Tax Talk

SANJIV CHAUDHARY | Updated on April 13, 2013 Published on April 13, 2013

IW14_PLOT   -  The Hindu

I have a demat and a trading account with a private sector bank. A friend (not a relative) of mine has only a demat account.

He wants to buy some shares. On his behalf, can I buy the shares he wants, incurring the brokerage, STT and other levies, transfer them to his demat account from mine, after receiving the entire consideration reimbursed from him by way of cheque, duly acknowledged with receipt?

The transaction is thus at arms-length for consideration. Does this have any Income Tax or Gift Tax implications and is it perfectly legal?

– Ravi R

In the current tax scenario, there is no restriction on the purchase of shares in your name and then transferring it to your friend. However, tax implication will arise if any profit is earned on the transaction.

We understand that you will not hold the shares and will transfer the shares to your friend as soon as the same are credited to your account and consideration you will receive from your friend will be equal to the amount you paid at the time of purchase of the shares. Hence, there will be no short-term capital gain on the transfer of shares to your friend.

In case there is a difference in the market price of the shares at the time of purchase by you and at the time of transfer to your friend, the difference will be considered as short-term capital gains and taxed at applicable slab rates.

My father and mother held a house plot in a municipality. My father passed away recently. My mother, my sister and I are his only legal heirs. We intend to sell the property.

Both of us (sisters) decided to forego our share and allow our mother to take the entire sale proceeds. The three of us have executed the sale deed.

Please advise whether it is correct to show the entire sale amount in only my mother’s I.T Return and pay the capital gains tax in her name?

Or by virtue of execution of the sale deed by the three of us, is it obligatory for all three of us to show the sale amount in our I.T returns in proportion to our respective shares (under law)?

– Erabelli

Based on the limited facts, we understand that you, your mother and your sister have inherited your father’s share in the plot as legal heirs.

Further, all three of you have collectively executed the sale deed of the plot. Hence, the capital gains arising out of such sale needs to be declared in your individual hands based on your respective share in the plot.

You may later gift your share of consideration to your mother which shall not be taxable in her hands. A gift from a relative (which includes son and daughter) is exempt from tax.

Mail your queries to taxtalk@thehindu.co.in

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Published on April 13, 2013
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