Income from Capital Gains for CFP – 6

Buy Back of shares Section 46A :

Any consideration received by a shareholder from any company on purchase of its own shares shall be chargeable to tax on the difference between the cost of acquisition and the value of consideration received by the holder.

 

Example:

On 15th September, 2001, Varun purchases 500 shares of ABC Ltd. a listed company @Rs. 50 per share. Under a scheme of buy back of its own shares, on 15th June, 2006, ABC Ltd. buys back the shares from Varun at a price of Rs. 75 per share. Calculate the capital gains tax payable by Varun, if any. Assume Cost Inflation Indices are 2000-01: 406, 2001-02: 426 and 2006-07: 519.

a)Rs. 1367.

b)Rs. 1250.

c)Nil.

d)Rs. 1408.

Solution:

• Full Value of Sale Consideration(F.V.S.C) 500 * 75 37500
• Cost of Acquisition(C.O.A) 500 * 50 25000
• Indexed Cost of Acquisition 25000 * 519 / 426 30457.74
• L.T.C.G (with indexation) => F.V.S.C – Indexed C.O.A 7042.25
• L.T.C.G (without indexation) = > F.V.S.C – C.O.A 12500
• L.T.C.G Tax = 0.1 * L.T.C.G (without indexation) 1250

Employee Stock Option Plan:

Capital gain arises in the PY in which these assets are sold by the employee. Cost of acquisition is the price at which such shares were issued to him.

 

Conversion of Debentures into Equity Shares 49(2A)

*If sold on stock exchange no LTCG but STT is payable.

Conversion of Preference Shares into Equity Shares:

• If preference shares are converted to equity shares it will be regarded as a transfer and there will be capital gain to the shareholder on allotment of equity shares
• Consideration in this case will be fair market value of the equity share on the date of allotment.

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