Capital Features Tax on sale of Bonus, Proper & Cut up Shares

On the time of sale of shares, Capital Features Tax is levied relying on the character of the capital positive factors. If the Capital Features are Lengthy Time period in Nature, tax on such positive factors can be levied @ 10% from Monetary Yr 2018-19 onwards and in case such positive factors are brief time period in nature, such positive factors can be taxable @ 15% underneath part 111A. Advisable Learn:-

  • Capital Features Tax on the sale of Shares and Mutual Funds
  • Capital Features Tax on the sale of different Belongings

Capital Features Tax on Sale of Bonus Shares

Bonus Shares are shares that are allotted without spending a dime to the shareholders and the shareholders don’t need to pay something for buying these shares.

Bonus Shares are normally issued in proportions. This may be defined with the assistance of the next instance.

For eg: Mr X acquires 200 shares of an organization on 1-5-2018 at Rs. 50 every. On September 11-2019, the corporate allotted bonus shares within the ratio 1:1. This principally signifies that for each 1 share held, the corporate can be allotting 1 bonus share. Due to this fact within the above instance as Mr X holds 200 shares, he can be allotted 200 shares as bonus. So, the entire shares held by Mr. X on September 11-2019 are 400.

Now on 3-07-2020, Mr X sells all his 400 shares at a value of Rs. 250. In such a case, the Capital Features can be computed individually for the unique shares and bonus shares as defined beneath:-

Capital Features on sale of authentic 200 shares bought @ 50 every

Particulars Quantity
Promoting Value (200*250) 50000
Value of Acquisition (200*50) 10000
Bills on Switch (assumed Nil) Nil
Capital Features on sale of Unique Shares 40000

Capital Features on sale of 200 Bonus Shares

No Tax can be levied on the time of allotment of such bonus shares. Tax would solely be levied on the time of sale of such bonus shares and the computation for a similar has been defined beneath

Particulars Quantity
Promoting Value (200*250) 50000
Value of Acquisition (200*0) 0
Bills on Switch (assumed Nil) Nil
Capital Features on Sale of Bonus Shares 50000

Interval of Holding

The interval of holding can be calculated individually for authentic shares and bonus shares.

In case of the 200 authentic shares which had been bought on 1-5-2018, the interval of holding is greater than 1 yr and subsequently these can be categorized as Lengthy Time period Capital Features. Tax on such Lengthy Time period Capital Features arising from the sale of shares can be levied @ 10% from Monetary Yr 2018-19 onwards.

In case of the 200 bonus shares which had been allotted on September 11-2019, the date of allotment of such shares can be thought of because the date of acquisition. Due to this fact the interval of holding within the above talked about case for bonus shares can be brief time period and subsequently tax on these positive factors of Rs. 50,000 and tax can be levied @ 15% underneath Part 111A.

Capital Features Tax on Sale of Proper Shares

Proper Share is a share wherein the prevailing shareholders are given the choice to accumulate extra shares within the firm at a value decrease than the present prevailing market value.

The Capital Features Tax on the sale of Proper Shares can be computed in the identical method as Capital Features on the sale of Bonus Shares apart from the truth that in case of Bonus Shares, the price of acquisition for buying the bonus shares is Nil, whereas in case of Proper Shares the price of acquisition for buying the Proper Shares can be the value paid for buying the precise shares.

This may be defined with the assistance of an instance. For instance: Mr X purchases 200 shares @ Rs. 50 on 1-1-2019. On 1-5-2020, the corporate offers the prevailing shareholders an choice to buy extra shares of the corporate @ Rs. 45 and Mr X purchases 100 shares @ Rs. 45. On 1-10-2020, Mr. X sells all his shares i.e. 300 shares for Rs. 65.

Capital Features on sale of 200 Shares bought on 1-1-2019 & bought on 1-10-2020

Promoting Value (200*65) 13,000
Value of Acquisition (200*50) 10,000
Bills on Switch (assumed Nil) Nil
Interval of Holding (Bought on 1-1-2019 and maintain for greater than 1 yr) Lengthy Time period
Capital Features on sale of authentic 200 shares Rs. 3,000
Tax to be paid @ 10% Rs. 300

Capital Features on sale of 100 Proper Shares bought on 1-5-2020 & bought on 1-10-2020

In case of Inventory splits, the date of acquisition of the divided shares is taken into account as the identical because the date of acquisition of the unique shares. Due to this fact the capital positive factors can be computed within the following method:-

Promoting Value (100*65) 6,500
Value of Acquisition (100*45) 4,500
Bills on Switch (assumed Nil) Nil
Interval of Holding (Bought on 1-5-2020 and maintain for lower than 1 yr) Quick Time period
Capital Features on sale of authentic 100 shares Rs. 2000
Tax Charge (Tax relevant on sale of Quick Time period Asset) Earnings Tax Slab Charges

Factors to be famous:-

  1. In case the shares had been bought on totally different dates and solely a proportion of the shares have been bought, the shares can be assumed to be bought on FIFO foundation i.e. the shares which had been bought first can be assumed to be bought first and value of acquisition of such shares can be taken for the aim of computation of capital positive factors.

Capital Features Tax on sale of Cut up Shares

Though to a layman, it might appear that the which means of bonus shares and cut up shares is identical however technically talking – each of those are 2 various things. Though their affect available on the market value will be the similar however inventory cut up is totally different from bonus shares and subsequently they’re taxed in a different way.

 

 

The style of computation of capital positive factors tax on sale of bonus shares has already been defined above and now we might be discussing concerning the capital positive factors tax on the sale of inventory splits.

In case of sale of inventory cut up – the date of acquisition of the cut up shares can be the identical because the date of acquisition of the unique shares. The price of acquisition within the case of a inventory cut up can be divided proportionately to the unique and the cut up shares. The identical has been defined beneath with the assistance of an instance.

For ex: Mr. X purchases 500 shares of an organization on 1-4-2020 for Rs. 50 every. On 1-8-2020 – the corporate proclaims that they’ve cut up their shares within the ratio of 1:1 i.e. for each 1 share you’ll get an 1 further cut up share. Due to this fact, Mr. X now has a complete of 1000 shares i.e. 500 authentic shares + 500 bonus shares.

On 1-7-2021, Mr. X sells all of the 1000 shares @ Rs. 60 every. The Capital Features Tax in such a case can be computed within the method specified beneath.

Value of Acquisition in such a case can be computed proportionately within the method specified beneath.

Whole Value of acquisition = 500*50 = 25000

Whole Shares owned after difficulty of cut up shares = 500 + 500 = 1000 shares

Value of acquisition of authentic and cut up shares to be apportioned = 25000/1000 = Rs 25 per share

Tax on sale of authentic 500 shares

Promoting Value (500*60) 30,000
Value of Acquisition (50*25) 12,500
Bills on Switch (assumed Nil) Nil
Interval of Holding (Bought on 1-4-2020 and maintain for greater than 1 yr) Lengthy Time period
Capital Features on sale of authentic 500 shares Rs. 17500
Tax @ 10% Rs. 1,750

Capital Features on sale of 500 Cut up Shares issued on 1-8-2020 & bought on 1-7-2021

The interval of holding of the cut up shares can be thought of as the identical because the interval of holding of the unique shares and the price of acquisition can be apportioned proportionately.

Promoting Value (500*60) 30,000
Value of Acquisition – Proportioned apportionately (50*25) 12,500
Bills on Switch (assumed Nil) Nil
Interval of Holding (Thought-about to be bought on 1-4-2020 and maintain for greater than 1 yr) Lengthy Time period
Capital Features on sale of authentic 500 shares Rs. 17500
Tax @ 10%

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