Where the sale value is less than the listed price, the cost for the purpose of computation of LTCG shall be sale value or actual cost, whichever is higher
I am a senior citizen and have no insurance—except mediclaim—and live off equity dividends and FD interest. For medical needs, I sell shares—held over 10 years—and keep income below ₹5 lakh. The problem is many firms are bent on delisting, in which case I have to tender the whole lot. How do I manage if I sell shares and face delisting, because then my income would shoot between ₹5 and 10 lakh?
We have assumed that you have acquired the shares after 1 April 2001.
As the equity shares are held by you for more than 12 months (listed shares)/24 months (unlisted shares/ delisted shares), the asset shall be considered as long-term capital asset, and the gains from the sale would be taxable as long-term capital gains (LTCG) in your hands.
In case the listed shares are transferred, capital gain is computed as the difference between net sale consideration (actual sale consideration less brokerage and incidental expenses) and the prescribed cost of acquisition. The said prescribed cost for the purpose of computation of LTCG from sale of listed shares shall be the highest listed price of the shares as on 31 January 2018, provided the listed price as on such date is lesser than the sale value. However, where the sale value is less than the listed price, the cost for the purpose of computation of LTCG shall be sale value or actual cost, whichever is higher. The resultant LTCG to the extent it exceeds the overall limit of ₹100,000 per annum, is taxable in your hands at 10% plus applicable surcharge and cess.
In case the unlisted (delisted) shares are transferred, capital gain is computed as the difference between net sale consideration (actual sale consideration less brokerage and incidental expenses) and the indexed cost of acquisition.
The indexed cost of acquisition would then be calculated as cost of acquisition /cost inflation index (CII) of year of purchase * CII of year of sale. (CII prescribed for FY 2020-21 is 301). Further, as per Section 50CA of the Act, if the actual sale consideration is lower than the fair market value of the unquoted shares (as prescribed under Rule 11UAA of the Income-tax Rules, 1962) at the time of sale, the fair market value would be regarded as the deemed sale consideration for the purpose of calculating such LTCG. The resultant LTCG is taxable in your hands at 20% plus applicable surcharge and cess.
There are no provisions prescribed in cases where the shares have undergone delisting.
Accordingly, a view may be adopted that the capital gains computation is dependent on whether the equity shares are listed or not as on the date of transfer (i.e. sale).
Separately, a roll over exemption can be sought against this LTCG under Section 54F of the Act by purchasing or constructing a residential house property in India, subject to the prescribed conditions and timelines.