The Hindu Business Line : Repaying loan through shares

Will there be any tax implications on such transfer? Can I get the benefit of exemption on long-term capital gains, if I hold the shares for more than a year? — Krishna Ganatra

There will be no tax implications on the transfer of shares from your friend to you, which is merely the repayment of the debt owed to you by him.

If you sell these shares after holding it for a period exceeding 12 months, through a recognised stock exchange where securities transaction tax is charged at the time of sale of the shares, the gain will be exempt.

This exemption will be available under Section 10(38) of the Act.

I sold a piece of property, which I bought a month ago and made a short-term capital gain of Rs 50 lakh.

I intend to buy shares worth Rs 1 crore in some of the companies which have declared bonus shares and where the record date is far ahead.

After the record date, I intend to sell the original shares and book a short-term capital loss of around Rs 50 lakh. I propose to sell the bonus shares after holding for a year, so that there would be no tax on the long-term capital gains.

The purchase and sale of shares would be made through a demat account. Will it be possible for me to adjust the short-term capital gains on sale of the property against the short-term capital loss from sale of shares during the same year? — Avinash

What you propose to do is typically known as bonus stripping. You may note that there are some restrictions in Section 94(8) to prevent tax avoidance through bonus stripping.

This Section, however, would only apply to units of mutual funds and would not apply to transactions in shares. The transaction as stated by you, therefore, appears to be quite legitimate with no provision prohibiting the same.

The capital loss that you book on the sale of the original shares, which is a short-term capital loss would be available for adjustment against short-term capital gain on sale of property in the same year.

My husband started investing in shares 30 years ago from his salary.

Recently he passed away and since we had no children, the entire shares held in his name in demat form has been transferred to my name in a separate demat account, since I am his legal heir under the provisions of the Hindu Succession Act.

I now propose to gift these shares held in my demat account to my brother-in-law without receiving any consideration under a registered gift deed.

Is the gift deed valid as the gift is from me to my brother-in-law? Will my brother-in-law be liable to any gift tax? As the shares have been acquired by my husband before 1998, will my brother-in-law be liable to pay any tax on the long-term capital gains, if he decides to sell the shares subsequently? — Tara

There would be no tax implications on the gift of the shares by you to your brother-in-law. Section 56(2)(v) makes a specific exclusion when a gift is made to a relative and the term relative is defined also to include your brother-in-law.

In any case, it may be noted that Section 56(2)(v) gets attracted when there is receipt of any sum of money without consideration. As is clear, the Section gets attracted only when a sum of money is received.

The term money by itself would mean a currency or a medium of exchange and can encompass assets as well.

However, the use of the words "any sum" before the use of the word "money" makes it clear that only where cash or cheques or drafts etc are received, the Section will get attracted.

Understood in this sense, it will be clear that assets are outside the purview of a charge under this provision.

It is felt that the sum of money whether received directly or indirectly would be governed by the provision. Therefore, when what is received is shares and not money, Section

56(2)(v) would not be attracted even if the gift is made to a person other than a relative where the gift is in the form of assets as explained earlier.

The gift will be valid and your brother-in-law will not be liable for any tax.

If your brother-in-law were to sell the shares, the gain would be long term, since your period of holding and the period of holding of your husband will also be taken into account in determining whether the gain is short term or long term.

If the sale of shares is through a recognised stock exchange where securities transaction tax is paid at the time of sale, the same will be exempt under Section 10(38) of the Act.

I paid a sum of Rs 12,700 as tuition fee for my higher studies in a university.

Under which Section can I claim this amount as deduction/exemption? Am I eligible for deduction under Section 80-C in respect of the tuition fee paid by me? — Venu Madhav Kota

The sum paid by you as tuition fee for your higher studies in a university will not be eligible for any deduction or exemption under the Income Tax Act.

Tuition fees (excluding development fees, donations or other payments of similar nature) paid for full-time education of any two children of an individual will qualify for deduction under Section 80C.

This payment of tuition fee should be to a university, college, school or other educational institutions situated within India.

This Section does not provide for claiming deduction in respect of tuition fee paid for ones own education.

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