The Hindu Business Line : Shares of stocks, tax-free

I have gifted some stocks to my daughter. These are to be transferred to her so that she can sell them and share the proceeds equally with her sister and brother. In this case, will there be any tax implication on me or my daughter? When these shares are sold and proceeds divided, what will be the tax implication? R. Shenoy

There will be no tax implication on the gift either on you or your children. Section 56(2)(v) only seeks to bring a sum of money received without consideration to tax in the hands of the recipient. In your case, shares, and not money, has been transferred, which would mean that Section 56(2)(v) will not apply.

In any case, the Section grants an exemption on a gift made to a relative, and therefore, the provision will not apply. In the hands of the receiver of the gift, the tax implications on sale will depend on whether the gain is short- or long-term and, further on whether they are sold through a recognised stock exchange or not.

If it is a short-term gain arising from sale through a recognised stock exchange, the tax rate would be 10 per cent (as increased by the appropriate surcharge and additional surcharge). If it is a long-term gain arising from sale through a recognised stock exchange, the gain will be exempt. If it is a short-term gain arising from sale otherwise than through a recognised stock exchange, the normal tax rates applicable to an individual will apply.

If it is a long-term gain arising from sale otherwise than through a recognised stock exchange, the gain will be taxed at 20 per cent computed with the benefit of indexation, or 10 per cent computed without the benefit of indexation in case of shares of listed companies.

If it is a long-term gain arising from sale otherwise than through a recognised stock exchange, the gain will be taxed at 20 per cent computed with the benefit of indexation in case of shares of unlisted companies.

You may note that the cost to those who receive the gift will be the price paid by you for acquiring the shares. Also note that the period of holding to determine whether the shares are long- or short-term will include the period for which you held the shares. Where tax is payable, the tax will have to be paid by all children in the proportion in which they receive the proceeds. This will be so because even though the shares are registered in the name of one of your daughters, you have in effect gifted them equally to your three children. This will be based on the principle of diversion by overriding title.

Will the provision for bonus and dividend stripping apply to shares sold through a recognised stock exchange where STT is paid?

Should I not receive the TDS certificate, how do I file income-tax returns?

I incurred a loss from sale of shares four years ago. These losses are long-term capital losses. In the current year, I have earned long-term capital gains from sale of a house. Is it possible to set off this loss against the capital gain from the sale of land? Dattatreya

The provisions of dividend and bonus stripping are contained in Sections 94(7) and 94(8) of the Act respectively. Section 94(7) provides that if a person acquires any securities or units within three months prior to the record date and sells them within three months after that date in case of shares, or within nine months after the record date in the case of units, and if the dividend or income from the shares or units are exempt, then the loss to the extent of the dividend or income from the shares or units is to be ignored.

Section 94(8) provides that if a person acquires any securities or units within three months prior to the record date and receives bonus shares or units and sells the original holding within nine months after the record date, while retaining the bonus shares or units, the loss if any is to be ignored and taken as the cost of acquisition of the bonus shares or units. These provisions will apply to shares sold through a recognised stock exchange as well.

Where TDS certificates are not received within the time allowed for filing the return, the assessee may file a return without enclosing the same. This will not render the return defective. The TDS certificate can be produced within two years from the end of the assessment year in which the income is assessable and the Assessing Officer will be required to amend the order of assessment, intimation or deemed intimation in accordance with Section 155(14).

There is no prohibition on set off of such loss incurred on sale of shares being a long-term capital loss against the long-term capital gain from sale of the house. You may note that the carry forward of loss incurred four years ago will be possible only if you have furnished the return of income for that year within the time stipulated under Section 139(1) for furnishing the return of income.

I am a senior citizen. I have no taxable income. I have been filing my returns for several years now . If I discontinue filing the return, should I inform the Assessing Officer? K. Ramesh

There is no requirement for you to continue filing the return of income since you have indicated that you do not have any income exceeding the maximum amount not chargeable to tax.

There is no requirement that you intimate the Assessing Officer in this regard. You could simply stop furnishing a return of income. In the event of there being any query from the Department, you can furnish to it the reason for not filing the return of income.

(Mail your queries to taxtalk@thehindu.co.in or by post to `Tax Talk', Business Line, Kasturi Buildings, 859, Anna Salai, Chennai-600002)