Why this taxpayer will not get ₹1.25 lakh LTCG exemption after selling shares gifted by his father

Can a person claim ₹1.25 lakh exemption on long-term capital gains (LTCG) under Section 112A by selling shares gifted by his/her father? Is there any situation in which this exemption can be denied? This article answers these questions through a real-life situation shared by one of our readers.

However, there are certain conditions that must be fulfilled for availing these benefits of concessional (12.5%) tax rate and ₹1.25 lakh exemption. We discuss those conditions below:

The payment of Securities Transaction Tax (STT) is mandatory both at the time of acquisition/purchase and transfer/sale to claim the ₹1.25 lakh exemption on long-term capital gains (LTCG) from equity shares under Section 112A of the Income Tax Act, 1961.

In case of shares gifted by your father, the ₹1.25 lakh exemption can be claimed only if your father paid STT at the time of buying the shares and you paid the STT at the time of selling them.

From the details you have shared, it seems your father had paid the STT when he acquired the shares, but you didn't pay the STT when you sold those shares. Therefore, you will not be eligible for ₹1.25 lakh exemption under Section 112A.

Moreover, as STT was not paid at the time of sale, you will also not be able to claim the concessional 12.5% tax rate on LTCG from equity shares. The gains will be taxed as a normal income per your slab rate.

Here's what the Income Tax department says: "This concessional tax rate applies if the Securities Transaction Tax (STT) is paid at the time of transfer of such securities. Further, in case of equity shares, STT should have been paid at the time of acquisition also, subject to certain exceptions."