Additional levies

TAX QUERIES

- Rasiklal Thanawala, Mumbai

Provisions of Income tax Act, 1961 that apply to the equity shares of a company listed on a recognised stock exchange are as under:

After October 1, 2004, any gain arising from sale of equity shares sold through a recognised stock exchange and on which STT has been duly paid would depend on whether it is long-term or short- term. Long-term capital gains (shares held for more than a year) is fully exempt under Section 10 (38). Short-term capital gain is taxed at the rate of 10 per cent under section 111A. If bonus shares are sold after holding for more than a year, no tax is payable since the same is exempt. If sold within the year, then there is a tax of 10 per cent. If the bonus shares are issued by an unlisted company, then the long-term capital gains arising from sale of such shares would be taxable at the rate of 20 per cent plus surcharge and education cess and short-term, at rates applicable under the head of 'other income'.

Prior to my marriage 10 years ago, I had purchased Tisco shares . After marriage, I gifted them to my wife. Due to the recent spurt in the stock prices, my wife has sold the same. I wish to know the tax implications on the capital gains made on these transactions.

-Bhavesh Purohit, Navsari

The good news is that the entire capital gain made by your wife on sale of Tisco shares held by you for over 10 years is exempt under section 10(38) of the Income Tax Act, 1961. This is because since you have held it over a for a period of one years, you will be entitled to long-term capital gains.

So even if the holding period in your wife's hands is less than one year, the gains will still be treated as a long-term because it has been bought by you ten years back. The gift of shares by you to her will also not attract any tax in your hands nor in her hands. This is because it is a gift by one spouse to another which is squarely exempt under section 56(2)(v). Only gifts of sums of money are chargeable to under income tax.

The writer is a chartered accountant