Tax Query: Will transfer of shares to my daughter’s demat account attract taxes?

I have been holding some shares in my demat account for more than 15 years. I wish to transfer these shares in the name of my daughter to her demat account, with the same DP, over a period of time. Please let me know the taxation implications for me (transferor) taking into consideration the grandfathering concept, and also for my daughter (transferee)

Mathew Joseph

Any transfer of a capital asset as gift would not attract capital gains taxation. Accordingly, you may not be required to pay any capital gains tax while gifting the shares in your demat account to your daughter. Further, this transaction of receiving shares as a gift is not taxable in the hands of your daughter per section 56 (2)(x).  Hence gifting shares to your daughter would not attract taxation for both the transferor and the transferee.  

When these shares are finally sold by your daughter, she would have to offer the resultant capital gain/loss in her return of income in the year of sale. Generally, in case of gifts, cost of acquisition shall be the cost for which the shares were acquired by the previous owner. Since these shares were acquired by you before February 1, 2018, your daughter would have to consider the higher of the following as the cost of acquisition:

(i)        Actual cost of acquisition of the shares to you;

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(ii)      Lower of–

A. Fair market value of the shares as on January 31, 2018, and

B. Consideration received upon sale of shares.

Net sale consideration in excess of cost as determined above is the value of taxable long term capital gains. 

My father had some shares which were bought in the 70’s and 80’s. The share prices are not known. He passed away in 2014 and the shares were transmitted to me. How do I arrive at capital gains tax if I were to sell the shares?

Jaikumar

Assuming that the shares you inherited from your father are not listed, any transfer of such shares would attract long term capital gains taxation. Excess of Net sale consideration over the indexed cost of acquisition is the value of long-term capital gain.

We understand that your father acquired these shares during the 1970s and 1980s. Accordingly, please note that in case of inheritance/gift, the taxpayer has an option to determine the cost of acquisition as either the cost for which the shares were acquired by the previous owner or the fair market value of the asset as on April 1, 2001. Such cost is indexed using the Cost Inflation Indices published and the resulting gain would be taxable at the rate of 20 per cent. (see table)

The writer is Partner, Deloitte India

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