CMA Intermediate · Direct and Indirect Taxation · Capital Gains
Ms. Kavita Rao earned long-term capital gains of Rs 90,00,000 on transferring a building in the tax year. She invested Rs 65,00,000 in eligible REC bonds within six months. Considering the limit in Section 85(2), what amount of her gains is charged to tax?
Rs 40,00,000 is charged to tax. Although Rs 65,00,000 was invested, the investment eligible for exemption is capped at Rs 50 lakh, so the exempt gain is Rs 50,00,000 and the remaining Rs 40,00,000 of the Rs 90,00,000 gains is chargeable.
- ARs 25,00,000
- BRs 40,00,000Correct
- CRs 15,00,000
- DRs 90,00,000
Explanation
Investment eligible for exemption cannot exceed Rs 50 lakh. So the exempt amount is Rs 50,00,000 and the chargeable amount is 90,00,000 - 50,00,000 = 40,00,000. Rs 25,00,000 wrongly ignores the cap and uses the full investment.
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