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CA Intermediate · Taxation · Capital Gains

Mr. Harsh Vora received unlisted shares of a private company as a gift from his father. The father had bought them for ₹2,00,000 thirty months earlier. Harsh held the shares for six months and then sold them for ₹3,50,000, with no transfer expenses. What is the nature and amount of the capital gain in Harsh's hands?

It is a long-term capital gain of ₹1,50,000. The father's holding period is added to Harsh's, giving 36 months, which exceeds 24 months for unlisted shares. The cost is also the father's cost of ₹2,00,000, so the gain is 3,50,000 less 2,00,000.

  1. AShort-term capital gain of ₹1,50,000
  2. BLong-term capital gain of ₹1,50,000Correct
  3. CLong-term capital gain of ₹3,50,000
  4. DNo capital gain, as the shares were acquired by gift

Explanation

For gifted assets, the previous owner's period of holding is added to the receiver's, giving 36 months, which is more than 24 months for unlisted shares, so the asset is long-term. The cost to Harsh is the previous owner's cost of ₹2,00,000. Gain = 3,50,000 − 2,00,000 = 1,50,000. Treating cost as nil gives 3,50,000, which is wrong.

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