What is the minimum holding period to qualify for long-term capital gains (LTCG) for both listed and unlisted preference shares? What is the LTCG tax on them if they were sold offline (without securities transaction tax or STT)?
Unlisted preference shares should be held for at least 24 months and listed preference shares for 12 months from the date of purchase to qualify as a long-term capital asset. The resultant gain from redemption is taxable as LTCG. It is computed as the difference between the redemption value and the indexed cost of acquisition and improvement. Indexation refers to adjusting the cost of the asset based on the cost inflation index (CII) published by the income tax department for the financial year of purchase and the financial year of redemption.
The LTCG so computed would be generally taxable at 20% (plus applicable cess and surcharge). Assuming you are a tax resident of India, in case of listed preference shares, you can opt to pay tax at 10% (plus applicable cess and surcharge) on the capital gains (calculated without computing the indexation benefit) if this is more beneficial to you.
You can claim exemption from such LTCG by reinvesting the sales proceeds into one residential property in India within specified timelines and subject to satisfaction of other conditions (including that of temporary investing of funds in Capital Gains Account Scheme if necessary). If the calculation results in a loss (long-term capital loss or LTCL), the same can be set off against any other LTCG of the said FY (i.e. FY 2017-18). If there is no such LTCG or it’s insufficient, the balance LTCL can be carried forward for 8 years for set off against any LTCG in those years.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India. Queries and views at email@example.com