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CMA Intermediate · Direct and Indirect Taxation · Capital Gains

Ms. Kavita Rao, an individual, transferred a long-term capital asset (not a residential house) for a full value of Rs 90,00,000, incurring transfer expenses of Rs 2,00,000 wholly and exclusively for the transfer. The long-term capital gain is Rs 40,00,000. She purchased one residential house in India within the permitted time for Rs 66,00,000 and satisfies all other conditions of section 86. What amount of capital gain is NOT charged to tax?

The exempt gain is Rs 30,00,000. Net consideration is Rs 88,00,000 after deducting transfer expenses, which exceeds the new house cost of Rs 66,00,000, so the exempt portion is the gain multiplied by 66 divided by 88, giving Rs 30,00,000.

  1. ARs 40,00,000
  2. BRs 29,33,333
  3. CRs 30,00,000Correct
  4. DRs 26,00,000

Explanation

Net consideration = 90,00,000 - 2,00,000 = 88,00,000, which exceeds the new asset cost of 66,00,000. Exempt gain = 40,00,000 x 66,00,000/88,00,000 = 30,00,000. Using the full value of 90 lakh gives 29,33,333, which is wrong because expenses must be deducted to get net consideration.

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