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Tax on capital gain depends on time period they are held
March, 24th 2015

There is often an element of doubt about the calculation of the time period for the holding of shares in a company. The time period of the holding is significant because the moment the period crosses a time period of 12 months the asset becomes a long term capital asset and any capital gains that are earned on this have a zero per cent tax rate applicable to it. Thus the investor would want to ensure that their holdings fall into this bracket especially in times of a market rally because this will end up with a lower tax impact.

Demat holdings

One of the questions that investors have is with respect to the manner of calculation of the time period for the holding of the shares. There are cases wherein shares have been bought in a physical form many years ago and then they have been converted into demat form. The shares are sold after this and the question that arises is whether the one year time period should include the time period when the shares were held in physical form or will this just include the demat time period. It could be that the sale of the shares after being converted to demat form has taken place in less than a year and the worry is that this could lead to the individual having to pay tax.

Actual position

The actual position as far as the tax calculations is concerned is that the entire time period of the holding of the shares need to be considered while calculating the time period for which the shares were actually held by the individual. . The process of demat of the shares is just a means of conversion of the manner of holdings of the investment and hence this is not an actual act of purchase or sale. What is important in the process is to actually see which shares have been taken for the purpose of demat. This is possible because for a physical holding there are distinctive certificate numbers that are available. The individual can thus know exactly which are the shares that have been converted in this manner and the time when they were actually purchased and this would make the calculation process easier to undertake.

Distinctive issues

The process of looking at the time period of the holding of the investment is different from the manner in which the shares in demat are to be considered for determining which shares have been sold. The point with respect to the time period of the holding is simple which is that this would have to be taken from the time that they were actually purchased. On the other hand the process of determining which of the shares were actually sold is important to give a cost to the entire holding. This actually helps the individual to distinguish between the various holdings and specifically which of them has been sold. Once this is determined then the individual would have to see the cost for this particular holding and the time when this was actually purchased.

Right calculation

The right calculation and consideration of the details are important so that there is no problem in terms of payment of the taxes on the investment. This is significant as there should not be any confusion in the entire matter and it will ease the entire process for the individual. This can be quite a task especially if the number of holdings is large and there are some more transactions that have been done during the year. Knowing the details would also ensure that the process is completed easily and without any problems.


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