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Full Value From Sales Proceeds Of Inherited Shares Will Not Be Taxed As Capital Gains

Even where the cost of acquisition for inherited shares is nil, one will still get a deduction for the deemed cost of acquisition for tax calculation purposes.

Even though the cost of purchase for inherited shares is zero, the presumed cost of acquisition is still deductible for tax reasons.

Question: I inherited some shares five years ago, which are lying in my demat account. I am planning to sell these shares now. Since I have not incurred any cost, will the full amount realised on the sale of these shares be taxed as my capital gains? 

Answer: No, the full value of the sale proceeds will not be taxed, as your capital gains are in your hands. Even though your cost of acquisition for inherited shares is nil, you will still get a deduction for your deemed cost of acquisition. For the computation of capital gains, the deemed cost of acquisition for the seller in the case of assets received as a gift or inheritance is the cost of the previous owner, who had actually paid for it. I presume that the shares in your demat account are listed equity shares. As your total holding period and that of the previous owner who paid for it exceeds one year, the profits on the sale of such shares would be considered as long-term capital gains. If you sell the shares through a stockbroker on the platform of an Indian stock exchange where securities transaction tax (STT) is paid, the profits will be taxed at a flat rate of 10 per cent without indexation after the first Rs 1 lakh of long-term capital gains on which no tax is payable. The limit of Rs 1 lakh is to be computed for long-term capital gains on the sale of all listed shares and equity-oriented schemes taken together.
For assets acquired prior to April 1, 2001, the fair market value as on April 1, 2001 can be taken as the cost of acquisition for the purpose of computing long-term capital gains. In the case of listed shares acquired before January 31, 2018 and on which STT has been paid, you get the benefit of grandfathering, under which the market price of the shares on January 31, 2018 is to be taken as the cost of acquisition if it is higher than your deemed cost of acquisition.

Question: Up to what amount can parents make gifts to their children, and up to how many times in a year? 

Answer: Parents can make a gift of any amount to their children without any limit. Likewise, you can make as many gifts as you want during a year. Please note that though there is no upper monetary limit up to which parents can make gifts to their children, one cannot make a single gift of more than Rs 2 lakh at a time in cash. If the gift is made to a minor and your purpose is to reduce your tax liability, it will not serve your purpose because the income of a minor from all the passive sources is required to be clubbed with the income of the parent with the higher income.

Balwant Jain is a tax and investment expert.

(Disclaimer: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)

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