Answer: A. Profit from asset transfer. Capital gains are generally profits or gains arising from the transfer of a capital asset during the relevant year.
Which description best fits a capital asset?
A Only land and buildings
B Property held by a taxpayer
C Only business inventory
D Only listed company shares
Answer: B. Property held by a taxpayer. The Income-tax Act defines capital assets broadly, subject to exclusions and specific rules.
Which event can count as a transfer?
A Receiving a salary
B Paying a utility bill
C Sale or exchange
D Opening a savings account
Answer: C. Sale or exchange. A transfer can include more than a sale; the Act also recognizes events such as exchange and relinquishment.
When is a capital gain generally reported?
A Year of original purchase
B Year of first investment
C Year of bank account opening
D Year of the transfer
Answer: D. Year of the transfer. Capital gain is generally charged in the year in which the transfer occurs, subject to specific statutory rules.
Why does the capital-versus-business distinction matter?
A Different tax heads and rules
B It changes the PAN format
C It removes recordkeeping duties
D It guarantees a refund
Answer: A. Different tax heads and rules. Investment gains may fall under capital gains, while trading or business income can be treated under a different head depending on facts and law.
What separates short-term and long-term capital gains?
A The taxpayer’s salary amount
B The asset’s holding period
C The sale location
D The payment method
Answer: B. The asset’s holding period. The holding period helps classify a capital asset as short-term or long-term under the rules that apply to that asset.
Why must the asset type be identified before classifying a gain?
A Every asset uses one threshold
B Property also has limits
C Holding-period rules can differ
D Rates can vary by asset
Answer: C. Holding-period rules can differ. Holding-period thresholds and tax treatment vary with the asset class and the applicable law.
Which dates are important when checking a holding period?
A Invoice and bank-opening dates
B Tax-return and refund dates
C PAN issue and renewal dates
D Acquisition and transfer dates
Answer: D. Acquisition and transfer dates. The period an asset is held is determined using relevant acquisition and transfer dates under the applicable rules.
In a simple sale, how is the basic capital gain found?
A Consideration less allowable costs
B Sale price plus salary income
C Purchase cost plus bank interest
D Total assets minus annual expenses
Answer: A. Consideration less allowable costs. A basic computation starts with the full value of consideration and subtracts the cost and expenses allowed by the applicable provisions.
Which expense may reduce the sale consideration in a gain calculation?
A A personal holiday cost
B Allowable transfer expenses
C Unrelated monthly rent
D A household grocery bill
Answer: B. Allowable transfer expenses. Expenses incurred wholly and exclusively in connection with a transfer may be deductible when the law permits.
What does cost of acquisition generally refer to?
A Current bank balance
B Annual household budget
C Cost to acquire the asset
D Estimated future sale value
Answer: C. Cost to acquire the asset. Cost of acquisition is the relevant basis used to calculate gain, subject to statutory rules for particular assets.
Can every expense be added to an asset’s cost?
A Yes, all personal spending
B Only expenses paid in cash
C Yes, every bank charge
D No, rules limit eligible costs
Answer: D. No, rules limit eligible costs. Only costs recognized by the applicable tax rules can form part of the asset’s basis.
Which records may support a qualifying improvement cost?
A Invoices and payment evidence
B A verbal estimate
C An unrelated salary slip
D A social-media message
Answer: A. Invoices and payment evidence. Invoices, contracts, and payment records help substantiate qualifying improvement costs claimed in a computation.
Does the total sale price automatically equal taxable gain?
A Yes, in every transaction
B No, allowable costs reduce it
C Only when paid in cash
D Only for listed securities
Answer: B. No, allowable costs reduce it. The taxable gain is not simply the sale price; the computation considers cost and any permitted expenses or adjustments.
What usually determines whether a gain is short-term or long-term?
A The buyer’s age
B The payment channel
C Applicable period of ownership
D The account balance
Answer: C. Applicable period of ownership. The relevant holding period is measured under asset-specific rules in force for the transaction.
Which record is useful for proving when an asset was bought?
A A tax refund message
B A household shopping list
C A bank loan advertisement
D Purchase contract or invoice
Answer: D. Purchase contract or invoice. A purchase document can help establish acquisition date and cost for the capital-gain computation.
For share sales, which document can help summarize transactions?
A Broker profit-and-loss statement
B A property tax receipt
C A salary attendance sheet
D A utility connection form
Answer: A. Broker profit-and-loss statement. The Department’s ITR-2 guidance recommends a share or securities capital-gain summary or profit-and-loss statement when relevant.
Where are capital gains reported in ITR-2?
A Schedule Salary
B Schedule Capital Gains
C Schedule House Property
D Schedule Tax Paid
Answer: B. Schedule Capital Gains. The ITR-2 user manual lists Schedule Capital Gains for reporting relevant capital-gain details.
Which schedule reports qualifying section 112A gains?
A Schedule Salary
B Schedule VI-A
C Schedule 112A
D Schedule Tax Paid
Answer: C. Schedule 112A. Schedule 112A is used for specified long-term gains covered by section 112A, subject to the current form instructions.
Where does the ITR-2 manual direct taxpayers to disclose VDA transactions?
A Schedule Salary
B Schedule House Property
C Schedule 80G
D Schedule VDA
Answer: D. Schedule VDA. The Department’s ITR-2 materials include a separate Schedule VDA for reporting virtual digital asset income transaction-wise.
What can happen to an unused capital loss?
A It may be carried forward
B It becomes salary income
C It cancels the PAN
D It is always refunded
Answer: A. It may be carried forward. An eligible unadjusted capital loss may be carried forward subject to the prescribed conditions.
How can a short-term capital loss generally be set off?
A Against salary only
B Against short- or long-term gains
C Against bank deposits
D Against every income head
Answer: B. Against short- or long-term gains. The Department’s guidance permits short-term capital loss to be set off against short-term or long-term capital gains, subject to the rules.
Against which gains can a long-term capital loss generally be set off?
A Salary and pension
B Short-term gains only
C Long-term capital gains
D Interest from deposits
Answer: C. Long-term capital gains. A long-term capital loss is generally set off only against long-term capital gains.
How long may eligible capital losses generally be carried forward?
A One year
B Three years
C Ten years
D Up to eight years
Answer: D. Up to eight years. The Department’s guidance says unadjusted capital losses may be carried forward for eight succeeding years, subject to conditions.
What filing condition is important for carrying forward a capital loss?
A File by due date
B Submit only a draft return
C Wait until a notice arrives
D Use a different PAN
Answer: A. File by due date. The loss carry-forward guidance requires the return for the loss year to be furnished by the due date prescribed under the Act.
If a capital loss cannot be used this year, what should the taxpayer do?
A Leave it off the return
B Report it in the return
C Add it to salary
D Claim it as TDS
Answer: B. Report it in the return. Reporting the loss in the return is important for claiming set-off or eligible carry-forward in a later year.
Why keep prior-year capital-loss records?
A To prove salary deductions
B To avoid filing any return
C To support future set-off claims
D To change asset ownership
Answer: C. To support future set-off claims. Prior-year loss schedules and filed-return records help substantiate a carry-forward claim.
Which sale-related papers are useful for property capital gains?
A A school certificate
B A medical prescription
C A mobile recharge receipt
D Purchase and sale deeds
Answer: D. Purchase and sale deeds. Property deeds help establish ownership, acquisition cost, transfer date, and sale consideration.
What is the role of the transfer date in capital-gain reporting?
A It identifies tax period
B It sets the taxpayer’s PAN
C It replaces the purchase cost
D It confirms a bank refund
Answer: A. It identifies tax period. The transfer date can determine the reporting year and may affect the rules and form disclosures that apply.
How should multiple asset sales be handled in a return?
A Combine them with salary
B Report each as required
C Ignore loss transactions
D Enter only the largest sale
Answer: B. Report each as required. Transactions should be reported in the manner required by the applicable schedule and instructions, with gains and losses computed accurately.
Why should an investor separate short-term and long-term transactions?
A They use different PANs
B Only long-term sales are reported
C Their rules may differ
D Short-term sales are always exempt
Answer: C. Their rules may differ. Classification affects set-off rules, applicable tax treatment, and reporting fields.
Does a capital-gain tax rate always match the normal slab rate?
A Yes, for every asset
B Only salary has a rate
C The buyer sets the rate
D No, special rates may apply
Answer: D. No, special rates may apply. Some capital gains are taxed at special rates, while treatment depends on asset, holding period, transaction, and current law.
Do reinvestment-based exemptions apply automatically to every sale?
A No, conditions must be met
B Yes, every reinvestment qualifies
C Only cash sales qualify
D They apply without reporting
Answer: A. No, conditions must be met. Exemptions have statutory conditions, time limits, and reporting requirements that must be checked for the transaction.
Which evidence may support a claimed capital-gain exemption?
A An unrelated bank statement
B Eligible investment documents
C A household utility bill
D A travel booking
Answer: B. Eligible investment documents. Keep records that show the qualifying investment, amount, and date required by the relevant exemption provision.
What can distinguish investment activity from trading activity?
A Only the broker’s name
B Only the asset’s color
C Facts, intent, and frequency
D Only the taxpayer’s age
Answer: C. Facts, intent, and frequency. The proper income head can depend on the facts and applicable guidance, including the nature and pattern of transactions.
How should gross sale proceeds be treated in a gain computation?
A Treat them all as profit
B Treat them as salary
C Ignore the purchase cost
D Subtract allowable basis and costs
Answer: D. Subtract allowable basis and costs. The computation uses sale consideration along with allowable cost and transfer-related deductions, rather than treating every rupee received as gain.
Which details help verify a listed-share sale?
A Trade dates, price, and charges
B Home address and rent
C School marks and dates
D Utility meter readings
Answer: A. Trade dates, price, and charges. Broker statements and contract notes help verify transaction date, sale value, and transaction-related charges.
Why compare broker records with demat statements?
A To calculate house rent
B To confirm holdings and transactions
C To establish salary income
D To request a tax refund
Answer: B. To confirm holdings and transactions. Reconciliation can identify missing transactions, quantity differences, or incorrect dates before reporting gains.
Does a capital loss automatically create a tax refund?
A Yes, every loss is refunded
B Property asset only
C No, set-off rules apply
D Online sale only
Answer: C. No, set-off rules apply. A capital loss may reduce eligible capital gains or be carried forward; it does not automatically produce a refund.
Which ITR schedule records transfer and cost details?
A Schedule Salary
B Schedule TDS
C Schedule Bank Accounts
D Schedule Capital Gains
Answer: D. Schedule Capital Gains. The Schedule Capital Gains fields capture transaction and computation details required by the applicable return form.
What should a taxpayer do when a tax form changes its reporting fields?
A Follow current form instructions
B Reuse last year’s layout blindly
C Skip the capital-gain schedule
D Enter values in any field
Answer: A. Follow current form instructions. ITR schedules can change between assessment years, so taxpayers should use current notified forms and instructions.
Why might an asset sale need special tax review?
A Every sale is tax-free
B Special provisions may apply
C All assets use one formula
D Sales can affect returns
Answer: B. Special provisions may apply. Some transfers have valuation, exemption, holding-period, or special-rate provisions that can change the computation.
Does an inherited asset’s later sale need a cost review?
A No, inheritance erases cost
B Only the sale price matters
C Yes, special basis rules apply
D The asset is always exempt
Answer: C. Yes, special basis rules apply. Inherited assets can be subject to specific rules for cost and holding period; consult the applicable form instructions and law.
Which transaction can generate a capital loss?
A Salary paid above estimate
B Deposit earning interest
C A loan repayment
D Sale below tax basis
Answer: D. Sale below tax basis. A loss may arise when the transfer computation produces a negative amount after considering permitted costs and adjustments.
Can a capital loss generally be set off against salary income?
A No, capital-gain set-off rules apply
B Yes, without any limits
C Only when TDS is high
D Only for a property sale
Answer: A. No, capital-gain set-off rules apply. Capital losses are generally adjusted within the capital-gains head under the applicable set-off rules.
What is useful before entering share-gain figures in the return?
A A new bank cheque
B Transaction-wise gain summary
C A blank rent agreement
D An unsigned salary certificate
Answer: B. Transaction-wise gain summary. A transaction summary helps reconcile cost, sale value, holding period, and any reported capital loss.
Which tax year controls the rules for a transfer?
A PAN issue year
B Asset advertisement date
C The applicable transfer year
D The buyer’s tax year
Answer: C. The applicable transfer year. The law and reporting instructions relevant to the transfer year determine how the gain is classified and computed.
What should be checked when tax rules change?
A A friend’s previous return
B An old printed form
C A broker’s marketing page
D Current official guidance
Answer: D. Current official guidance. Capital-gain rates, definitions, and reporting schedules can change, so verify current official guidance for the transfer and return year.
How should taxpayers handle a complex asset transfer?
A Check rules or seek advice
B Guess the cost basis
C Omit the transaction
D Use a salary schedule
Answer: A. Check rules or seek advice. Complex transfers can involve special valuation, cost, exemption, or timing rules and may require professional review.
What final review helps prevent a capital-gain filing error?
A Theme, font, and spacing
B Dates, basis, costs, classification
C Bank login and password
D Address, wallpaper, and browser
Answer: B. Dates, basis, costs, classification. Review acquisition and transfer dates, supporting cost, allowable expenses, gain classification, set-off, and schedule entries before filing.