted Answer

24 months. As per Section 11.3, 'Unlisted shares of a company are treated as short-term capital asset if they are held for not more than 24 months immediately preceding the date of transfer'

Ch.9: Income from Other Sources

What You Will Learn in This Chapter

Multiple Choice Questions (15)

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