How is a person taxed on gains made from inherited shares ?

—Name withheld on request

We understand that you have inherited certain unlisted shares during the FY 2021-22.

Any profit or gains arising from the sale of these unlisted shares shall be chargeable to tax under the head “Capital Gains”. Since the unlisted shares were received as an inheritance, the cost of acquisition for such unlisted shares shall be deemed to be the cost for which the previous owner acquired it. Thus, in the instant case the cost of acquisition of the unlisted shares will be the cost at which the previous owner (i.e. the person from whom you inherited such shares) acquired it.

Further, as per the provision of section 2(42A), unlisted shares which are held for a period not more than 24 months before sale, then the same shall be considered as short-term capital assets and thus the profit or gain arising from the sale is treated as Short-term Capital Gain (STCG). 

In case the same is held for a period more than 24 months, the unlisted shares shall be considered as Long-term Capital Assets and thus the profit or gain arising from the sale is treated as Long Term Capital Gain (LTCG). 

It is to be noted that the period for which the previous owner held these shares, will also be considered to calculate the period of holding for you for the purpose of determination of short-term / long-term capital asset.

Additionally, as per provisions of section 50CA of the Act, it may also be noted that where the consideration received on sale of unlisted shares is less than the fair market value (‘FMV’) determined as per the manner prescribed [i.e. as per Rule 11UAA of the Income-tax Rules, 1962 (‘the Rules’)], then the FMV so determined shall be considered as deemed consideration for the purposed of computing the capital gain incomes.

Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India