No tax on long-term capital gains from sale of listed shares
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I had gifted a few stocks to my mother on her birthday in July, which she sold in January. Will she be taxed for this?
If an individual receives any property (other than immovable property), from any person during a financial year (FY) without consideration, the fair market value of which exceeds Rs.50,000, the transaction will be taxable under the head ‘Income from other sources’.
An exemption is available if it is received from a relative, which includes son or daughter. Accordingly, the shares received by your mother from you as gift shall not be taxable in her hands. But capital gains from subsequent sale shall be taxed in her hands.
We have assumed that the sale of shares was transacted through a recognised stock exchange and is therefore liable to securities transaction tax (STT). The tax implications on sale of shares depend upon the period of holding from the date of acquisition. In case of gifted assets, which includes shares, the period of holding is reckoned from the date of purchase by the owner who has actually acquired the asset (other than by way of gift or inheritance). As you had originally acquired the shares, the period of holding will be from the date you bought them.
Also, in case of gift, the cost of acquisition shall be the cost at which the previous owner, who actually acquired the asset (other than by way of gift or inheritance). The cost at which you acquired the shares shall be considered as the cost of acquisition while computing capital gains.
If your mother sold the shares after holding for more than 12 months from when you acquired them, the gains, if any, from the sale will be termed as long-term capital gains (LTCG). The LTCG from sale of listed shares liable to STT can be claimed as exempt from tax under section 10(38) of the Income-tax Act, 1961. Further, the amount of exemption should be disclosed in your mother’s personal tax return for her to be disclosure compliant.
If your mother sold the shares before holding them for up to 12 months from when you acquired them, any gains from the sale will be termed as short-term capital gains (STCG). It should be computed as the difference between net sale proceeds (after deducting the incidental transfer charges) and cost of acquisition (as described above).
STCG from sale of listed shares liable to STT will be taxed at flat 15%. Where the total taxable income excluding STCG is below the threshold taxable limit, then such a shortfall can be adjusted against the STCG and the balance STCG will be taxed at 15%.
If the shares sold are unlisted, the holding period for classifying the resulting gains as STCG or LTCG would be 36 months from the date you acquired the shares.
So, if the shares sold are unlisted and held for more than 36 months from the date you acquired them, the gains from the sale will be termed as LTCG.
The LTCG from sale of unlisted shares is computed as difference between net sales proceeds and indexed cost of acquisition and taxed at 20%. The cost of acquisition is indexed by multiplying the original cost by the notified Cost Inflation Index (CII) for the year of sale and dividing by the CII of the year of purchase by person who has actually acquired the asset.
If the shares are sold after holding for less than 36 months, the gains, if any, will be termed as STCG. The same would be taxable as per applicable income tax slab rates.
If total taxable income during the FY exceeds Rs.1 crore, surcharge should be levied at 12% on basic tax (as applicable). Further, education cess of 3% will have to be applied on basic as well as surcharge (if applicable).
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