Kindly clarify on the applicability of grandfathering of capital gains pertaining to the purchase of shares in physical form through transfer deed form. Subsequently, shares were dematerialised during 2009. The same company issued bonus shares in the year 2017. Now, I would like to sell the above shares. Also, advise the applicability of tax rate.
Rengarajan
I understand that the shares are held by you in Demat form (converted from physical form). The benefit of grandfathering u/s 112A is applicable on transfer of equity shares acquired before 01 February 2018 on which STT is paid both at the time of purchase and sale of equity shares. However, Central government through notification has specifically excluded purchases done before October 1, 2004 from chargeability of STT.
Hence, in case the shares are purchased on or before October 1, 2004, the provisions of grandfathering would be applicable even if STT is not paid at the time of acquisition of shares. However, in case the shares are purchased after October 1, 2004, the provisions of grandfathering would be applicable only when STT has been paid on such transactions.
Bonus shares: As per the provisions of section 55 of the Act, where an individual is allotted any additional financial asset without any payment (i.e. bonus shares), cost of acquisition for the bonus shares would be considered as FMV if allotted prior to April 1, 2001 and NIL if allotted post April 1, 2001. Further, if such shares are allotted on or before January 31, 2018 then grandfathering benefit is available if STT is paid on transfer of shares at the time of sale. Since these shares are listed in India and traded on a recognised stock exchange, same would be eligible for benefit of grandfathering provisions and LTCG for these shares shall be calculated by considering such grandfathering provisions.
Tax rate: Long-Term capital gains on sale of equity shares (i.e. held for a period exceeding 12 months), shall be chargeable to tax at 10 per cent without the benefit of indexation on gains exceeding ₹1 lakh.
The writer is a practising chartered accountant.
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