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CA Final · Direct Tax Laws & International Taxation · Capital Gains

A specified fund, which has duly filed Form No. 178 under Rule 285 of the Income-tax Rules, 2026, earned ₹60,00,000 of capital gains on transfer of shares of an Indian company. These shares were received in relocation from the original fund and the gains would not have been chargeable had the relocation not occurred. The fund held the shares for 300 days with constant daily total assets under management (AUM) of ₹1,000 units. Non-resident (non-PE) unit holders held 40% of AUM for the first 100 days and 60% for the next 200 days. What is the exempt income under Rule 285?

The exempt income is ₹32,00,000. Rule 285 multiplies the gains by the ratio of aggregate daily AUM held by non-residents to aggregate daily total AUM. That ratio is 1,60,000 over 3,00,000, or 8/15, applied to ₹60,00,000. A simple average ignores the unequal periods.

  1. A₹32,00,000Correct
  2. B₹30,00,000
  3. C₹36,00,000
  4. D₹24,00,000

Explanation

Exempt income = (A × B) / C. B = (400 × 100) + (600 × 200) = 40,000 + 1,20,000 = 1,60,000. C = 1,000 × 300 = 3,00,000. B/C = 8/15, so exempt income = ₹60,00,000 × 8/15 = ₹32,00,000. A simple average of 40% and 60% (₹30,00,000) ignores the different durations, so it is wrong.

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