On this article, we talk about Methods to calculate LTCG with a Grandfathering clause for fairness shares that underwent break up and tips on how to fill Schedule 112A.
In regards to the writer: Manmohan Sethumadhavan is a freelancer, investor, and private finance fanatic “searching for absolutely the reality.” You’ll be able to comply with Manu on Twitter @ManuTsr.
- I bought 1000 Nos. of AMRUTANJAN HEALTH CARE LIMITED on 01-01-2016 at Rs.488 per share for a complete quantity of Rs.4,88,000
- The share underwent a break up from Face Worth of Rs.2 to Rs.1 on 13-04-2018, and thus, I’ve 2000 Nos. of shares.
- I bought your entire shares on 11-03-2024 at Rs.665 per share, totalling Rs.13,30,000
For the reason that holding interval is over one yr, the positive aspects listed here are categorised as Lengthy Time period Capital Positive factors u/s 112A. For the reason that shares had been bought earlier than 31-01-2018, the grandfathering clause is relevant, and the positive aspects accrued earlier than the mentioned date could be ignored. The Honest Market Worth (FMV) as of 31-08-2018 must be taken for this. The legislation says as follows:
“Clarification” to Part 55(2)(ac):
For this clause –
(a) “honest market worth” means –
(i) In a case the place the capital asset is listed on any recognised inventory trade as on the thirty first day of January 2018, the very best worth of the capital asset quoted on such trade on the mentioned date
Now, that is fairly easy usually. The very best worth on the mentioned date could be taken and multiplied by the variety of shares. The very best worth per share on 31-01-2018 for this share is Rs.605. However on this case, there is a matter. The inventory has been break up from FV Rs.1 to FV Rs.2; thus, my 1000 Nos. of shares have develop into 2000 Nos. on 13-04-2018, i.e., after the date for FMV. The variety of shares on 31-01-2018 – the date for FMV, is just 1000.
| As on date | No. of shares held |
| 01-01-2016 | 1000 |
| 31-01-2018 | 1000 |
| 13-04-2018 | 2000 |
| 11-03-2024 | 2000 |
I’ve seen many tax practitioners deciphering in such a manner that the FMV is calculated by multiplying the very best worth per share on 31-01-2018 by the variety of shares bought, i.e., 2000, which, as per them, is a plain interpretation of the above clause.
Many inventory brokers have additionally been seen issuing Capital Positive factors Statements on this manner. This finally ends up with an FMV of Rs.12,10,000 and long-term capital positive aspects of Rs.1,20,000, which is unsuitable.
Including extra obvious justification to this view, in Schedule-112A of ITR-2 and ITR-3, there is just one column to enter the variety of shares/models bought, and there’s no approach to enter the variety of shares/models on the date of buy, on the date of calculation of FMV, and on the date of sale, individually. The Honest Market Worth is to be entered as “per share/unit foundation”, and the overall FMV is calculated robotically by multiplying this by the variety of shares (which, in fact, is the variety of shares bought) for which you don’t have any management.
However that is each incorrect and illogical. Even with a easy studying of the above part 55(2)(ac), it may be understood that the FMV shall be “the very best worth of the capital asset” on the mentioned date. When shares are purchased in heaps, bought in heaps, and capital positive aspects with grandfathering are calculated individually, the FMV shall even be calculated for every lot. Thus, the very best worth for your entire 2000 shares bought, no matter its standing, whether or not it has undergone any break up, merge or amalgamation, as of 31-01-2018, is to be taken because the FMV for that specific lot of sale.
Allow us to additional analyse the legislation.
Part 55
(2) For the needs of sections 48 and 49, “price of acquisition”, –
(b) in relation to some other capital asset, –
(v) the place the capital asset, being a share or a inventory of an organization, grew to become the property of the assessee on –
(d) the sub-division of any of the shares of the corporate into shares of smaller quantity, means the price of acquisition of the asset calculated close to the price of acquisition of the shares or inventory from which such asset is derived.
It’s clear from the above part that in case of splits, the FMV needs to be taken in a pro-rata manner and thus the price of acquisition needs to be arrived close to the acquisition of the unique asset. Therefore on this case it shall be arrived
- by multiplying the value per share Rs.605 by 1000, the variety of shares held on 31-01-2018, or
- by multiplying the pro-rata worth per share i.e., Rs.302.50 (605/2) by 2000 – the variety of shares bought which equals to Rs.6,05,000 and thus a capital achieve of Rs.7,25,000.
This may be additional sophisticated in case of a number of splits and mergers like HDFC-HDFC Financial institution. That is additionally relevant to ETFs and Mutual Funds models.
Right here is how this knowledge ought to be stuffed in ITR Schedule-112A.
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