How to Calculate Capital Gain on Rights Shares?
Rights shares are acquired through a rights issue and have their own acquisition cost and holding-period history. When sold, the capital gain should be calculated using the rights subscription records rather than the cost of the original shares.
Quick Answer
For rights shares, the subscription price generally forms the starting point for the cost of acquisition, subject to the specific tax provisions. The holding period is tracked from the date the rights shares are allotted or acquired under the applicable rule.
Is the Rights Issue Price the Cost?
The amount paid to acquire the rights shares is generally relevant to their cost of acquisition. The taxpayer should retain the rights application and allotment records.
Can Rights Shares Have a Different Holding Period?
Yes. Rights shares are a separate acquisition. Their holding period should therefore be tracked separately from the original shares.
What If Rights Are Renounced?
Renunciation of a right and sale of shares received through exercise are different transactions. The tax treatment should be determined separately based on what was actually transferred.
How Should the ITR Be Prepared?
Include the resulting gain or loss in the applicable capital-gains schedule and reconcile the transaction with the broker and demat records.
Practical Checklist
- Keep the rights issue letter and allotment statement.
- Record the subscription price and allotment date.
- Separate original shares from rights shares.
- Track renunciation separately if applicable.
Related Capital Gains 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?
