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Capital gain

Pravin (Associate) (127 Points)

08 March 2011

How to calculate Capital Gain in following case?

'X' acquires 10,000 shares from his father by way of gift on 1.7.94 (FMV on the date Rs. 6,00,000). His father had acquired thsese shares in Jan 1981 (FMV on 1/4/1981 Rs. 1,50,000). 'X' began to deal in shares from 1.9.01 by converting the above shares in stock in trade and crediting his capital account with Rs. 4,00,000. The market value of thsese shares as on 1.9.01 was Rs. 7,00,000. 'X' sold these shares on 25.03.2010 for Rs. 8,00,000.

Regards,

Pravin

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10 Replies

Pankaj Arora (Learner) (3134 Points)
Replied 08 March 2011

As you have converted this shares into stock in trade you have to clubb this income with your business income and than pay tax according to your income.

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CA SHRIPAL LUNIYA (CA, CS Final & M.Com) (744 Points)
Replied 08 March 2011

Rs. 7 lac is ur Long term Capital Gain nd Rs. 1 lac is ur Buisness Income.

Coz on which date u convert ur shares into stock from that date it will deal as business nd it's income or loss will show in business head & FMV deemed to be sales consideration for Capital Gain purpose.

Pankaj Arora (Learner) (3134 Points)
Replied 08 March 2011

Please pay stt on LTCG because it’s a huge amount to make it tax free.

CA SHRIPAL LUNIYA (CA, CS Final & M.Com) (744 Points)
Replied 08 March 2011

Yaa pankaj is right, if u sales these shares in stock exchange then stt charge on it so ur this profit is tax free.

AVIJIT (CA FINALIST) (370 Points)
Replied 08 March 2011

I don't agree with the above.Indexation on Rs.150000 will be done from1.7.94 to1.9.01. Then this amt will be deducted from 700000. This difference will be your LTCG. The difference between 7Lakh and 8Lakh i.e.1Lakh will be your Business Income. Both LTCG and Business Income are for A.Y. 10-11.

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(Guest)

AVIJIT IS FULLY CORRECT...

U S Sharma (glidor@gmail.com) (21063 Points)
Replied 09 March 2011

Originally posted by : Pravin
	How to calculate Capital Gain in following case? 'X' acquires 10,000 shares from his father by way of gift on 1.7.94 (FMV on the date Rs. 6,00,000). His father had acquired thsese shares in Jan 1981 (FMV on 1/4/1981 Rs. 1,50,000). 'X' began to deal in shares from 1.9.01 by converting the above shares in stock in trade and crediting his capital account with Rs. 4,00,000. The market value of thsese shares as on 1.9.01 was Rs. 7,00,000. 'X' sold these shares on 25.03.2010 for Rs. 8,00,000. Regards, Pravin

1) take indexation benefit on cost from jan 81 to aug 01,

2) as there was no STT paid on date of conversion of capital asset to stock in trade, u had to pay captial gain tax on the date of conversion taking the fair market value of stock in hand less the indexed cost value since 81

3) sale proceeds less the fair market value as on 01/09/01 is your business profit

but stop a while

have u traded random in market with these shares or "trading means" just sale of these shares?

if just sale of these shares then ofcourse u are eligible to get LTCG benefit ............. 8 lacs less cost of acquisition in 81 ( ignoring the intermediate transactions) subject to only criteria that u have paid STT on sales and the sales have been routed through a recognised stock exchange.