For shares inherited or acquired as present, tips on how to calculate earnings tax on sale

Question: I had inherited 100 shares of a TCS Ltd. in 2007 from my father. The value at which he acquired these shares just isn’t accessible to me. On 20-4-2009, the corporate issued bonus shares within the ratio of 1:1, making my complete holding 200 shares. Then once more on 19-4-2018, the corporate issued bonus shares within the ratio of 1:1 making my complete holding 400 shares. I didn’t take part in any of the buyback of the corporate previously however 50 shares beneath buyback in March 2022 had been accepted @ ₹4,500. I’ve offered the stability 350 shares @ 3364 per share on fifth August 2022. How the capital positive factors of those shares needs to be computed?

Answer: There is not any inheritance tax in India so there was no tax legal responsibility on you on the time of inheriting the shares. Moreover, there is no such thing as a tax legal responsibility when one receives bonus shares from an organization. It is just when the shares are offered, one has to pay tax both as quick time period capital positive factors or long run capital positive factors relying on whether or not the shares had been held for greater than 12 months or lower than 12 months.

For inherited belongings and people acquired beneath a present, the holding interval of all of the earlier proprietor ranging from the one who had truly paid for is to be included within the holding interval of the vendor. For belongings inherited or acquired as present, the price can also be to be taken the worth at which the asset was acquired by the earlier proprietor who had truly paid for it. The value of bonus shares acquired is to be taken as zero for computation of capital positive factors.

For belongings acquired previous to 1st April, 2001 the truthful market worth as on 1st April 2001 is to be taken as the price of the asset. However, in case of listed shares (whether or not bought or acquired in any other case) held on thirty first January, 2018 and offered after thirty first March 2018, the truthful market worth of the shares as on thirty first January 2018 is to be taken as value in case holding interval is greater than 12 months.

So in respect of 200 shares (Including 100 bonus shares) held by you on thirty first January 2018 the truthful market worth of those TCS shares on thirty first January 2018 i.e. Rs. 3,112.35 per share is to be taken as value. For the bonus shares acquired by you after this date i.e. on 19-4-2018 the price shall be taken as zero.

The quantity acquired by you in respect of fifty shares beneath buyback is absolutely tax-free beneath Section 10(34A) of the earnings tax Act as the corporate itself is required to pay tax on buyback. However, it’s essential disclose the identical beneath the schedule EI (Exempt Income) whereas submitting your ITR for evaluation 12 months 2022-2023.

50 shares accepted beneath buyback are to be appropriated out of your 100 shares initially inherited making use of the FIFO (First in First Out) technique, out of 400 shares held on the date of buyback.

Cost of 350 shares offered now’s labored out as beneath:

50 Shares out of holding on thirty first January 2018 at FMV Rs. 3112.35 per Shares=1,55,618

100 Bonus Shares held on thirty first January 2018 at FMV of Rs. 3112.35=3,11235

200 bonus shares acquired as bonus shares on nineteenth April, 2018 = Nil

Total Cost Rs. 466,853

Long time period capital positive factors are Rs. 7,10547/- (Sale of 350 shares @ 3364-cost Rs. 466853).

The similar might be taxed at flat charge of 10% with out indexation after preliminary one lakh of long run capital positive factors taken collectively of all listed shares and models of fairness oriented schemes taken collectively. You can declare exemption from these long run capital positive factors in case you make investments the sale proceeds for getting a residential home topic to satisfaction of prescribed circumstances beneath Section 54F.

Balwant Jain is a tax and funding skilled and will be reached onjainbalwant@gmail.com and @jainbalwant on twitter.

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