Sale of shares on which STT is payable is exempt from tax

As per section 10(38) of the Income-tax Act, 1961, any gains resulting from sale of equity shares on which STT is payable, is exempt from tax


I am 33 years old, and I am a homemaker. In the financial year (FY) 2015-16, my total long-term capital gain (LTCG) was Rs.3.4 lakh by sale of equity shares through the National Stock Exchange (NSE) for which securities transaction tax (STT) was paid. I had no other source of income. Will the amount be exempted from income tax?

—Swati Bhatt

We understand that during FY16 you had only earned the LTCG of Rs.3.4 lakh from the sale of equity shares listed on a recognised stock exchange in India.

As per section 10(38) of the Income-tax Act, 1961, any gains resulting from sale of equity shares on which STT is payable, is exempt from tax. As you have sold equity shares (held for more than 12 months from acquisition date) through NSE on which STT has been paid, the resulting entire LTCG of Rs.3.4 lakh shall be exempt from tax under section 10(38).

Since you do not have any other taxable income during FY16, you are not required to mandatorily file the personal return of income (ROI). However, it is advisable to file the ROI and report the said LTCG.

As per section 139, from the FY17 onwards, where the total income of an individual during the FY, before considering the exemption claimed under section 10(38) exceeds basic exemption threshold, the individual would be mandatorily required to file the ROI to be compliant from reporting perspective.

I have gifted Rs. 2 lakh to my spouse, with which she bought some shares. Who will pay the capital gains tax on the sale?

—Nirmal Kapadia

The entire money received by an individual from any person during an FY without consideration, the aggregate value of which exceeds Rs.50,000, is taxable under the head ‘income from other sources’. An exemption is available if the money is received from a relative which includes among others, the spouse of an individual. Accordingly, the amount of Rs.2 lakh received by your spouse shall not be taxed in her hands. In this respect, you may examine the documentation or registration and applicability of stamp duty with respect to aforesaid gift transaction.

Further, we understand that your spouse had bought shares out of the gifted amount. Hence, it is imperative to examine applicability of clubbing provisions. Any transfer of asset to spouse without adequate consideration attracts clubbing provisions and accordingly income arising for the spouse out of the asset transferred is taxable in the hands of the transferor spouse.

So, if the shares are sold, the resulting capital gains, if any, from the sale shall be taxable in your hands as per the aforesaid clubbing provisions. And if your spouse re-invests the capital gains in any other income bearing instruments and earns income thereon, then said income shall be taxable in her hands. In this case, aforesaid clubbing provisions will not be applicable.

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