'Can I buy capital gain bond to get tax rebate?'

Do you have any personal income tax query?

Mihir Tanna, Associate Director, S K Patodia & Associates (external link), a chartered accountants firm that offers consultancy, audit and tax services, will answer your queries.

Please mail your queries at getahead@rediff.co.in with the subject line 'Ask Mihir' and Mihir Tanna will answer all your tax queries.

Vina Vin: Many thanks to partially answer my query. Request to answer about point no 1 also. For quick reference repeating my statement & query i.e."I have to sell some shares of a particular large company (Listed), originally purchased in 1970 and thereafter getting increased through Bonus Shares in different proportions till last in Aug'2016. Meanwhile the company has also changed its face value from Rs 10 to Rs 1 per share in 2003-2005 or so, and thus increasing the no. of shares. Now I only know about the total nos of shares I have presently. My query is How to calculate its purchase cost (as they are acquired at different times and also through Bonus) as it is required to be shown in ITR? The shares are of listed Company.

Mihir Tanna: As mentioned in my earlier reply; gain earned after 31st January 2018 will be taxable and accordingly, FMV as on 31st January 2018 as per prescribed method will be considered for cost of acquisition.

Actual Purchase cost incurred and bonus issued before 31st January 2018 is not relevant. So in given example say out of 1,00,000 shares, 80,000 shares are acquired by you before 31st January 2018 and 20,000 shares were issued as bonus before 31st January 2018 then the actual cost of 80,000 is irrelevant.

Further, though cost of bonus shares is normally considered as Zero for calculation of Capital Gain; in case of 20,000 shares issued before 31st January 2018; FMV as per prescribed method will be considered as cost even for bonus shares.

Varsha Godbole: GMR Infrastructure Ltd (GIL) demerged its EPC and urban infrastructure business into a new company viz. GMR Power and Urban infrastructure Ltd. (GPUIL) w.e.f. 1.4.2021.

Company allotted to its shareholders 1 shares of Rs 5 each in GPUIL for every 10 shares of Rs 1 held in GIL. In a communication to shareholders, GIL informed that cost of acquisition of equity shares allotted in GPUIL should be 7.29% of the total cost of acquisition of equity shares held in GIL prior to demerger. I have following queries:

1. If I acquired 100 shares of GIL from market @Rs.50 each (Total Rs.5,000) prior to 1.4.21, then will it be correct to treat cost of acquisition of 10 GPUIL equity shares (of Rs. 5 each) post demerger as Rs.364.50 (@Rs.3.645 per equity shares), being 7.29% of Rs.5000, and revise cost of acquisition of 100 shares of GIL as Rs.4,635.50 (@Rs.46.355 per share), being 92.71%of Rs.5,000? (The confusion is because of different face values of equity shares of two companies).

2. Will date of acquisition of equity shares of GPUIL be 1.4.2021 or will it be the original date of acquisition of shares of GIL?

Mihir Tanna: I understand that you are not transferring shares of GIL and you are additional shares of GPUIL. In future if you intend to transfer shares of GIL and GPUIL, cost of Acquisition will be allocated in the ratio in which company decided to distribute net worth between two companies post demerger.

As you have acquired shares in Rs 5000, in my view cost of GPUIL will be 7.29% as informed by Company and balance should be allotted to GIL.

Further, in case of demerger, date on which shares of demerged company is acquired, will be considered as date of acquisition of resulting company. So in your case, date of on which you acquired shares of GIL will be date of acquisition for GPUIL.

Rajeev Kumar Singh: I had bought a land in my daughter’s name. Now I will be selling it. The amount will be credited in her account. Can I get it transferred it in my account and buy capital gain bond and get tax rebate on the amount?

Mihir Tanna: I understand, your daughter is not minor and land was acquired out of amount gifted to your daughter. In such case, capital gain is taxable in the hands of your daughter and she may decide to invest in capital gain bond to get exemption from capital gain tax.

In other words, your investment in capital gain bond will not give her exemption from tax.

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