If Rights Entitlements (alloted by a company to equity shareholders in case of rights issue) are sold in the exchange after a few days of allotment, what is the tax treatement? Also is the gain short term or long term?
Hey @vivek25, Sale of these right shares, LTCG is taxed at 10% in excess of INR 1 Lakh and STCG is taxed at 15%. The period of holding is calculated from the time the right shares are allotted. The Capital Gains Tax on the sale of Right Shares would be computed in the same manner as Capital Gains on the sale of Bonus Shares except for the fact that in case of Right Shares the cost of acquisition for acquiring the Right Shares would be the price paid for acquiring the right shares. In your case, it will be considered as Short Term Capital Gains since your holding period for these equity shares is less than 12 months.
Lets say, I purchase Rights Entitlement of a company and sell these rights entitlements without applying for the rights issue, what will be the tax implication of profits arising out of sale?
Likewise, if there are any losses arising due to such sale, can these losses be offset against other Short term capital gains?
PS: in the contract note, there does not seem to be STT paid for such transactions.
Hi @balaji, the income that you earned from the sale of Rights Entitlements shall be treated as Income from Other Sources and cannot be offset against other capital gains, as per my opinion of the scenario that you have presented. As there was no ownership of shares, the income gained will be classified under Income from other sources.