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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Capital Gains

Asha inherited listed equity shares from her father, who had bought them ten years ago. She sold them on the exchange three months after inheriting them, paying STT. How is the gain treated?

The gain is long-term, and the cost of acquisition is her father's cost. For inherited assets the previous owner's holding period is included, so ten years plus three months counts. The later sale by the heir is taxable even though the inheritance itself is not.

  1. AShort-term gain, because she held them only three months
  2. BLong-term gain, with the cost taken as her father's costCorrect
  3. CLong-term gain, with the cost taken as the market value on the date of inheritance
  4. DNot taxable, because inheritance is exempt and so is the later sale

Explanation

For an inherited asset, the previous owner's period of holding is added to the heir's period, so the holding is more than 12 months and the gain is long-term. The cost of acquisition is the cost to the previous owner. Inheritance is not a transfer, but a later sale by the heir is taxable.

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