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Transfer of equity shares/units of an equity oriented fund

Transfer of equity shares/units of an equity oriented fund

In the case of short term capital gains arising from transfer of equity shares in a company or units of an equity oriented fund, the tax payable by the assessee shall be @10% on such short term capital gains provided that such a transaction is chargeable to securities transactions tax. As per the Finance Act 2008, this rate would be 15% w.e.f 1-4-2009. Notably, no deduction is available u/s 80C to 80U from above short term capital gains. In case of LTCG on transfer of equity shares or units of equity oriented mutual funds, provided the transaction has been subject to securities transaction tax, the LTCG is not chargeable to tax at all.

If the transaction has not been subjected to securities transaction tax, the LTCG will be taxed @ 10% if no indexing is claimed and @ 20% if cost of acquisition is indexed. The taxpayer has an option to choose from either of the above.

In case the shares / securities are transferred in demat’ form, for computing capital gain chargeable to tax, the cost of acquisition and period of holding of any security shall be determined on First in – First – out or FIFO basis.

Insurance received

If any person receives any money or other assets under an insurance from an insurer on account of damage to or destruction of any capital asset as a result of

  1. flood, typhoon, hurricane, cyclone, earthquake or other convulsion of nature or
  2. riot or civil disturbance or
  3. accidental fire or explosion or
  4. action by an enemy or action taken in combating an enemy (whether with or without a declaration of war)

then, the value of money and/ or the fair market value of assets received would be treated as full value of consideration and income under Capital Gains is calculated accordingly, for the previous year in which such money and/ or other asset was received.

Conversion of a Capital Asset into Stock-in-trade

Conversion of a Capital Asset into Stock-in-trade is considered a transfer and leads to capital gains. In such cases, the fair market value of the asset on the date of such conversion is to be taken as the full value of consideration arising out of the transfer.

Transfer of Capital assets by a partner to a firm or by a member to Association of Persons, etc.

Though under the general law, firm does not have a distinct legal identity apart from its partners, under the Income-tax Act, transfer of a capital asset by the partner to a firm or by a Member of Association of Persons to the Association of Persons (AOP) by way of capital contribution or otherwise is chargeable to tax as capital gains of the previous year in which such transfer takes place. The amount recorded as the value of the capital asset in the books of account of the firm, AOP or Body of Individuals (BOI) will be deemed to be the full value of the consideration.

Transfer of equity shares/units of an equity oriented fund

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