Off-market transaction tax

KoKloxKlon · #1 25th February 2007, 01:07 AM

Hi,
Around 2 years back I did not have a DMAT account, so I gave my friend Rs 100000 for buying shares. Now the value of that those shares Rs200000. I plan to ask him to transfer the shares via off-market transation to my new DMAT account. I have been told that off-market transation does not incur STT ( Securites Transation Tax). Will I have to pay up any other taxes? If so how can I minimise paying these taxes.
Please advise.

aca_trader · #2 25th February 2007, 01:24 AM

Quote:

Originally Posted by KoKloxKlon

Hi,
Around 2 years back I did not have a DMAT account, so I gave my friend Rs 100000 for buying shares. Now the value of that those shares Rs200000. I plan to ask him to transfer the shares via off-market transation to my new DMAT account. I have been told that off-market transation does not incur STT ( Securites Transation Tax). Will I have to pay up any other taxes? If so how can I minimise paying these taxes.
Please advise.

As STT won't be payable and transaction would not be taking place on a stock exchange, you will have to fork out Long Term Capital Gain tax. You can take benefit of certain re-investment schemes,specified under sections 55-54H of the Income Tax Act to avoid or lower the LTCG burden.

Best Regards,
--Ashish

KoKloxKlon · #3 25th February 2007, 11:27 AM

Quote:

Originally Posted by aca_trader

As STT won't be payable and transaction would not be taking place on a stock exchange, you will have to fork out Long Term Capital Gain tax. You can take benefit of certain re-investment schemes,specified under sections 55-54H of the Income Tax Act to avoid or lower the LTCG burden.

Best Regards,
--Ashish

Thank you Ashish. I have the following queries

1) Now should I pay the long term capital gains tax for Rs200000 (current value) - Rs 100000 ( original amount lent to my friend) = 100000 ( profit).

2) Should I pay this amount in the financial year in which my friend does this off-market transaction to my account or can I pay this amount in the financial year in which I sell the shares? If I sell it in this financial year itself. Will it become short-term capital gains?

3) Now let us say the off-market transation happen for Rs200000 and then I sell it off when the market goes down, say for a value of Rs190000. Then should I still pay any long term Capital gains tax as I have made a loss from when the amount was transfered to my account?

4) Is the option of my friend selling these shares and giving me a cheque better so that I can reinvest in those shares again better?

I am looking at options where I have to pay minimum tax. Kindly advise

KoKloxKlon · #4 28th February 2007, 08:25 PM

Quote:

Originally Posted by KoKloxKlon

Thank you Ashish. I have the following queries

1) Now should I pay the long term capital gains tax for Rs200000 (current value) - Rs 100000 ( original amount lent to my friend) = 100000 ( profit).

2) Should I pay this amount in the financial year in which my friend does this off-market transaction to my account or can I pay this amount in the financial year in which I sell the shares? If I sell it in this financial year itself. Will it become short-term capital gains?

3) Now let us say the off-market transation happen for Rs200000 and then I sell it off when the market goes down, say for a value of Rs190000. Then should I still pay any long term Capital gains tax as I have made a loss from when the amount was transfered to my account?

4) Is the option of my friend selling these shares and giving me a cheque better so that I can reinvest in those shares again better?

I am looking at options where I have to pay minimum tax. Kindly advise

Some senior member please respond to this and advise me. Wanted to sell 3 weeks back, but could not as I did not have clarity. Now the market is down

aca_trader · #5 28th February 2007, 10:43 PM

Quote:

Originally Posted by KoKloxKlon

Thank you Ashish. I have the following queries

1) Now should I pay the long term capital gains tax for Rs200000 (current value) - Rs 100000 ( original amount lent to my friend) = 100000 ( profit).

Not you but your friend will have to LTCG. BTW, Sale Consideration paid by you to your friend and not the current market value will form the base for LTCG computation. So if your friends sells you those shares for say Rs. 50,000he can claim Long Term Capital Loss as well.
Further, do not link loan to LTCG. Both are different transactions.

Quote:

2) Should I pay this amount in the financial year in which my friend does this off-market transaction to my account or can I pay this amount in the financial year in which I sell the shares? If I sell it in this financial year itself. Will it become short-term capital gains?

Your friend will have to pay LTCG in the year of the off-market transaction. When you sell those shares again, the same would be sold through exchange and the applicable rules will be used for computation of tax liability. Thus, it'll be STCG at if you sell those shares within the same financial year.

Quote:

3) Now let us say the off-market transation happen for Rs200000 and then I sell it off when the market goes down, say for a value of Rs190000. Then should I still pay any long term Capital gains tax as I have made a loss from when the amount was transfered to my account?

As explained earlier, The two transaction are different from each other and hence will be taxed seperately.

Quote:

4) Is the option of my friend selling these shares and giving me a cheque better so that I can reinvest in those shares again better?

That will be a hassle-free transaction. Rs. 1,00,000 will be treated as your interest income as it's a result of the loan given by you to your friend.

Best Regards,
--Ashish

KoKloxKlon · #6 2nd March 2007, 09:29 AM

Thanks a lot Ashish. You have cleared all my doubts.

aca_trader · #7 2nd March 2007, 09:53 AM

Quote:

Originally Posted by KoKloxKlon

Thanks a lot Ashish. You have cleared all my doubts.

Always a pleasure my friend!

Best Regards,
--Ashish

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