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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Capital Gains

Mrs. Leela Nair inherited a flat from her father, who had bought it 10 years ago. She sold it one year after inheriting it. For computing the capital gain, how are the holding period and cost of acquisition determined?

The holding period includes the time the previous owner held the flat, and the cost of acquisition is the previous owner's cost. Inheritance is not a transfer, so the heir steps into the predecessor's shoes, making the sale a long-term transaction.

  1. AHolding period counts only from the date of inheritance; cost is the market value on that date
  2. BHolding period includes the previous owner's period; cost is the previous owner's cost of acquisitionCorrect
  3. CHolding period includes the previous owner's period; cost is the market value on the date of inheritance
  4. DHolding period counts only from the date of inheritance; cost is the previous owner's cost of acquisition

Explanation

Under the capital gains provisions, an asset received by inheritance is not treated as a transfer. The period for which the previous owner held the asset is included in the holding period, and the cost is the previous owner's cost of acquisition. So the gain is long-term here, even though she held it for only one year. The other options mix up these two rules.

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