Capital gains in case of transfer of shares

♦ If any capital asset has been transferred like land, building, gold etc. profit shall be called capital gains and if the asset has been transferred within a period of three years, capital gains shall be short term and shall be taxable at the normal rate and if asset is sold after 3 years, it will be long term capital gain.

♦ In case of listed shares or units of equity oriented mutual fund etc., period of three years shall be taken as one year.

♦ In case of long term equity shares or long term units of equity oriented mutual funds or units of business trus​t, capital gains shall be computed as per section 112A provided securities transaction tax has been paid, such capital gains shall be taxed @ 10% in excess of Rs1,00,000 and while computing capital gains u/s 112A indexation is not applicable. 

♦ In case of short term equity shares or the units​, capital gains shall be computed but as per section 111A, such capital gains shall be taxed @ 15%.

♦ In case of right shares​, if right to purchase right shares has been renounced​, amount received shall be considered to be short term capital gains.

Capital gain

Cost of Acquisition Section 55(2)

determined in the manner given below:

Equity shares or units of equity oriented mutual funds or units of business trust which have been sold w.e.f. 01.04.2018 onwards Cost of acquisition shall be higher of

1. Cost of acquisition

2. Lower of

(a) Fair market value of such asset on 31.01.2018

(b) Actual sale value

Cost of acquisition shall be higher of 1. Cost of acquisition 2. Lower of (a) Fair market value of such asset on 31.01.2018 (b) Actual sale value Actual amount paid for purchasing the shares
Bonus shares Shares issued prior to 01.04.2001

Shall be the market value on 01.04.2001 Otherwise Shall be nil

Right to purchase the rights shares has been renounced Shall be nil
Rights renouncee Cost shall be the amount paid to the company and to the right holder who has renounced the right

Example: A purchased equity shares on 01.10.2015 for Rs 1,00,000 and market value on 31.01.2018 is Rs.5,00,000 and shares have been sold for Rs 9,00,000 on 10.04.2019, in this case capital gains shall be computed in the manner given below:

Full value of consideration 9,00,000
Cost of acquisition (5,00,000)
Higher of
1. Cost of acquisition 1,00,000
2. Lower of
(a) Fair market value of such asset on 31.01.2018 5,00,000
(b) Actual sale value 9,00,000
LTCG u/s 112A 4,00,000

Capital gains on conversion of debentures. into shares

As per section 47, no capital gain shall be computed in case of conversion of debenture, into shares, however if subsequently these shares have been sold, capital gains shall be computed as:

1. Cost of acquisition of the shares = the cost of acquisition of the debentures

2. Period of holding shall start from the date of purchasing the debentures

Example-Mr. X has purchased 100 debentures in ABC Ltd. on 01.10.2002 @ Rs.300 per debentures and subsequently these debentures were converted into shares on 01.10.2017 and 3 shares were issued foreach debenture.The assessee has sold all the shares on 01.04.2019 @ Rs. 750 per share and market value as on 31-01-2018 Rs 500 per share . Compute capital gains for the assessment year 2020-21 assuming STT is paid

Computation of Capital Gains
Full value of consideration (300 x 750) 2,25,000.00
Less: *Cost of acquisition (1,50,000.00)
Long Term Capital Gain u/s 112A 75,000.00

*Higher of

(i) COA = 100 debentures x 300 = 30,000

(ii) lower of

(a) FMV as on 31-01-2018 = 300 shares x 500 = 1,50,000

(b) sale value = 300 shares x 750 = 2,25,000

COA = 1,50,000

Full value of consideration for transfer of unlisted shares- Section 50CA

As per section 50CA, where the consideration received or accruing as a result of transfer of a capital asset, being share of a company other than a *quoted share, is less than the fair market value of such share determined, such fair market value shall be deemed to be the full value of consideration received or accruing as a result of such transfer.

The provisions of this section shall not apply to any consideration received or accruing as a result of transfer by such class of persons and subject to such conditions as may be prescribed.

*“Quoted shares” means the share quoted on any recognized stock exchange with regularity from time to time, where the quotation of such share is based on current transaction made in the ordinary course of business.

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5 Comments

  1. R Murali says:

    Just wanted to check how CG tax should be calculated for Partly paid shares (for example RIL) where first payment was made over 1 year ago and second payment was made a couple of months back.

    1. RituAggarwal says:

      On the date of allotment you are the rightful owner. The period of holding will be reckoned from the date of allotment. Cost of share will be the total amount paid by you.

  2. vijaykd says:

    On purchase/sale of shares one has to incur Trading Cost.
    This Trading Cost includes various charges such as : Brokerage,STT,Stamp Duty, Exchange Transaction charges, Sebi Turnover charges,Service Tax and other charges.
    For the purpose of calculation of Capital Gains on sale of shares how
    i) Purchase Value of shares ( On purchase of shares) is arrived at
    ii) Sale Value of shares (On sale of shares) is arrived at
    In other words which of these charges mentioned above are allowed to be included/excluded for exactly arriving at Purchase/Sale Value of shares

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