VR Logo

Exchange one Asset with Another

My father purchased some shares of a company in 1997 and gifted the same to my wife and me. As we are constructing a house, these shares were sold for utilisation of sale proceeds in the construction. Are we liable for any gift tax or capital gain tax on such a sale?

My father purchased some shares of a company in 1997 and gifted them to me and my wife jointly in September 2001. Since we are in the process of constructing a house, we sold these shares in August 2002 for utilisation of sale proceeds in the construction. Are we liable for any gift tax or capital gain tax on sale of the shares?

Rakesh Agarwal, Mumbai

At the time of gift, no gift tax is payable by either you or your father, as the provisions of the Gift Tax Act are not applicable to any gift made on or after October 1, 1998.

The shares were purchased by your father in 1997, i.e. more than three years ago. Thus these would be treated as long-term capital assets even in your hands. The cost of acquisition would also be taken as that paid by your father in 1997 for acquiring the shares for the purpose of calculating the capital gain. Since you intend to invest the sale consideration towards construction of residential house, (assuming you do not have any other residential house in your name), you are not liable for any capital gain tax, provided you either complete the construction by the last date by which you are required to file your income tax return for the current financial year or else deposit unspent amount in Capital Gain Accounts Scheme to be utilised later on for construction.

In any case, you should complete the construction within three years of date of sale of the shares. In case you choose not to invest towards construction of house, you are liable to pay long-term capital gain tax. Further, you will not be entitled to the benefit of Cost Inflation Index factor for the period in which the shares were held by your father.