I exercised my option of 4,500 shares of stock in my employer’s bank, which were offered to me under the ESOP, on January 25, 2018 and transferred the required amount along with tax required on January 29, 2018. The shares were allotted/added to my demat account next month, i.e. February 2018. I still own these shares.
Please let me know if you qualify for the ‘grandfather’ clause on the LTCG, if you sell these shares. During July 2020, I bought 100 shares of Lakshmi Vilas Bank at $20.35/share. In October 2020, LVB underwent liquidation/merger and RBI declared LVB share value to be nil. Kindly advise me how to calculate loss (2035 INR) from ITR.
Sasikumar
Pursuant to the provisions of Section 2 (42A) of the Income Tax Act 1961 (the “Act”), the date on which such shares were allotted under an ESOP for the purpose of calculating capital gains shall be acquired as the date on which such shares were allotted. The grandfather benefit is available U/s 112A from the Act to transfer equity shares acquired prior to February 1, 2018. Since the shares were not assigned to you prior to February 1, 2018, the grandfather provisions benefit will not be available in your case.
It is my understanding that after the liquidation/merger of Lakshmi Vilas Bank, the value of the shares of LVB has become nil and no shares have been allotted in DBS Bank India Limited in place of the shares held with LVB. In this case, it is necessary to analyze whether this transaction (i.e. the value of the LVB share is written off and becomes zero) can be considered a “transfer”.
Pursuant to the provisions of Section 2 (47) of the Income Tax Act 1961 “Transfer” in relation to a capital asset includes- (1) Sale, exchange or assignment of the asset. or (ii) forfeit any rights in it; or…. ” (Third)….
Since, in the present case, there has been a forfeiture of rights towards the shares of LVB, this can therefore be considered as a “transfer”. The resulting loss, which is the capital loss (short-term in this case where the shares were held for less than 12 months) and therefore, can be offset against the capital gains for the 2020-2021 fiscal year or can be carried over to the next 8 years.
The writer is a practicing chartered accountant
Send your inquiries to taxtalk@thehindu.co.in