For a gift, holding period of all owners can be included
Here is how gifted shares are taxed
I hold some shares, which my father had bought initially and then gifted to me later, some 15 years ago. I have the gift deed for the same. How will this transaction be taxed?
—Bhaskar
The tax implications would depend on the period of holding of shares from the date of acquisition and whether the securities transaction tax (STT) has been paid at the time of sale of shares.
In case of a gift, while determining the total period of holding, the period for which your father has held the shares should also be included.
Effective from 10 July 2014, the period of holding for unlisted securities has increased from 12 months to 36 months. Where the shares are held for more than 12 or 36 months, as the case may be, from the acquisition date, the gains shall be termed as long-term capital gains (LTCG).
The difference between the net sale proceeds and cost of acquisition will be taxable as LTCG. The cost of acquisition shall be the cost at which the previous owner, who has actually acquired the shares otherwise than by inheritance, gift, and so on, bought them.
If the shares were acquired by your father prior to 1 April 1981, you have the option of taking the actual cost of acquisition or the fair market value of the property as on 1 April 1981.
Accordingly, while calculating the capital gains tax implications in your hands, the cost of acquisition shall be the price at which your father had acquired these shares.
The cost of acquisition will have to be indexed or brought to the present value by multiplying the original cost of acquisition of the shares by the notified cost inflation index (CII) for the year of sale and dividing by the CII of the year of purchase, when your father had acquired these shares. CII can be found on the income-tax department’s website.
If you pay STT at the time of sale, then the LTCG resulting from sale of shares shall be exempt from tax under section 10(38). However, you would be required to disclose the same in the income tax form to be compliant from the disclosure perspective.
On the other hand, while selling the shares, if you do not pay STT, then the LTCG shall be taxable at a flat rate of 20.6% (inclusive of education cess) plus surcharge, if applicable.
Alternatively, if the shares are listed and if you sell the same off-market, the LTCG could be taxed at 10.3% plus applicable surcharge, if any. To avail the tax rate of 10.3% plus surcharge, if any, the LTCG should be computed without the indexation benefit.
The LTCG can be claimed as exempt from tax by investing in prescribed investment avenues, i.e. residential apartment or specified bonds, and this is subject to fulfillment of conditions specified under the domestic tax law.
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