18 September 2012
Hi Forum, Recently my uncle gave me some share certificates of a company as birthday gift and I checked the status of shares and they were not being traded rather a buy back option had come up. I gave all the shares in buy back and got a big sum of money. My question is : 1. Am i liable to pay Income Tax on the money received by selling/buy back offer? If yes, then how much percent as tax 2. Is there any way i can save tax by investing this money towards my housing loan, fixed deposit, RBI bonds etc? 3. If this is considered as gift from uncle at what rate will this be taxed? What is the proof I need to have to show that the shares were given as gift?
18 September 2012
For gift, a letter from UNCLE will do. In case of GIFT, cost to previous owner is taken as well as period of holding is calculated with respect to previous owner (In this case your UNCLE) If it is long term, many exemptions are available.
18 September 2012
Thanks Mr.Amol The situation is like this: My uncle held these shares since past 10years or more and recently gave it to me on my birthday. I got them transferred in my name and then sold them back to the company and got the money. To escape tax do I need to register a gift deed from my uncle and then can i re-invest this money towards Housing loan or bank fixed deposit? Can you please help me in knowing a way out to not to give tax.
18 September 2012
Gift deed is a registerable document and needs stamp duty as well; under Indian Stamps Act. For income tax purpose, many a people do not make a GIFT DEED as such; but prepare a letter of intent. The letter is not a registerable document. You can take the benefit of section 54EC... by investing in REC bonds or NHAI bonds.
18 September 2012
Thanks again Amol ji I will get the letter of intent from uncle. Also I would like to know can I invest in normal fixed deposits from any of nationalized banks instead of REC or NHAI bonds?
18 September 2012
At present exemption is available for these BONDS only. (In a lighter mood, you may keep the same in bank deposit if you pay the capital gain tax. The rest of the amount is all yours)
18 September 2012
At what rate is the amount taxable? Since I sold the shares immediately after the transfer this will be part of Short term gain and 15% tax on profit ? But since these shares i got as gift how to calculate the profit on this as my investments are zero rupees. Pls correct me if i am wrong.
26 July 2025
Got it, let’s break down your situation step-by-step:
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### 1. **Are you liable to pay tax on money received from buyback of shares gifted by your uncle?**
Yes, **tax is payable on capital gains** arising from the buyback.
* Since you sold the shares immediately after the gift, this is considered a **short-term capital gain (STCG)** because the holding period is counted from your uncle's purchase date, not from when you got the gift. * The cost of acquisition for you is the **cost at which your uncle bought the shares**. * The **period of holding** is also considered from the uncle’s purchase date.
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### 2. **At what rate is this short-term capital gain taxable?**
* STCG on shares listed on a recognized stock exchange (with STT paid) is taxed at a **flat 15%** plus applicable cess and surcharge. * But **buyback** of shares by the company is treated differently — the buyback amount received over the cost of acquisition is treated as capital gains. * So, if the shares were **held for more than 12 months by your uncle**, this may qualify as **long-term capital gain (LTCG)** for you. But since you sold immediately after gift, it’s usually STCG as per tax rules on gifted shares.
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### 3. **How to calculate capital gains on gifted shares?**
* **Cost of acquisition = cost to the donor (your uncle)**. * **Period of holding = holding period of donor**. * Example:
* Uncle bought shares 10 years ago at Rs. 10,000. * You received them as gift and sold immediately for Rs. 50,000. * Capital gain = Rs. 50,000 - Rs. 10,000 = Rs. 40,000.
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### 4. **Do you need a registered Gift Deed?**
* Not mandatory for income tax purposes. * A **letter of gift/intention from your uncle** stating the shares were gifted is usually sufficient. * Gift deed is a registered document with stamp duty, but many use just a letter. * Keep proof to show shares were received as gift to avoid disputes.
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### 5. **Ways to save tax on capital gains?**
* You can invest the capital gains amount in specified bonds under **Section 54EC** (like REC or NHAI bonds) within 6 months of sale to claim exemption, up to Rs. 50 lakh. * Investment in **normal fixed deposits** or housing loan repayment does **not** provide exemption under capital gains. * If no exemption is claimed, you need to pay tax on the gains.
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### Summary:
| Question | Answer | | ------------------------------------- | ------------------------------------- | | Tax on buyback of gifted shares? | Yes, taxable as capital gains. | | Tax rate on short-term capital gains? | 15% plus cess and surcharge. | | Cost of acquisition for you? | Cost to your uncle (donor). | | Gift deed mandatory? | No, letter of gift sufficient. | | Investment to save tax? | Invest in 54EC bonds (REC/NHAI) only. |
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If you want, I can help draft a sample **gift letter** or help you calculate exact tax payable based on your numbers. Would that help?
CAclubindia
