Stories
Inherited Shares: Capital Gains Tax Calculation Explained for 1980s Acquisitions
- •An individual inherited physical shares from her father, bought in the 1980s, dematerialized them in 2021, and sold them in 2026.
- •For inherited assets, the taxpayer can use the original owner's acquisition cost; if acquired before April 1, 2001, the Fair Market Value (FMV) as of April 1, 2001, can be used.
- •For listed shares, the January 31, 2018, grandfathering provision applies, allowing the closing price on that date to be taken as cost, provided the original owner acquired them before February 1, 2018.
- •The grandfathering provision applies even if shares were inherited after January 31, 2018, as long as the original owner acquired them before this date.
- •Indexation benefit is not available for these capital assets; a flat tax rate of 12.50% applies to long-term capital gains exceeding Rs. 1.25 lakh.
Key Questions Answered
For inherited capital assets, the taxpayer can use the cost at which the original owner acquired it. If the shares are listed and were acquired by the original owner prior to the cutoff date, the closing price on January 31, 2018, can be taken as the cost of acquisition for computing long-term capital gains.
Yes, the grandfathering provisions will apply even if the shares were inherited after the January 31, 2018 cut-off date, provided it can be established that they were acquired by the original owner before February 1, 2018.
No, the benefit of indexation is not available for inherited listed shares and units of equity-oriented schemes. Taxpayers must pay tax at a flat rate of 12.50 percent on long-term capital gains exceeding Rs. 1.25 lakh.
