Capital gain tax paid by the company on sale of land held as Investment is:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → An outflow under Investing activity
Taxes on income are normally operating cash flows, but AS-3 classifies a tax under investing or financing when it can be identified with that activity. Capital gains tax on the sale of land held as an investment arises from an investing transaction, so it is an investing outflow.
Option (1) An outflow under Operating activity — Incorrect. Only tax on operating profit is an operating cash flow.
Option (3) An Inflow under Financing Activity — Incorrect. Paying tax is a cash outflow, and the sale of land is not a financing transaction.
Option (4) An outflow under Financing activity — Incorrect. Only dividend tax is shown under financing activities, along with the dividend paid.
NCERT (2026-27 edition):
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