Are Capital Gains Taxable When Shares Are Transferred Through Demat Transmission?
Transmission of securities through a demat account, such as to a nominee or legal heir after the holder's death, is different from an ordinary sale. The capital-gains issue generally arises when the person who receives the securities later transfers them.
Quick Answer
For shares, calculate the capital gain from sale consideration less the applicable cost of acquisition and eligible transfer expenses, then determine the short-term or long-term character and apply the rate rules for the relevant year. The relevant asset or transaction named in this question should be identified before applying the capital-gains computation and rate rules. This page specifically addresses “Are Capital Gains Taxable When Shares Are Transferred Through Demat Transmission”.
Transmission versus transfer
Transmission normally occurs because of operation of law, such as death of the holder. It should be distinguished from a voluntary transfer or sale. The depository may change the beneficial ownership records without there being an ordinary market sale by the deceased holder.
What happens to the cost?
For securities received by succession, inheritance or devolution, section 49 generally deems the cost to be the previous owner's acquisition cost, subject to the statutory rules.
What happens when the nominee sells?
When the nominee or legal heir subsequently sells the securities, the resulting gain is generally computed using the applicable cost and holding-period rules. The beneficiary should therefore obtain historical acquisition records rather than relying only on the current demat statement.
Example
A deceased investor bought shares for ₹4,00,000. The shares are transmitted to the nominee when their value is ₹7,00,000. If the nominee later sells them for ₹8,00,000, the calculation should generally consider the previous owner's acquisition cost and relevant holding period.
Documents to keep
- Death certificate and transmission documentation
- Nomination/legal-heir records
- Previous owner's broker statements
- Demat statements
- Corporate-action records
- Sale contract note
Related EZTax Questions
- What Is Capital Gain in Income Tax?
- What Is Short-Term and Long-Term Capital Gain?
- How to Calculate Capital Gain From Shares?
- What Is Cost of Acquisition for Capital Gains?
- Which ITR Form Should I Use for Capital Gains?
