My wife used some money I gifted to her for investments in shares. How will the capital gains be calculated?
As per section 56 of the Income-tax Act, money received by an individual from any person during any financial year without consideration, the aggregate value of which exceeds Rs.50,000, is taxable under the head “income from other sources”. However, exemption is available if the money is received from a relative, which includes among others the spouse of an individual. Accordingly, the money received by your wife from you shall not be taxable in her hands.
You may examine the documentation/registration and applicability of stamp duty with respect to the gift transaction.
The other important aspect is the applicability of clubbing provisions. As per section 64 of the Act, any transfer of asset to spouse without adequate consideration attracts clubbing provisions and accordingly the income arising to the spouse out of the asset transferred is taxable in the hands of the transferor spouse. Accordingly, the capital gains, if any, resulting from the sale of shares in which your wife invested out of the gifted money shall be taxable in your hands.
For capital gains tax, it has to be seen whether the shares qualify as long- or short-term capital asset, which depends on the period of holding.
If the shares are held for at least 12 months from the sale date, they shall be classified as long-term capital assets. Long-term capital gains (LTCG) shall be computed as the difference between the net sales proceeds (after deducting incidental transfer charges) less the indexed cost of acquisition. In case of LTCG, while calculating the cost of acquisition, the cost inflation index has to be considered. The net taxable LTCG shall be clubbed with your income and shall be taxable in your hands at 20.6% (including education cess). Further, in case the shares (other than equity on which securities transaction tax, or STT, is applicable) are listed, you have an option to offer LTCG either at 20.6% (including cess) with indexation or 10.3% (including cess) without indexation. The LTCG resulting from sale of shares, on which STT has been paid, could be claimed as tax-exempt under section 10(38) of the Act. However, the said LTCG should be disclosed in your tax returns to be compliant from disclosure perspective.
If the shares are held for less than 12 months from the sale date, it shall be classified as short-term capital asset. Short-term capital gains (STCG) shall be computed as the difference between net sale proceeds (after deducting incidental transfer charges) and cost of acquisition, but the benefit of indexation shall not be available. The net taxable STCG should be clubbed with your income and shall be taxable as per the applicable income-tax slab rate. Further, STCG arising from sale of equity shares on which STT has been paid shall be taxable at 15.45% (including cess).
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