Readers' Corner: Taxation

I had acquired 500 shares of Company A in the financial year 2014-15 in an offline transaction for Rs 10,000. The company then merged with Company B, which is a listed entity. I was allotted 100 shares of Company B. I sold my holdings on the exchange for around Rs 1 lakh in August. As I had not paid securities transaction tax when acquiring shares of Company A, do I need to pay any capital gains tax now?
 
Under section 10(38) of the Act, any long-term capital gains (LTCG) tax on an equity share or a unit of an equity oriented fund is exempt, provided the sale is made on or after October 1, 2004 and the transaction is chargeable to securities transaction tax (STT). However, the Finance Act, 2017 amended this section stating that LTCG from transfer of equity shares acquired on or after October 1, 2004 would be exempt from tax only if STT was paid at the time of acquisition of such shares.
 
In your question, it appears that the shares acquired by you in Company A are unlisted shares. If this is the case, you need not worry. The Government of India issued a notification in June 2017 stating that the LTCG tax exemption on sale of listed shares is denied only where the acquisition of existing listed equity share is made on or after October 1, 2004 in a company on which STT was not paid.
 
In your case, when you acquired these shares, they were of an existing unlisted company (Company A) on which STT was not payable hence, you can claim LTCG tax exemption under section 10(38) and accordingly, report the LTCG income under schedule "exempt income" in the return of income. Further, any acquisition which has been approved by High Court (HC)/ National Company Law Tribunal (NCTL) is specifically excluded from the negative list of transactions of acquisition in respect of which exemption under section 10(38) would not be available. Since you have been allotted these shares pursuant to a merger approved by high court, it will not be covered under the negative list and hence, you will not be subject to LTCG tax.
 

Kuldip Kumar

I have an ancestral property in my home town. After my parents died, I am the joint owner of the property, along with two brothers. I want to know if any of us need to pay deemed rent on this empty property and will this rent be split amid three of us?
 
Under Section 23 of the Act, where you own two or more house properties, the property which is not self-occupied by the owner is to be treated as a deemed let-out property and a notional rent is to be offered to tax in India. In your case, you is required to offer to tax a notional rent of the ancestral property in the proportion of your respective share. The due tax liability is also required to be discharged by way of advance tax as applicable.
 
I had bought a house in my brother’s name in the 1980s, but he never stayed there. My son stays there with his family in that house for a few years now. My brother wants to transfer the house back, either in my name or my son’s. Can you please suggest a tax-efficient way that will ensure that there is minimum liability?
 
You have not mentioned why did you buy the house in your brother’s name? Was it a gift to him? How did he show that house in his records and tax return? What was the understanding? Your brother wants to transfer this house back to you? What is the reason? These questions may be relevant in analysing the taxability. On a standalone basis, where your brother transfer the house to you or your son’s name, there should not be any tax on such transfer. There is no inheritance tax levy or gift tax in India. Further, gifts from close relatives are also not taxable in the hands of recipients and accordingly there is no income tax liability on you or your son when your brother transfers the house in your/ your son's name.

---

The writer is partner and leader-personal tax, PwC India. The views expressed are the expert’s own. Send your queries to yourmoney@bsmail.in