STT payment not allowed as expense when computing income under 'capital gains'

Suresh Surana Posted online: Tuesday, Oct 15, 2013 at 0000 hrs
My father held some equity shares in certain listed companies for about two years. These have now been devolved to me on his death. What will be the tax implication if I sell these shares now?

— Mohit Singh

As per Section 2(42A) of the Income Tax Act, 1961, if an asset is received by way of inheritance, the period of holding of the previous owner will also be taken into account in determining whether it is a long- term or short-term capital asset. As such, your holding period will be calculated from the period for which it has been held by your father.

As such, the gains arising from sale of shares will be treated as long-term capital gains and will be eligible for tax exemption under Section 10(38), provided they are sold through a recognised stock exchange and the securities transaction tax(STT) is paid on such a sale.

In September 2013, I sold a house and need to pay capital gains tax. If I buy a new home in my wife’s name, would I get exemption from paying property tax?

— Bhaskar Malik

As per Section 54 of the Income Tax Act, an individual can claim exemption from capital gains arising from the transfer of a residential house property if the following conditions are satisfied: (a) The house property that is transferred is a long-term capital asset (i.e., capital assets should be held for more than 36 months); (b) a new house is purchased within a year before, or within two years after the date of transfer of the house property. Under Section 54 of the Income Tax Act, a taxpayer transferring a property— where the resulting capital gains on transfer has been re-invested in a residential property in the name of such taxpayer or a property jointly co-owned along with the spouse — will be eligible to claim exemption.

In your case, as the new home is in your wife’s name and assuming that you are not a co-owner in such a house property, you will not be eligible to claim exemption from capital gains.

I am a delivery-based investor, treating profit from shares as short- or long-term capital gains. Kindly inform whether STT, service tax, stamp duty, etc., charged in the contract note for transaction done through a stock exchange is to be added while calculating the cost price while buying. Similarly, will the net consideration after deducting STT, service tax, etc, be considered as sale value?

— Vimal Modi

The cost of acquisition of shares would include expenses incurred on purchase of shares like service tax, stamp duty, brokerage, etc., except STT. Similarly, consideration received on sale of shares should be after deduction of service tax, stamp duty, brokerage, etc., except STT.

Section 48 of the Income Tax Act states that while computing the income chargeable under the head ‘capital gains’, any payment made for securities transaction is not allowed as expenditure.

* The writer is founder of RSM Astute Consulting Group

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