Jigar M. Patel
International Tax Attorney
Query: My father had invested in listed equity shares in 2015-16. He passed away in October, 2023 and I have received his entire share portfolio on inheritance. With the stock market now at its peak, I am keen to sell the shares in February, 2024 and reap maximum profits. However, I am worried about the fact that since I would have held the shares for just around four months, I would attract tax on Short-Term Capital Gains (STCG) at 15.60%. On the other hand if I were to wait for another eight months to get the benefit of reduced rate of tax of 10.40% on Long-Term Capital Gains (LTCG), I am afraid that the present gains may or may not still be available. Can you please guide me how to resolve my dilemma?
Reply: The good news for you is that you can sell all your shares inherited from your father right away and still offer your Capital Gains to tax, as LTCG and not STCG. This is keeping in view the special provisions of section 2(42A) of the I.T. Act, which provide that where a capital asset is acquired by a taxpayer either by way of Gift, Will, Succession or Inheritance, or under the Partition of an HUF, in all such cases, for determining the period of holding in his case, the period for which such asset was held by the previous owner, should also be included.
Therefore, in your case, it will be deemed that you have held the shares received on inheritance from 2015-16. Since the period of such holding would be more than twelve months, the gain arising on the sale of the same will be treated as LTCG. Moreover, you can also avail of the benefit of opting for ‘grandfathering’ the cost, adopting the base price of 31st January 2018.
Equity Gains of NRIs deprived of Basic Exemption Limit
Query: I am a Non-Resident Indian (NRI). During FY 2023-24, my taxable income includes bank interest of Rs.1,75,000 and short-term capital gains (STCG) of Rs.1,15,000 from equity shares. What would be my tax liability in this case for the coming assessment year 2024-25?
Reply: Although the total income of Rs.2,90,000, representing bank interest and STCG is less than the basic exemption limit of Rs.3,00,000, you need to keep in mind that being an NRI, you would be able to avail of the basic exemption limit only in respect of the Bank Interest of Rs.1,75,000.
Section 111A prescribes tax at a flat rate of 15.60% in respect of short-term capital gains arising from equity shares or equity oriented mutual funds. However, the proviso to the said section allows the benefit of the basic exemption limit of Rs.3,00,000 to be set off in respect of such STCG, only in the case of residents.
In view of this restriction, you as an NRI would not be entitled to avail the benefit of exemption in respect of the STCG of Rs.1,15,000. You will thus attract a tax liability of Rs.17,940 at the flat rate of 15.60% on the STCG earned by you.
You also need to keep in mind that as a non-resident you are not entitled to enjoy the benefit of tax rebate u/s. 87A.
