I have been informed that if equity shares purchased after October 1, 2004 on which securities transaction tax (STT) has not been paid, are sold, they are not exempt from long term capital gains tax. Kindly advice the tax position on the sale of such shares in the following cases:

1. Right and bonus issued on such shares;

2. Amalgamation of such company with another company and consequently shares of amalgamated company allotted;

3. Public issues of companies.

Madan Mohan Mehndiratta

As per Section 10(38) of the Income-tax Act, 1961 (‘the Act’), any income arising on account of sale of long-term capital asset, being equity shares in a company, on or after October 1, 2004 is exempt from tax, provided that the STT is paid at the time of sale of such transaction.

As per third proviso to Section 10(38) inserted by Finance Act, 2017, the above exemption shall be available only if the STT is also paid at the time of purchase of such shares (except in the case of acquisition of shares as notified by central government). The Central Board of Direct Taxes (‘CBDT’) has separately notified the transactions where, even though STT is not paid at the time of purchase/ acquisition, the same shall still qualify for the exemption.

Para b(i) of notification dated June 5, 2017 includes shares whose acquisition is done through an issue of share by company. This may be construed to include shares acquired under right, bonus and public issue. Also, as per para b(iii) of the said notification, it includes shares whose acquisition has been approved by Supreme Court, High Court, National Company Law Tribunal, SEBI or RBI. This shall include shares received under an approved amalgamation scheme.

Let me thank you for your efforts in clarifying the tax doubts of a layman. My query is on interest earned on the savings account of my minor daughter (aged four). On her birthday, her grandfather gifted her ₹1,00,000 (in cheque).

I opened an account in her name and deposited the cheque in her name and myself as her guardian. My question is on the interest earned on this account. Is it taxable under my income? My minor daughter does not have a PAN.

Rajiv

As per the provisions of the Income-tax Act, any income arising to a minor child is to be clubbed and taxed in the hands of the parent whose total income is higher. However, where the income arises on account of manual labour or any activity involving application of skill or talent, the income shall not be clubbed to the income of parent.

As the interest income earned by your daughter is out of the gift received from her grandfather, such interest income shall be taxable in the hands of either of the parent having the higher total income. However, the parent, in whose hands the income is taxed, shall be eligible for an exemption up to ₹1,500 under Section 10(32) of the Act.

The writer is a practising Chartered Accountant. Mail your queries to taxtalk@thehindu.co.in

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