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CA Final · Direct Tax Laws & International Taxation · Income from Other Sources

Kavita, a resident individual, agreed to sell a plot to Anil, who is unrelated to her, and received an advance of Rs. 3,00,000 during the negotiations. The negotiations failed and Kavita forfeited the advance. The plot was a capital asset in her hands. Under the Income-tax Act, 2025, which statement is correct?

The forfeited advance of Rs. 3,00,000 is taxable under Income from other sources. The law taxes any advance received during negotiations for transfer of a capital asset when it is forfeited and the negotiations do not lead to transfer. No monetary threshold applies.

  1. AThe Rs. 3,00,000 is chargeable under Income from other sources in the tax year in which it is forfeited because negotiations did not result in transfer of the capital assetCorrect
  2. BThe sum is not taxable because it is a capital receipt
  3. CThe sum is chargeable as Income from other sources only if it exceeds Rs. 50,000 and Anil is not a relative
  4. DThe sum is deducted from the cost of the plot and taxed as capital gains on later sale

Explanation

Section 92(2)(h) applies where a sum received as advance during negotiations for transfer of a capital asset is forfeited and the negotiations do not result in transfer. Both conditions are met, so the whole Rs. 3,00,000 is taxable under Income from other sources. No threshold applies, and the clause has no relative exemption.

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