Taxability of shares on off market basis

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

04 June 2014 Suppose A is holding shares in his/her single name. Thereafter the shares are transferred in the joint names of A & B with A being the first holder. This would amount to transfer under the Income Tax Act. Would capital gains arise in such a case as no consideration is flowing, the transaction is not routed through recognised stock exchange.Besides the first holder remains the same in both the cases
Can any one enlighten on this issue?
Thanks in advance

Nikhil Kaushik

Nikhil Kaushik (Expert)
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04 June 2014 yes it should. to the extent the rights are being transferred to B, the capital gains shall arise.

Amol S Joglekar

Amol S Joglekar (Expert)
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04 June 2014 As per the strict interpretation of Income Tax Act, this is ca[ital gain arising out of the transfer....off the market trade. The value of the shares traded as on the date of transfer shall be considered for calculation of full value of consideration.
Alternatively, you take it as gift and hence out of the perview of sec 56

Querist : Anonymous

Querist : Anonymous (Querist)

04 June 2014 Even if you treat it as a gift, you cannot avoid the process of transfer for registering the shares in joint names. I think therefore S. 56 may not be applicable. Since 1st holder is same, would capital gains tax be still payable & if yes, how would it be computed assuming the shares are held for more than 12 months.

Querist : Anonymous

Querist : Anonymous (Querist)

Nikhil Kaushik

Nikhil Kaushik (Expert)
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04 June 2014 well cost price should be available to you. use the average market price (available from stock exchange website) as consideration.

Querist : Anonymous

Querist : Anonymous (Querist)

04 June 2014 1st holder remains the same in both the cases. Would capital gains tax still be payable?

Nikhil Kaushik

Nikhil Kaushik (Expert)
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04 June 2014 well by including the name of another person on shares, you are diluting your rights...so to that extent ownership is being transferred

Querist : Anonymous

Querist : Anonymous (Querist)

04 June 2014 Accepted the right may be diluted, but for all practical purposes 1st holder is considered, and no monetary benefit accrues to the second holder whether it be receiving consideration on sale or taxing the consideration. In such scenario would the capital gains tax be still applicable?

Nikhil Kaushik

Nikhil Kaushik (Expert)
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08 June 2014 you cannot contend that no benefit accrues to the second holder. once his name is on the share-certificate, he becomes equal right holder

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