My mother holds a 10-year-old equity portfolio worth ₹2.5 lakh. What will be the tax if I sell it?

Sumanta Chatterjee's mother is holding an equity share portfolio, currently worth ₹2.5 lakh, for more than 10 years. She has no other source of income, except a savings account in which she gets interest. If Sumanta sells his mother's portfolio now, will she be liable to pay any tax?

In an e-mail last month, Sumanta shared his query, saying: "My mom has a share portfolio for more than 10 years with a value of ₹2.5 lakh. So, if I sell that total portfolio, how much will it be taxed? Mom has no source of income. She has a savings account and gets interest on that."

CA Dr Suresh Surana has answered Sumanta's query as follows:

The individual in question is the mother of the assessee and holds a portfolio of listed equity shares acquired over a period exceeding 10 years, with an approximate current market value of ₹2.5 lakh. Apart from this investment, her only source of income is interest accrued on a savings bank account. She does not have any taxable income from salary, business, or any other head, and her total annual income is understood to be within the basic exemption limit applicable to her age category.

Upon sale of the equity portfolio, the resulting gains will be characterised as long-term capital gains (LTCG), since the securities have been held for more than 12 months. As per Section 112A of the IT Act, LTCG arising from the sale of listed equity shares (subject to Securities Transaction Tax) is exempt up to ₹1,25,000 in a financial year, and any LTCG in excess of this threshold is taxable at a rate of 12.5% without the benefit of indexation.

Given that the total value of the portfolio is only ₹2.5 lakh, it is expected that the resultant LTCG, after applying the grandfathering adjustment, would not exceed the ₹1,25,000 exemption limit. Even in the event that the gain does marginally exceed the threshold, the same can be offset against the unutilised portion of the basic exemption limit, considering the mother has no other significant income. As such, no tax liability is likely to arise in respect of this transaction.

For return filing purposes, if there is a reportable capital gain exceeding the exemption limit of ₹1,25,000 u/s 112A, the appropriate form would be ITR-2, which provides for disclosure of income from capital gains and interest income under “Income from Other Sources.”