If we are to open a new joint account, in the name of B and C, we would like to know whether the transaction would be considered as long term or short term.

And we would like to know whether the capital gains would be computed from the date on which they were originally purchased or from the date on which they are transmitted to the new joint demat account — opened in the names of B and C?

We would also like to know what will be taken as the cost of acquisition of shares transferred from A to B and whether it should be taken at the original price at which it was purchased or on the market price on the date of transfer to the joint demat account of B and C?

— Anil Khare

Since the shares have been willed by A to B, there will be no transfer as a result of the transmission of the shares from A to B on the demise of A in the light of the specific provisions in Section 47, which provides that when a capital asset is transferred by certain modes which will include a Will, the charging provisions of Section 45 under the head capital gains will not apply.

There will also be no capital gains implications on the transfer of the shares from the joint demat account of A, B and C to joint demat account of B and C.

The date of acquisition of the shares and the cost will have to be reckoned as the date on which the shares were originally acquired and such acquisition price will be taken as the cost of acquisition.

The market price on the date on which the shares were transferred from the joint demat account of A, B and C to the joint demat account of B and C cannot be taken as the cost of acquisition.

You may, however, note that Section 45(2A) specifically provides that the cost of acquisition and the period of holding of any securities is to be determined on the first-in first-out method with reference to each demant account.

I have transferred shares which were acquired by me more than three years ago under a buyback arrangement to the company which issued the shares.

Since the transfer was under a buyback scheme, no securities transaction tax was paid at the time of sale.

The gain, however, is a long-term capital gain since the shares were acquired more than three years ago

If I were to invest the entire proceeds or gain in bonds of the Rural Electrification Corporation or HUDCO, will I be able to enjoy the tax exemption? — B.J. Prasad

Since no securities transaction tax was paid at the time of transfer of the shares no exemption can be claimed by you in respect of the capital gain and the same will be chargeable to tax as long-term capital gains.

The rate of tax applicable to the gain would be 20 per cent (as increased by the appropriate surcharge and additional surcharge) in accordance with Section 112 of the Act.

Since the gain is long term you may, however, claim exemption under Section 54EC on reinvestment in bonds of the National Highway Authority of India or the Rural Electrification Corporation.

The investment in these bonds will have to be made within six months from the date of transfer.

The exemption under this Section will be to the extent of amount invested in the bonds. You may, however, note that no exemption can be claimed under this Section in respect of an amount exceeding Rs 50 lakh in a financial year.

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