Section 50CA (Introduced Vide the finance Act, 2017) FULL VALUE OF CONSIDERATION IN CASE OF UNQUOTED SHARES
Section 50CA (Introduced Vide the finance Act, 2017) FULL VALUE OF CONSIDERATION IN CASE OF UNQUOTED SHARES
• Section 50CA has been made applicable with effect from PY 2017-18 in case of transfer of unquoted shares (ie unlisted shares). Section 50CA is not applicable in case of the transfer of listed shares.
• Section 50CA provides that where the consideration received for transfer 'of unlisted shares is less than their Fair Market Value ('FMV'), the FMV of such unlisted shares shall be deemed as the full value of consideration for the purposes of computation of capital gains. The FMV of unlisted shares shall be calculated in such a manner as may be prescribed.
Illustration: Mr. X transfers 1,000 shares in A Ltd on June 28, 2019, to Mr. Y for a consideration of Rs 9,40,000 (FMV of shares as on the date of transfer is Rs 10 lakhs), These shares were purchased by Mr. X on July 19, 2018, for Rs 7 lakhs. Find out the tax consequences of the above transaction in the following two cases:
• Case I: Shares of A Ltd are not quoted on any stock exchange in India.
• Case 2: Shares of A Ltd are regularly quoted on BSE/NSE but Mr. X has transferred the shares to Mr. Y privately and not through stock exchanges.
Solution: Section 50CA is applicable only in the case of unlisted shares. In the case of listed shares, Section 50CA doesn't apply and the actual consideration received has to be taken as the full value of consideration.
Computation of Capital Gains in the hands of Mr. X:
Particulars | Case 1 (Unlisted Shares) | Case 2 (Listed Shares) |
Full Value of Consideration | 10,00,000 | 9,40,000 |
Less: Cost of Acquisition | (7,00,000) | (7,00,000) |
Short-Term Capital Gains | 3,00,000 | 2,40,000 |
Tax Treatment in the hands of Mr. Y: Mr. Y has acquired shares of A Ltd for Rs 9,40,000 whereas their FMV is Rs 10,00,000. The difference of Rs 60,000 shall be taxable as gift in the hands of Mr. Y u/s 56(2)(x) regardless of the fact whether shares of A Ltd are listed or not.
COMPOSITE TRANSFER OF LAND & BUILDING:
• Land and building are treated as two-separate assets under the Income Tax Act, however, there might be a case of composite transfer where both the assets are transferred simultaneously. In such situations, it may be possible that the period of holding of land is more than the period of holding of building.
• Transferor doesn't carry any business/profession:
Both land and building would be treated as long-term capital assets if their holding period is more than 24 months. If their holding period doesn't exceed 24 months, they would be treated as short-term capital assets.
• Transferor carries on business/profession:
➢ If depreciation is claimed on the building, the building would always qualify as a short-term capital asset irrespective of the period of its holding.
➢ Depreciation is not available in respect of land. The land would be treated as a long-term capital asset if its holding period is more than 24 months. If its holding period doesn't exceed 24 months, it would be treated as a short- term capital asset.
• How to 'attempt practical questions?
➢ If both land and building qualify as long-term capital assets, capital gains can be computed combinedly where the cost of land can be taken as cost of acquisition and the cost of building can be taken as cost of the improvement. The same position can be adopted if both the assets qualify as short-term capital assets.
➢ If land qualifies as a long-term capital asset and building qualifies as a short-term capital asset, capital gains in respect of land and capital gains in respect of building should be computed separately as per the decision of the Karnataka High Court in the case of CIT v. C.R.Subramanian ((1999) 242 ITR 342}].
ADOPTION OF SDV-IN CASE OF AGREEMENT TO SELL LAND/BUILDING/BOTH:
Section 43CA: Transfer of Land/Building/Both as Stock-in-Trade | SDV on-the date of agreement can be adopted if the advance, the amount has been received by any mode other than cash |
Section 50C: Transfer of Land/Building/Both as Capital Asset | SDV on the date of agreement can 'be adopted if the advance amount has been received by account payee cheque` or account payee draft or EC through a bank account |
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