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CMA Intermediate · Direct and Indirect Taxation · Capital Gains

Ramesh, an individual, sold agricultural land (used by him for agriculture in the two preceding years) and had capital gains of Rs 12,00,000. Within two years he bought other agricultural land for Rs 9,00,000 and, within three years of buying it, sold it. Under section 83, what is the capital gain charged for the original transfer and the cost of the new land for computing gain on its later transfer?

Rs 3,00,000 is charged and the cost of the new land is taken as nil. Capital gains of Rs 12,00,000 exceed the Rs 9,00,000 cost of the new land, so under section 83(1)(i) only the excess is charged and the cost becomes nil on transfer within three years.

  1. ANil charged; cost Rs 9,00,000
  2. BRs 3,00,000 charged; cost nilCorrect
  3. CRs 3,00,000 charged; cost Rs 9,00,000
  4. DRs 12,00,000 charged; cost Rs 9,00,000

Explanation

Gains (Rs 12,00,000) exceed cost of new asset (Rs 9,00,000), so section 83(1)(i) applies: the excess of Rs 3,00,000 is charged and the cost of the new asset is nil for a transfer within three years of purchase. Reducing cost by gains is for the case where gains are equal to or less than cost.

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