Corporate Tax: Computation of Capital Gains
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Questions and Answers

How is the income chargeable as capital gains calculated in the hands of the shareholders in case of liquidation of the company?

  • The income chargeable as capital gains is the market value of the assets received on the date of distribution, reduced by the cost of acquisition of the shares. (correct)
  • The income chargeable as capital gains is the total amount received by the shareholder on liquidation, without any reduction for the cost of acquisition or accumulated profits.
  • The income chargeable as capital gains is the full value of consideration received on the liquidation, without any deduction for the cost of acquisition of the shares.
  • The income chargeable as capital gains is the amount of accumulated profits distributed to the shareholder, reduced by the cost of acquisition of the shares.

    • What is the treatment of the cost of acquisition of shares when the payment is made by the liquidator in installments to the registered shareholders?

  • The cost of the shares is not deductible at all, as the entire amount received is chargeable as capital gains.
  • The cost of the shares is deductible on a proportionate basis at the time of receiving each installment.
  • The entire cost of the shares is deductible from the first installment of the amount received. (correct)
  • The cost of the shares is deductible from the total amount received, irrespective of the number of installments.

    • What is the requirement for the company to get the exemption from taxation on distribution of assets during liquidation?

  • The distribution must be made outside the course of liquidation or winding up of the company.
  • The distribution must be made to any person other than the registered shareholders.
  • The distribution must be made to the registered shareholders of the company. (correct)
  • The distribution must be made under amalgamation or merger to the dissentient shareholders.

    • What is the tax treatment of the distribution of assets by the company to its shareholders in a case other than liquidation?

    <p>The distribution is taxable as dividend income in the hands of the shareholders.</p> Signup and view all the answers

    What is the tax treatment of the extinguishment of the right of a shareholder on the liquidation of the company?

    <p>The extinguishment of the right of the shareholder is considered a transfer, and the deemed full value of consideration would be regarded as 'nil'.</p> Signup and view all the answers

    What is the requirement for the distribution of assets to be considered as happening in the course of liquidation or winding up of the company?

    <p>The distribution must be made in the course of liquidation or winding up of the company.</p> Signup and view all the answers

    What is the formula to compute Capital Gains under section 40/2?

    <p>WDV for depreciation - Compensation received</p> Signup and view all the answers

    In the context of tax planning, how is the cost of acquisition of an asset determined?

    <p>Fair market value of the asset on the date of acquisition</p> Signup and view all the answers

    Under section 41, if a shareholder holds 20% shares in a company, how is the amount of Capital Gains computed?

    <p>Received assets worth ₹ 4,00,000 - Indexed cost of acquisition</p> Signup and view all the answers

    What does 'WDV' stand for in the context of capital gains computation?

    <p>Written Down Value</p> Signup and view all the answers

    What factor is used for depreciation under 'Some Other Aspects of Tax Planning'?

    <p>15%</p> Signup and view all the answers

    In relation to tax planning, what is the significance of determining the fair market value of an asset?

    <p>Assessing capital gains at the time of acquisition</p> Signup and view all the answers

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