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I had purchased 50 shares of TCS at ₹2,400 on 17-11-2015. The highest traded price on 31-1-2018 was ₹3,150. TCS had declared bonus of 1:1; ex-date was 29-5-2018. What is the incidence of short/long-term capital gain tax (LTCG) in the current year under the following scenarios?
(1) Sold entire holding of 50 shares on 22-5-2018 at ₹3,525.
(2) Sold entire holding of 50 shares on 28-5-2018 at ₹2,000 (presumed)
(3) Sell original holding of 50 shares now at ₹1,750 and continue to hold bonus shares
(4) Sell entire holding of 100 shares now at ₹1,750
(5) Sell bonus shares after one year from the bonus issue
(6) Is it advisable to sell shares at cum-bonus and buy after ex-bonus to avoid paying more capital gain tax?
Cyril DSouza
As per the amendment made in the Finance Act, 2018, LTCG exceeding ₹1 lakh arising on transfer of listed equity shares shall be taxable at 10 per cent. The cost of acquisition shall be higher of (a) actual cost of acquisition, and (b) lower of fair market value of such share on January 31, 2018 (highest quoted price) and full value of consideration as a result of transfer.
The cost of acquisition for bonus shares allotted after January 31, 2018, shall be nil. The incidence of capital gains under the various scenarios will be as under:
(1) Cost of acquisition shall be ₹3,150 (higher of ₹2,400 and ₹3,150). LTCG is ₹375 (3,525-3,150) — ₹18,750 for 50 shares, which is less than ₹1 lakh. Hence, capital gain shall be treated as exempt.
(2) Cost of acquisition shall be ₹2,400 (higher of ₹2,400 and ₹2,000 (lower of ₹3,150 and ₹2,000)). Long-term capital loss (LTCL) is ₹400 (2,000-2,400) per share — ₹20,000 on 50 shares. This can be set off against other LTCG or carried forward to subsequent eight tax years to be set off against LTCG.
(3) Cost of acquisition shall be ₹2,400 (higher of ₹2,400 and ₹1,750 (lower of ₹3,150 and ₹1,750)). LTCL is ₹650 (1,750-2,400) per share — ₹32,500 on 50 shares. This loss can be set off against other LTCG or carried forward to subsequent eight tax years to be set off against LTCG.
(4) Cost of acquisition shall be ₹2,400 (higher of ₹2,400 and ₹1,750 (lower of ₹3,150 and ₹1,750)) for original shares, and nil for bonus shares. LTCG is ₹55,000 (175,000 (1,750x100)-120,000 (24,00x50)), which is less than ₹1 lakh. Hence, capital gain income shall be treated as exempt.
(5) Cost of acquisition shall be nil for bonus shares, and accordingly, the sale consideration received from sale of bonus shares shall be treated as LTCG. If the amount exceeds ₹1 lakh, it shall be taxable at a concessional rate of 10 per cent.
(6) Capital gains depends on sale value, purchase cost and holding period. As you would notice, the transfer of shares cum-bonus resulted in capital gains in scenario 1, and loss in scenario 2. One needs to evaluate various factors to ascertain the tax impact.
The writer is Partner, Deloitte India. Send your queries to taxtalk@thehindu.co.in
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