Inherited Shares Tax Rules Explained: How Capital Gains Are Calculated After Selling

Selling inherited shares can be confusing—especially when you’re unsure about the original purchase price or holding period. Many investors who receive shares from parents or grandparents often ask: How is tax calculated in such cases?

Here’s a clear, easy-to-understand guide based on current rules.

Is There Any Tax on Receiving Inherited Shares?

The good news is:

👉 No tax is applicable when you receive shares as inheritance or gift

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Under Indian tax laws, shares received from family members are not treated as income, so you don’t pay tax at the time of transfer.

When Does Tax Apply?

Tax liability arises only when you sell the inherited shares.

At that point, you need to calculate capital gains, which depends on:

• Purchase price (cost of acquisition)
• Holding period
• Selling price

What Will Be Considered as Purchase Price?

This is where most confusion happens.

👉 The rule is simple:

• The cost of acquisition will be the price at which the original owner bought the shares
• Not the value at which you received them

For example:

• If your father bought shares at ₹100
• And you sell them at ₹500

👉 Your capital gain = ₹500 – ₹100 = ₹400

How Is Holding Period Calculated?

The holding period is also inherited from the previous owner.

👉 This means:

• If your parent held shares for 10 years
• And you sell them after 1 year

👉 Total holding period = 11 years

So, it will be treated as Long-Term Capital Gain (LTCG).

What If Purchase Price Is Unknown?

In many old cases, records may not be available.

👉 You can use this alternative:

• Take the fair market value as of January 31, 2018 as the cost

This rule helps simplify tax calculation for older investments.

Special Rule for Bonus Shares

• Bonus shares received after January 31, 2018
  👉 Cost of acquisition = Zero (Nil)

So, the entire sale value becomes taxable gain.

Capital Gains Tax Rules Long-Term Capital Gain (LTCG)

• Applies if holding period > 12 months
• Tax rate: 10% (above ₹1 lakh gains)

Short-Term Capital Gain (STCG)

• Applies if holding period ≤ 12 months
• Tax rate: 15%

What Happens If You Gift These Shares Further?

• No tax when gifting shares to family members
• But tax applies when the recipient sells

👉 Same rules continue:

• Original cost remains
• Holding period carries forward

Important Tip: Always Create a Gift Deed

Experts strongly recommend preparing a gift deed

while transferring shares.

This helps:

• Avoid legal disputes
• Maintain clear ownership records
• Simplify tax calculations later

Special Case: If Shares Are in Minor’s Name

If shares are transferred to a minor:

• Income will be added to the parent’s income (clubbing rule)
• Tax exemption of ₹1,500 per child is available

Conclusion

Inherited shares do not attract tax at the time of transfer, but capital gains tax applies when you sell them. The key rules to remember are:

• Use original purchase price of previous owner
• Include previous owner’s holding period
• Use Jan 31, 2018 value if records are missing

Understanding these rules can help you avoid tax mistakes and plan your investments better

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