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CMA Intermediate · Direct and Indirect Taxation · Capital Gains

Under the Income-tax Act, 2025, which of the following is NOT allowed as a deduction while computing income chargeable under the head 'Capital gains'?

Securities transaction tax is not deductible when computing capital gains. Transfer expenses incurred wholly and exclusively for the transfer, cost of acquisition and cost of improvement are all allowed, but the Act expressly disallows STT paid under the Finance (No. 2) Act, 2004.

  1. ABrokerage and legal fees paid wholly and exclusively in connection with the transfer
  2. BCost of any improvement made to the asset
  3. CSecurities transaction tax paid on the transferCorrect
  4. DCost of acquisition of the asset

Explanation

Section 72(1) allows expenditure wholly and exclusively connected with the transfer, the cost of acquisition and the cost of improvement. Section 72(3) specifically bars the deduction of securities transaction tax and of interest claimed under section 22(1)(b) or Chapter VIII. So STT is the only item not deductible.

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