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Taxation · Capital Gains

Other Exemptions and Deemed Capital Gains Provisions in CA Inter Taxation

Updated 4 October 2026 · Fact-checked

Deemed capital gains provisions replace the actual price with a fair value in specified cases. If land or building is sold for less than stamp duty value, that value becomes the sale consideration unless it is within 110% of the price. Unquoted shares use fair market value. Forfeited advance is taxed as other income, not deducted from cost.

Understand Other Exemptions and Deemed Capital Gains Provisions

Normally, capital gains = full value of consideration − cost of acquisition − cost of improvement − expenses on transfer. The full value is the price you actually get. Tax law does not trust this price in every case. Some sellers could show a low price on paper and take the rest in cash. So the Income-tax Act, 2025 deems a different value as the full value of consideration in certain cases.

The best-known case is land or building (or both). If the price is less than the stamp duty value (SDV) on the transfer date, the SDV is taken as the full value of consideration. There is a safe zone. If the SDV is not more than 110% of the actual price, you use the actual price. If it is more, you use the SDV, not just the excess over 110%.

A similar rule applies to shares other than quoted shares, that is, shares not quoted on a recognised stock exchange. If they are transferred for less than their fair market value (FMV) worked out under the prescribed rules, the FMV is the deemed full value. The buyer's tax on shares received below FMV is governed by a separate rule on receipts for inadequate consideration. Also, when the consideration for a capital asset cannot be determined, the FMV on the date of transfer is deemed to be the consideration.

Once the full value is fixed, you must decide whether the gain is short-term or long-term. Land, building (or both) and unlisted shares are long-term only if held for more than 24 months. If held for 24 months or less, the gain is short-term.

Now advance money forfeited. A buyer pays you an advance for a capital asset, the deal falls through, and you keep the advance. You have not transferred the asset. So this is not a capital gain. Under the current law it is taxed as income from other sources in the tax year of forfeiture. It is not deducted from the cost of the asset when you sell it later.

Finally, some transfers are not taxed or are exempt because of special rules. Examples are transfers by gift, will or inheritance, which are not treated as transfers for capital gains, and certain transfers in restructuring such as amalgamations, where conditions are met. Always check the conditions before you claim any of these. Reinvestment exemptions (house, bonds, agricultural land) are covered in their own topics.

Key rules to remember

Deemed consideration for land or building
If SDV ≤ 110% × actual price, full value = actual price. If SDV > 110% × actual price, full value = SDV
Applies when a land or building (or both), held as a capital asset, is transferred for a price below SDV. Once SDV crosses 110%, the whole SDV is used.
Date for SDV
SDV on the date of agreement, if part or full consideration was received by account payee cheque, draft or electronic mode on or before that date
Otherwise SDV on the date of transfer (registration) is used. The agreement date is used only when the payment condition is met.
Valuation Officer reference
Full value = value estimated by the Valuation Officer, but not more than the SDV (the SDV is the ceiling)
This is a case-specific reference, not an automatic formula. On the assessee's claim that the SDV exceeds the FMV, where the SDV has not been disputed in appeal before any authority, court or High Court, the Assessing Officer may refer the matter to a Valuation Officer. The full value is then determined on the basis of the Valuation Officer's estimate, subject to the SDV being the ceiling.
Shares other than quoted shares
If price < FMV (as per prescribed rules), full value = FMV
Applies to the seller, for shares not quoted on a recognised stock exchange. The buyer's tax on shares received below FMV is governed by the separate rule for receipts below FMV.
Advance forfeited
Forfeited advance = income from other sources in the year of forfeiture. No deduction from cost of acquisition
Applies where the advance was received in negotiations for transfer of a capital asset and then forfeited.
Capital gain after deemed value
Capital gain = Deemed full value − expenses on transfer − cost of acquisition − cost of improvement
Expenses on transfer such as brokerage are still deducted, but the deemed value replaces the price.

How to solve Other Exemptions and Deemed Capital Gains Provisions questions

Use this order for any question on deemed consideration, forfeited advance or exemptions.

  1. 1Identify the asset: land or building, unquoted shares, or another capital asset. The deeming rule depends on the asset type.
  2. 2Check that it is a capital asset in the seller's hands. For stock-in-trade, the capital gains provision does not apply.
  3. 3Fix the date. For land or building, decide whether SDV is taken on the agreement date or the transfer date based on how and when payment was received.
  4. 4Apply the 110% test. Compare SDV with 110% of the actual price. Choose actual price or full SDV as the full value of consideration.
  5. 5For unquoted shares or an undeterminable price, substitute FMV as the full value.
  6. 6Deduct transfer expenses, cost of acquisition and improvement. Decide whether the asset is short-term or long-term from the holding period.
  7. 7Treat any forfeited advance separately as income from other sources. Do not reduce the cost by it.
  8. 8Check for exempt transfers or special exemptions, and state the conditions satisfied before giving the final figure.

Quickest way: 110% test and separate-head check

When to use it: Use this for MCQs and for short written parts where you must quickly find the full value of consideration.

  1. MCQ: multiply the price by 1.1 and compare with SDV. If SDV is higher, the answer is built on SDV. If not, on the price.
  2. MCQ: if the question says an advance was forfeited, remove it from the capital gain working and put it under other sources.
  3. Written: start with the heading 'Computation of capital gains', give a one-line provision with the reason (price below SDV, SDV exceeds 110%), then compute.
  4. Written: show a small table in lines: full value, less expenses, net consideration, less cost, gain. Step marks are given for each line.
  5. Write the final line with the head of income and whether the gain is short-term or long-term.

Common mistakes in Other Exemptions and Deemed Capital Gains Provisions

  • Taking only the excess of SDV over 110% as the adjustment.

    Students confuse the 110% limit with a tax-free band.

    Fix: If SDV is above 110% of the price, take the whole SDV as the full value. If it is within 110%, take the actual price.

  • Applying the SDV rule to shares or movable assets.

    The word 'deemed' makes students apply it everywhere.

    Fix: SDV applies only to land or building or both. Unquoted shares use FMV under the prescribed rules.

  • Reducing the cost of acquisition by the forfeited advance.

    Students link the advance to the asset and assume it adjusts the cost.

    Fix: Under the current law, tax the forfeited advance as income from other sources in the year of forfeiture. Keep the cost unchanged.

  • Using the transfer date SDV when the agreement date applies.

    Students ignore the payment mode and the date of receipt.

    Fix: If payment was received by banking or electronic mode on or before the agreement date, use SDV on the agreement date.

  • Forgetting to deduct brokerage and transfer expenses from the deemed value.

    Students assume the deemed value is already net.

    Fix: Deemed value is only the gross consideration. Subtract transfer expenses as usual.

  • Claiming an exemption without checking its conditions.

    Exemptions are memorised as a list.

    Fix: For each exemption, write the condition (type of asset, type of transferee, time limit) and tick it off against the facts.

Worked examples

Example 1

Ravi, a resident individual, sold a plot of land held as a capital asset for ₹80,00,000 in tax year 2026-27. He had bought it 10 months earlier for ₹70,00,000. The SDV on the transfer date was ₹90,00,000. Brokerage paid was ₹1,00,000. Compute the capital gain. Also state the full value if the price had been ₹82,00,000 and the SDV the same.

Show the solution
  1. Land is a capital asset. Price ₹80,00,000 is below SDV ₹90,00,000, so the deeming rule is tested.
  2. 110% of the price = ₹80,00,000 × 1.1 = ₹88,00,000.
  3. SDV ₹90,00,000 is more than ₹88,00,000. So the full value of consideration is the SDV, ₹90,00,000.
  4. Less: brokerage ₹1,00,000. Net consideration = ₹89,00,000.
  5. Less: cost of acquisition ₹70,00,000.
  6. Holding period is 10 months, which is not more than 24 months for land. So it is short-term. Gain = ₹89,00,000 − ₹70,00,000 = ₹19,00,000.
  7. Variation: if the price is ₹82,00,000, 110% = ₹90,20,000. SDV ₹90,00,000 is within this limit. So the actual price ₹82,00,000 is the full value of consideration.

Answer: Short-term capital gain = ₹19,00,000 (full value = SDV ₹90,00,000). In the variation, the full value is the actual price ₹82,00,000.

Example 2

Meera agreed to sell her flat, held as a capital asset, and received an advance of ₹2,00,000 in tax year 2026-27. The buyer backed out and she forfeited the advance. She then sold the flat in the same year to another buyer for ₹45,00,000, which is above the SDV of ₹44,00,000. She had bought the flat 18 months earlier for ₹30,00,000. Compute the income chargeable under each head.

Show the solution
  1. The advance of ₹2,00,000 was forfeited in the same tax year. It is taxed as income from other sources.
  2. It is not deducted from the cost of acquisition of the flat.
  3. For the actual sale: price ₹45,00,000 is above SDV ₹44,00,000. So no deeming applies. Full value = ₹45,00,000.
  4. Holding period of 18 months is not more than 24 months for a building. The gain is short-term.
  5. Short-term capital gain = ₹45,00,000 − ₹30,00,000 = ₹15,00,000.
  6. Total taxable under the two heads = ₹15,00,000 + ₹2,00,000 = ₹17,00,000.

Answer: Income from other sources = ₹2,00,000. Short-term capital gain = ₹15,00,000.

Exam tips

  • Write the provision in one line before computing. Examiners give marks for naming the rule even if arithmetic slips.
  • For MCQs, do the 110% test first. Many options are built on the wrong side of the 110% limit.
  • Read dates carefully. Agreement date versus transfer date, and the mode of payment, decide which SDV applies.
  • Keep the forfeited advance out of the capital gains working. Show it in a separate line under other sources.
  • When asked about exemptions, list the condition with each one. Do not write a bare list.

Practice questions from Capital Gains

Other Exemptions and Deemed Capital Gains Provisions in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Other Exemptions and Deemed Capital Gains Provisions: frequently asked questions

What is the deemed full value of consideration for land or building?

If land or building is transferred for less than its stamp duty value, the SDV is deemed to be the full value of consideration. If the SDV is within 110% of the actual price, the actual price is used. This applies to a capital asset in the seller's hands.

How is advance money forfeited taxed?

If the buyer does not complete the purchase and you keep the advance, it is taxed as income from other sources in the year of forfeiture. It is not deducted from the cost of acquisition of the asset.

Does the stamp duty rule apply to shares?

No. The SDV rule applies only to land or building or both. Unquoted shares transferred below fair market value, as per the prescribed rules, are deemed to be transferred at FMV.

Which date's stamp duty value is used?

Usually the date of transfer. If the agreement date is earlier and you received part or full payment by account payee cheque, draft or electronic mode on or before the agreement date, the SDV on the agreement date is used.