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Capital Gains Tax Questions and Answers 2013
Question 1: While calculating short term capital gains on transactions of shares through depository participants (DPs), FIFO system is adopted means first delivery of shares received in demat account is settled against first sales. So what would be the position when one person sells shares in morning trade and covers them up on the same day before market ends. In this case, there is no actual delivery of shares. Is the amount of intraday gain or loss could be taken under the head of income from capital gains or any other head?
Answer: This is speculation profit and would be treated as business profit, but the thing is that, if you keep the scrip as an investments then FIFO system is applied, but in case when the shares are bought and sold in the same day, then weighted average will be taken for that stock for the valuation of profit under the head speculation disclosed separately. It is preferable to take weighted average because there are huge numbers of transactions in intraday and one should not go for the FIFO basis.
Question 2: Mr. A, Mr. B and Mr. C are joint holders of "N" number of shares. They have a demat account in joint name in one DP. Now, they jointly transfer the shares into the account of Mr. A in other DP via off-market trade, so will Mr. A be entitled to any exemptions as regards to long term capital gains?
Answer: This is being clearly noted in the Income Tax Rules that for taking the benefit of Long Term Capital Gains, i.e., tax exemption U/S 10 (38), the transaction should be passed through Security Transaction Tax, as in your query the scrip has been transferred by offline trade and therefore no such STT had been charged that is why no exemption benefit will be available; however, they can take benefit U/S 54 by investing entire capital gains in RFC account. In that sense, entire long term capital gain would be exempted subject to the amount deposited in the RFC account.
Question 3: Mr. P who is the son of Mr. B receives shares of certain listed companies via off-market transfer into his demat account. Mr. B had been holding them for a period of more than 12 months. Will Mr. P also be entitled to same exemption as Mr. B regarding long term capital gains exemption? If there are any circulars or notifications on any of the above matters, kindly inform me about the same.
Answer: No his son will not be allowed to take the exemption under the Income Tax Act 1961. As per income tax rules if anyone bought shares for an adequate consideration from others, then the ownership also transfers. In the present case, share is transferred from a father to his son for some consideration and therefore period of holding would be counted from the day on which the scrip had been transferred to his DP and if it is less than 12 months, it would not be treated as long term capital gains and it will be short term capital gain. However, in the present condition, the father is transferring the shares through offline; therefore, no STT had been charged in that transaction; hence, no benefit would be availed.