Personal Finance

Tax query: How to calculate capital gains on listed securities without actual cost, purchase date

| Updated on April 10, 2021

I purchased listed securities as investment before January 31, 2018, including the investment in rights and bonus issues. The securities were sold during the current year 2020-21 (AY 2021-22), but the cost and date of purchase is not ascertainable. Is it possible to compute capital gains, without actual cost and date of purchase? If yes, how? Explain how it can be uploaded in ITR.

R VenkataramaniSince the listed securities were acquired by you before January 31, 2018, and sold in the current year 2020-21 and the holding period is more than 12 months, it would qualify as a long-term capital asset under the Act. Where the shares are purchased before January 31, 2018, the cost of acquisition shall be the higher of the following:

actual cost of acquisition; or lower of (i) fair market value (FMV) of such share on January 31, 2018 (highest quoted price) or (ii) full value of consideration as a result of transfer.

For shares purchased earlier, you may consider the FMV as on January 31, 2018, and compare it with the selling price to derive the cost of acquisition as per the rule above on the assumption that the actual cost of such shares will be lower than the FMV as on January 31, 2018. For bonus/right shares, the cost of acquisition of the right shares/bonus shares acquired before January 31, 2018, shall be the FMV of such bonus/right shares as on January 31, 2018. Further, you may note that the Income Tax Return Forms require detailed disclosure with respect to the sale price, actual cost of acquisition, FMV as on January 31, 2018, etc. Hence, it could be challenging to report such details in the absence of actual details and also substantiate the same in case of any query raised by the tax authorities.

Please provide your comments on the following two instances: 1) I have been paid ₹4,500 as dividend by a company without TDS, since my dividend was below ₹5,000 the company deducted no tax on it. 2) I have been paid ₹5,800 as net dividend by another company after TDS at 7.5 per cent from the total dividend payable to me.

Is any tax compliance required on my part with regard to these two instances? In the first case, do I have to pay tax on dividend income of ₹4,500 though it is below ₹5,000. In the second instance, the company has already deducted tax from my dividend income and paid the net amount of ₹5,800.

Anita SahaEffective April 1, 2020, as per the Income Tax Act,1961 (‘The Act’), dividend income is taxable in the hands of shareholders at the applicable slab rates. As per Section 194 of the Act, companies are required to deduct TDS at 10 per cent on dividends paid to resident shareholders exceeding ₹5,000 in a financial year (FY). The said rate of 10 per cent is reduced by 25 per cent, i.e., 7.5 per cent for all the dividend payments made till March 31, 2021, due to Covid-19. Accordingly, you are required to offer gross dividend income earned during the FY and pay tax at the applicable tax rates, as reduced by the taxes deducted at source.

I have earned substantial income doing margin trading. On an average I have earned ₹20,000 per month and paid around ₹6,000 as margin interest. Can I claim deduction on short-term capital gain in the return?

S SudarsanAs per Section 45 of the Income Tax Act, 1961 (The Act) any profits or gains arising from transfer of capital asset shall be chargeable to tax under the head Capital Gains in the year in which the transfer took place. As per Section 48 of the Act; the income chargeable under the head “Capital gains” shall be computed by deducting the expenses incurred on transfer & the cost of acquisition and cost of improvement thereto, from the full value of the consideration received or accruing as a result of the transfer of the capital asset. Expenditure incurred wholly and exclusively in connection with transfer of the securities could be added to the cost of acquisition of shares for deriving the capital gains. However, claiming of interest on margin trading of shares under the head ‘capital gains’ is not free from litigation. If it is added to the cost, then appropriate documentation/reasoning regarding claiming of such expenses needs to be kept during the audit/scrutiny proceeding under the Act.

Published on April 10, 2021

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