My brother gifted me some equity shares, which he had bought. I now want to sell these shares. Will I be taxed?
If an individual receives any property (other than immovable property), from any person during a financial year (FY) without consideration, the fair market value (FMV) of which exceeds Rs.50,000, then the entire FMV of such property shall be taxable under the head ‘Income from other sources’. The FMV will have to be calculated as per the specified method prescribed in Rule 11UA of the income-tax Rules. However, an exemption is available if the same is received from a relative, which includes among others, brother of the individual.
As you have got the shares from your brother as a gift, there should not be any tax implications in your hand at the time of receiving the gift. However, with respect to above transaction, it would be prudent to have appropriate documentation in place.
Capital gains, if any, from subsequent sale of gifted shares, shall be taxed in your hands.
We have assumed that the shares are of an Indian company listed on a recognised stock exchange and, therefore, you would be liable to pay securities transaction tax (STT).
The tax implications on sale of shares would depend upon the period of holding from the date of acquisition. In case of gifted assets, which includes shares, the period of holding shall be reckoned from the acquisition date by the owner who has actually acquired the asset (otherwise than by way of gift, inheritance, and so on). As your brother originally acquired the shares, the period of holding shall be reckoned from the date he purchased them.
In case of gift, cost of acquisition shall be the cost at which the previous owner who actually acquired the asset, bought it. The cost for which your brother acquired the shares shall be considered as the cost of acquisition while computing capital gains.
If you sell the aforesaid shares after holding for more than 12 months from the date your brother had acquired the shares, the gains, if any, resulting from the sale will be termed as long-term capital gains (LTCG). LTCG from sale of listed shares (where such sale transaction is liable to STT), can be claimed as exempt from tax. The amount of exemption should be disclosed in your personal tax return.
If you sell the shares before holding them for at least 12 months from the date your brother had acquired them, the gains, if any, resulting from the sale will be termed as short-term capital gains (STCG). STCG will be computed as the difference between net sale proceeds (after deducting the incidental transfer charges) and cost of acquisition.
STCG from sale of listed shares liable to STT will be taxed at flat 15%. And if your total income during FY17 exceeds Rs.1 crore, surcharge would be levied at 15% on basic rate (i.e., 15%). Education cess of 3% will be levied on basic as well as surcharge.
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