11 November 2013
Sir, An assessee is a share holder in a company holding shares from the year 2000. The company buy back those shares in 2013 march. The STT was not paid for those sale consideration. How should we calculate the capital gain, is indexation is allowable and how can we claim exemption and also where should i invest it to claim exemption of tax and also mention appropriate section for the same.
11 November 2013
Indexation will be allowed. . To save the LTCG -tax- . Investment of sales consideration in a residential house subject to certain conditions U/s 54F. . or Investment of capital gains in the Capital Gain Bonds U/s 54EC.
What will be the treatment of such income from sale of shares in the year 2013(buy back by the company)which was purchased in the year 2000, if S T T is not applicable.
18 July 2024
If the sale of shares in 2013 (through buyback by the company) does not qualify for Securities Transaction Tax (STT) exemption, the treatment of the income for tax purposes would depend on whether the gains are classified as short-term capital gains (STCG) or long-term capital gains (LTCG) based on the holding period of the shares. Here’s a detailed explanation based on the scenarios:
### Short-Term Capital Gains (STCG): 1. **Definition**: If the shares were held for 3 years or less before the buyback, any gains arising from the sale would be considered short-term capital gains (STCG).
2. **Taxation**: - **Rate**: Short-term capital gains from the sale of shares (where STT is not applicable) are taxed at the individual’s applicable slab rates. - **Addition to Income**: The short-term capital gain amount is added to the individual’s total income for the financial year in which the sale occurred. - **Tax Calculation**: The gain is taxed based on the income tax slab rates applicable to the individual’s total income for that year.
### Long-Term Capital Gains (LTCG): 1. **Definition**: If the shares were held for more than 3 years before the buyback, the gains are classified as long-term capital gains (LTCG).
2. **Taxation**: - **Rate**: Long-term capital gains from the sale of listed shares (where STT is not applicable) are typically taxed at a special rate of 20% with indexation benefits. - **Calculation**: LTCG is computed as the difference between the selling price (after considering the buyback price) and the indexed cost of acquisition (adjusted for inflation using Cost Inflation Index (CII) of the purchase year and sale year). - **Indexation Benefit**: Indexation helps in reducing the taxable LTCG by adjusting the cost of acquisition to account for inflationary changes over the holding period.
### Example: - **Purchase**: Shares bought in 2000. - **Buyback**: Shares sold back to the company in 2013. - **Holding Period**: Determine whether the holding period meets the criteria for short-term or long-term gains. - **Tax Calculation**: Depending on whether it’s STCG or LTCG, compute the gain and apply the appropriate tax rate and benefits.
### Important Considerations: - Ensure accurate documentation of the purchase and sale details, including purchase price, buyback price, and any applicable expenses or adjustments. - Consult a tax advisor or chartered accountant for precise calculation and compliance with tax laws.
In conclusion, the treatment of income from the sale of shares (through buyback by the company) in 2013, where STT is not applicable, depends on whether the gains are short-term or long-term based on the holding period. Short-term gains are taxed at slab rates, while long-term gains are taxed at a special rate with indexation benefits.
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