Mr. X bought 300 listed equity shares at Rs 400 each in 2016 (STT paid). Their highest quoted price on 31.1.2018 was Rs 700. He sold all shares at Rs 1,200 each in October 2025 (STT paid). The long-term capital gains under section 112A are:

1. Shares acquired before 1.2.2018 get grandfathered cost under section 55(2)(ac): COA = higher of actual cost and [lower of FMV on 31.1.2018 and sale consideration]. 2. Actual cost = Rs 400; FMV on 31.1.2018 = Rs 700; sale price = Rs 1,200. 3. Lower of FMV (700) and sale price (1,200) = Rs 700. Higher of that and actual cost (400) = Rs 700 per share. 4. LTCG per share = 1,200 - 700 = Rs 500. 5. For 300 shares: 300 x 500 = Rs 1,50,000. 6. Tax would apply at 12.5% only on Rs 25,000 (the excess over the Rs 1,25,000 threshold) — Rs 25,000 is the TAXABLE amount, not the gain, which is why option C is the trap. Option B uses raw cost of Rs 400 and ignores grandfathering; option A computes FMV minus cost (700 - 400), the portion the law exempts. _Source: ICAI CA Inter P3(A) Income-tax SM (May 2026), Ch 3 Unit 4 Capital Gains, PDF p. 124_