Tax query: Am I eligible for grandfathering of tax on ESOPs? – The Hindu BusinessLine

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I exercised my option of 4500 equity shares of my employer bank, offered to me under ESOP Scheme, on January 25, 2018 and remitted the required amount along with perquisite tax on January 29, 2018. The shares were allotted / credited to my demat account next month, i.e. February 2018. I still hold these shares.

Please advise me whether I am eligible for the benefit of ‘grandfathering’ clause on LTCG, if I sell these shares. During July 2020, I purchased 100 equity shares of Lakshmi Vilas Bank at ₹20.35 /share. On October 2020, LVB underwent liquidation / merger and RBI declared the share value of LVB as nil. Please advise me how to account for the loss (of ₹2035) for ITR.


As per the provisions of Section 2(42A) of the Income-tax Act, 1961 (‘the Act’), the date of acquisition for the shares allotted under the ESOP scheme for the purpose of calculating capital gains is considered as the date on which such shares have been allotted. The benefit of grandfathering u/s 112A of the Act is available for transfer of equity shares acquired before February 1, 2018. Since the shares were not allotted to you prior to February 1, 2018, the benefit of grandfathering provisions would not be available in your case.

I understand that subsequent to Lakshmi Vilas Bank‘s liquidation / merger, the value of shares of LVB has become Nil and you have not been allotted any shares of DBS Bank India Limited in lieu of shares held with LVB. In this case, it is required to be analysed whether this transaction (i.e. share value of LVB being written off and becoming zero) can be regarded as ’Transfer’.

As per provisions of section 2(47) of the Income-tax Act, 1961 “transfer “in relation to a capital asset, includes – (i) sale, exchange, or relinquishment of the asset ; or (ii) extinguishment of any rights therein ; or ……. ” (iii) ….

Since, in the instant case, extinguishment of rights has occurred towards LVB’s shares, hence the same may be considered as ‘transfer’. The resultant loss, being a Capital Loss (short-term in this case as the shares were held for a period less than 12 months) and thus, can be set-off against Capital Gains of FY 2020-21 or can be carried forward to next 8 years.

The writer is a practising chartered accountant

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