Capital gains on rights shares, a residential house and jewellery converted into stock

Assumptions

1. The Tata Motors shares are listed, and they were sold on a recognised stock exchange with securities transaction tax paid (section 198(1)). They were bought in 2001-02, before that tax began (1 October 2004). Assumed: the acquisition is one the Central Government has exempted, by notification under section 198(5), from the condition of tax paid on acquisition; the notification itself is not among the sources.
2. Assumed: their highest quoted price on 31 January 2018, which the question does not give, was not more than the cost, so the cost is the amount paid (section 90(7)). If that price was higher than ₹75, the cost is the lower of that price and ₹300 a share, and the gain on the original shares falls accordingly (nil at ₹300 or more).
3. The cost inflation index figures printed are not needed: from 23 July 2024 capital gains are computed without indexation (section 72(1)), and indexation survives only as a ceiling on the tax for land or buildings bought before that date and transferred by a resident individual or Hindu undivided family (section 197(3)); in (ii) the whole gain on the house is exempt, so the ceiling does not arise.
4. The house's value of ₹6,35,000 on 1/4/2001 is read as within its stamp duty value on that date (section 90(10) caps the 1 April 2001 value at the stamp duty value, wherever one is available); no stamp duty value is given. If not, the cost is the higher of ₹4,00,000 and that stamp duty value: the 2026-27 gain rises by the amount the cost falls but stays below ₹60,00,000, so it is still wholly exempt, and the 2028-29 short-term gain rises by the same amount, at most to ₹80,49,000 (with a cost of ₹4,00,000: gain ₹53,37,000, reduced cost of the new house ₹6,63,000).
5. The new house is a residential house in India, as section 82(1)(b) requires; the question does not say where it is. If it were outside India, no exemption would be allowed and the whole ₹51,02,000 would be a taxable long-term capital gain; the new house's cost would then stay ₹60,00,000, so its sale in 2028-29 would give a short-term capital gain of ₹27,12,000 (₹87,12,000 − ₹60,00,000).
6. Mr. Singh is read as a resident whose other income is at least the basic exemption limit, so sections 196(2) and 198(3) reduce none of his gains. If not, the gains taxed fall by the part of the limit his other income leaves unused; with no other income at all, under the default regime (limit ₹4,00,000), his gains of ₹2,59,000 (₹2,25,000 + ₹34,000) bear no tax. A non-resident gets no such reduction.

(i) Shares and rights (tax year 2026-27)

Mr. Singh was offered 1,000 × 2/5 = 400 rights shares. He took up 200 at ₹160 and renounced 200 at ₹30.

• Long-term capital gain: ₹2,25,000. Under section 198(2) the first ₹1,25,000 is not taxed; ₹1,00,000 is taxed at 12.5%. This figure rests on assumption 2: the highest quoted price on 31 January 2018 is not given, so the cost is the ₹75 a share paid (section 90(7)).
• Short-term capital gain: ₹34,000 (₹6,000 on the rights renounced, whose cost is nil, and ₹28,000 on the rights shares).

(ii) Residential house (tax years 2026-27 and 2028-29)

The house was bought in 1999-2000, before 1 April 2001, so Ms. Khushi may take as its cost either the price paid (₹4,00,000) or its fair market value on 1 April 2001 (₹6,35,000), whichever she chooses (section 90(9)(a)); the higher figure, ₹6,35,000, gives the lower gain. The improvement in 2010-11 was made after 1 April 2001, so it counts as a cost of improvement (section 90(1)(b)(i)).

As the gain (₹51,02,000) does not exceed the cost of the new house (₹60,00,000), all of it is exempt (section 82(1)(ii)), and the cost of the new house is reduced by the gain if it is sold within three years.

Tax year 2027-28: no house is transferred, so no capital gain arises; the new house is sold on 15/11/2028, in tax year 2028-29, shown below.

The exemption is not withdrawn; instead the lower cost raises the gain on the new house, which is short-term and taxed at the normal rates.

(iii) Jewellery converted into stock-in-trade (tax year 2026-27)

The conversion on 01/01/2025 is a transfer, but the gain is taxed in the year the stock is sold, tax year 2026-27, with the fair market value on the date of conversion as the sale consideration (section 67(6)). The conversion was after 23 July 2024, so there is no indexation.

The other reading of (i)

If no securities transaction tax was paid on the sale, or the acquisition is not one exempted by notification under section 198(5) (assumption 1), section 198 does not apply, because section 198(1)(c)(i) needs the tax paid on both acquisition and transfer: the gain on the original shares is still ₹2,25,000 (no indexation after 23 July 2024; and section 90(7), which covers only shares within section 198, gives way to the ₹75,000 paid), but all of it is taxed at 12.5% under section 197(1), with no ₹1,25,000 exclusion: tax ₹28,125 in place of ₹12,500 (12.5% of ₹1,00,000), subject to section 197(2) for a resident with unused basic exemption (assumption 6).

What changed from the Income-tax Act, 1961

The dates have moved by three years, except those on or before a date fixed by the law (the purchase of the shares in 2001-02 and of the house in 1999-2000), which stay as printed. As set (assessment year 2024-25, given separately), the sales were before 23 July 2024, so indexation applies, and the gains in (ii) and (iii) differ.