Friends,
I am holding few shares of listed company received through ESOP in 2004 & 2005. They are eligible for LTCG if I am selling through online trading transaction involving STT. However I wish to transfer these shares to my wife’s demat account which will be off-market transaction (without involving STT). What will be treatment given as regards to LTCG since they will be transferred without any consideration. When they are transferred to wife’s account, how capital gains will be calculated as cost of acquisition is not known.
Section 45 deals with capital gains. Capital gains arises when gains arises on account of transfer of capital asset .If you transfer the shares without any consideration to your wife , it is nothing but a gift to your wife . There is no gain to you , so there is no question of capital gains in hand of husband.
In hands of wife also, gifted shares can not taxed as income u/s 56(2)(vi) as the gift from relative are not income.
So what happens when wife sells the share?
Section 64 of the I T Act prescribes that if an individual transfers an asset to his spouse without adequate consideration , the income arising from such asset shall be clubbed with the total income of the individual who transferred the asset to his/her wife. So , in your case if the capital gains arising to your wife on sale of ESOP shares , shall be added to your total income and charged to tax.
What will be the cost of acquisition for wife?
Section 49 of the I T Act provides for cost with reference of certain mode of acquisition. Clause (ii) of the Section 49 deals with cases when capital asset is transferred under a “will or gift”. The said clause says as under
Section 45 deals with capital gains. Capital gains arises when gains arises on account of transfer of capital asset .If you transfer the shares without any consideration to your wife , it is nothing but a gift to your wife . There is no gain to you , so there is no question of capital gains in hand of husband.
In hands of wife also, gifted shares can not taxed as income u/s 56(2)(vi) as the gift from relative are not income.
So what happens when wife sells the share?
What will be the cost of acquisition for wife?
Section 49 of the I T Act provides for cost with reference of certain mode of acquisition. Clause (ii) of the Section 49 deals with cases when capital asset is transferred under a “will or gift”. The said clause says as under
49. (1) Where the capital asset becomes the property of the assessee-
(i)…..
(ii) under gift or will;
(iii)……
the cost of acquisition of the asset shall be deemed to be the cost for which previous owner of the property acquired it., as increased by cost of any improvement of the assets incurred or borne by the previous owner or by the assessee as the case may be.
So, the price husband paid for acquiring shares , is the cost to wife as per section 49(1)(ii) of the I T Act.
Can tax be saved?
Yes , 100 % ,if the shares are held for more than one year , and sold through recognized stock exchange and STT is paid , gain on such share shall be fully tax free as per section 10(38) of the I T Act. So, even if there is clubbing provision u/s 64, no tax is payable , because the I T Act completely exempts such gains.
How period of holding in Wife’s hand determined?
The last thing to know how the period of holding the capital asset is computed in case the capital asset is owned by mode of gift or will . Section 2(42A ) of the I T Act defines “short term capital asset” and clause (b) of Explanation 1 under Section 2(42A) states
(b) in the case capital asset which becomes the property of the assessee in the circumstances mentioned in sub-section (1) of section 49 , there shall be included the period for which the asset was held by the previous owner referred to in the said section;
Can tax be saved?
Yes , 100 % ,if the shares are held for more than one year , and sold through recognized stock exchange and STT is paid , gain on such share shall be fully tax free as per section 10(38) of the I T Act. So, even if there is clubbing provision u/s 64, no tax is payable , because the I T Act completely exempts such gains.
How period of holding in Wife’s hand determined?
The last thing to know how the period of holding the capital asset is computed in case the capital asset is owned by mode of gift or will . Section 2(42A ) of the I T Act defines “short term capital asset” and clause (b) of Explanation 1 under Section 2(42A) states
(b) in the case capital asset which becomes the property of the assessee in the circumstances mentioned in sub-section (1) of section 49 , there shall be included the period for which the asset was held by the previous owner referred to in the said section;
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