I have inherited some shares which are in demat mode. I have no idea what was the purchase price of these shares. If I sell these shares in the market, then how to calculate long-term capital gains? If I decide to transfer these shares in my son's name do I have to prepare a Gift Deed?
In the case of inheritance, the cost of acquisition for capital gains purposes is taken the cost to the previous owner who had bought it for consideration. I presume that the shares inherited by you in the demat account are listed as equity shares. In case the total holding period of you as well as for the person from whom you have acquired these shares is more than 12 months the profits shall be treated as long-term capital gains.
In general, if the asset inherited was purchased before 1st April 2001, the fair market price on 1st April 2001 can be taken as the cost of acquisition to compute long-term capital gains. However, in case the shares inherited are listed shares, the closing price of these shares on 31st January 2018 can be taken as your cost of acquisition if the same were acquired before that date.
In respect of listed shares, the benefit of indexation is not available and the profits made on the listed shares sold through a broker are taxed at a flat rate of 10% after initial one lakh rupees of profits. The initial one lakh of profits are taxed at zero rate and thus are effectively tax-free in your hands. The limit of one lakh is to be computed taking into account the aggregate of long-term capital gains made on listed shares and equity-oriented schemes.
If you transfer these shares to your son, it is advisable to prepare a gift deed for documentation. In case your son is a minor, any income arising on these shares will be clubbed with the income of the parent with higher income as long as he is a minor. There will be no tax incidence at the time of gifting of these shares to your son but the same may be subject to capital gains depending on the holding period, type of shares, and platform on which these are traded.
Balwant Jain is a tax and investment expert and can be reached at jainbalwant@gmail.com and on @jainbalwant on Twitter.
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Published: 16 Apr 2024, 01:27 PM IST