How to calculate tax on sale of Gifted or Inherited Shares?

When you sell shares that you received as a gift or through inheritance, the transaction can attract capital gains tax in India. While receiving the shares as a gift or inheritance itself is often tax-exempt (especially from specified relatives or through a will), the subsequent sale of these shares is taxable.

Understanding #CapitalGainsTax on #GiftedSharesTax and #InheritedSharesTax in India is crucial for #FinancialPlanning. Learn how #CostOfAcquisition and holding period impact your #IncomeTaxIndia. #InvestSmart and comply with #IndianTaxLaws!

Here's a breakdown of how tax is calculated:
Cost of Acquisition for Gifted Shares: The cost of acquisition for you, the recipient, will be the price at which the original owner (donor) purchased the shares. Any cost of improvement incurred by the previous owner is also included.

Cost of Acquisition for Inherited Shares: Similar to gifted shares, the cost of acquisition for you will be the price at which the deceased original owner acquired them. This means you step into the shoes of the previous owner regarding the cost. In some cases, if the original purchase price is unknown, the fair market value (FMV) of the shares on the date of the previous owner's death might be considered the cost.
This is crucial for deciding whether the capital gain is short-term or long-term.

For both Gifted and Inherited Shares: The period of holding is calculated from the date the original owner (donor or deceased) acquired the shares, not from the date you received them.

Short-Term Capital Gains (STCG): If the shares were held for 12 months or less (counting from the original acquisition date), the gain on sale is considered short-term.

Long-Term Capital Gains (LTCG): If the shares were held for more than 12 months (counting from the original acquisition date), the gain on sale is considered long-term.

Tax Exemptions: While the transfer of shares via gift or inheritance is generally exempt from tax for the recipient (especially from relatives or under a will), it's essential to understand the specific provisions of Section 56(2)(x) of the Income Tax Act, which addresses gifts received without consideration. Gifts exceeding ₹50,000 from non-relatives can be taxable as "Income from Other Sources."

Reporting: The capital gains arising from the sale of gifted or inherited shares must be reported in your Income Tax Return (ITR), typically ITR-2.
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