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Photo: iStock
Photo: iStock

Invest LTCG from the sale of shares in residential property to get exemption

Already owning a residential house property in India shall not disentitle the person to claim the rollover exemption under Section 54F

I am working in a software company and pay my taxes in India. I hold shares of my company, which is listed on the US stock markets. The perquisite tax has already been deducted by my employer in India from my salary for the stocks that I am holding. I have held these stocks for more than two years now. Will the capital gains arising from the sale of these stocks in the near future termed as long-term capital gains (LTCG)? Also, will I get complete exemption if I invest all the money received from the sale of these stocks into a residential property in the country? I already have a residential flat in India—which is registered in my name—which was bought 10 years back. I don’t have any other property.

—Vikram Singh

It is assumed that the shares have been allotted to you by your employer after 1 April 2001. We are also assuming that you are a resident and ordinarily resident (ROR) in India for tax purposes in the financial year of the sale of the shares.

As the equity shares were held by you for more than 24 months from the date of allotment, gains arising out of the sale would be taxable as LTCG in your hands.

LTCG on the sale of shares received under Esops (employee stock options) is calculated as the difference between the net sale proceeds (sale proceeds less incidental expenses) and the indexed cost of acquisition (ICOA).The cost of acquisition shall be the fair market value (FMV) of the shares considered for the purpose of computing the perquisite value of the shares received under Esops. The indexed cost of acquisition of the shares would be calculated as the cost of acquisition or Cost Inflation Index (CII) of the financial year of allotment of shares x CII of the year of sale. Note that CII for FY21 is yet to be notified.

The resultant LTCG is taxable in your hands at the rate of 20% (plus applicable surcharge and cess).

A rollover exemption can be sought by you against this LTCG under Section 54F of the Income-tax Act, 1961, by investing the net sale consideration from the sale of shares towards purchasing or constructing a residential house property in the country, subject to the prescribed conditions and timelines.

The fact that you already own one other residential house property in India shall not disentitle you to claim the rollover exemption under Section 54F.

Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India. Queries and views at mintmoney@livemint.com

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