Period of holding in case of listed equity shares

Taxation
1

As per Sec 2(42A), listed equity shares will be considered short term if held by an assessee for not more than twelve months immediately preceding the date of its transfer.

Now, if I purchase a share on 01-01-2024 (date of broker’s note) and sold it on 01-01-2025 (date of broker’s note), this should be classified as short term right?

Since:

  1. The date immediately preceding the transfer date is 31-12-2024 AND
  2. The period between 01-01-2024 to 31-12-2024 (both inclusive) is not more than 12 months

Shouldn’t it be long term only if sold on or after 02-01-2025? Why does Zerodha classify a period of holding of ‘365 days or more’ as long term?

2

@TheGouda @Ruchi_Porwal Can we check.

3

Hi Srinath,
For securities transacted on stock exchanges, “it is the date of broker’s note that should be treated as the date of transfer in case of sale transactions of securities and similarly, in respect of the purchasers of the securities, the holding period shall be reckoned from the date of the broker’s note for purchase on behalf of the investors.”

Our current logic of classifying the period of holding is based on the number of days. 2024 being a leap year, the no. of days between the said date of purchase (01-01-2024) and date of sale (01-01-2025) is 366 days if you exclude the sale date from the computation. And hence it’s being classified as long term.

@Quicko can share their views on this.

4

  1. The provision states “twelve months” and not 365/366 days. Meaning even if a particular period happens to include February 29 (i.e., 366 days), it should still be considered as coming within “twelve months” right?

  2. In non-leap year cases, even when the “Period of holding” in your tax p&l comes to exactly 365 days (including purchase date BUT excluding sale date), I believe it is still being classified as long term. Can you please check?

5

Yea, Console shows the blue suitcase icon beside stocks on completing 365 days but it should be 366 days for leap years as far as I understand too because income tax rules talk in terms of months.

6

@Ruchi_Porwal @TheGouda any views on this?

7

Hi everyone, just found a case covering this exact issue [Bharti Gupta Ramola v. CIT [2012] 20 taxmann.com 762 (Delhi)]

  1. For computing holding period of asset both date on which asset is acquired & date on which said asset is sold or transferred are not to be excluded.

  2. The expression used in Section 2(42A) is “for not more than 12 months”. In other words, to qualify as a short term capital asset, the shares should be held by the assessee for 12 months or less but the moment the said time limit is crossed or is exceeded and the assessee continues to be the holder/owner of the said asset, the same is to be treated as a long term capital asset.

  3. Therefore, in our example, where the shares purchased on (01-01-2024) are sold very next day after period of 12 months is over (i.e., sold on 01-01-2025), it would be treated as a long-term capital asset.

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