Long term capital gain tax, money is received as installment

[bedese sasi]

Hello,

This is a query regarding the Long term capital gain tax, where money is received in installments

3 of us friends started a private limited company and equally shared the equity.

now we got a deal from another bigger organization to buy out 100 % equity in our company.

now to the question, the money is given to us as installment over a period of 2 years.

how should i pay my capital gains tax ?

everything upfront ?

or as and when i receive the installment ?

Thank you very much

[MAHENDRA SURANA]

Pl clarify what is Capital Assets

[K.S.AIYAR & CO.]

As I can see from 3rd line of your note, the capital asset to be transferred is shares of Pvt Ltd Co. With that assumption, my thoughts are as under:

You may have agreed to transfer the shares partly, on receipt of each installment, in proportion to share value determined for each share. Which means if for example total number of shares are 10000 and the value determined per share is ₹ 50/- then if installment received is say ₹ 1,00,000, then 2000 shares will be transferred and in next installment of say ₹ 50,000 only 1000 shares will be transferred. If this is the agreement, then period of holding at each transfer date will determine if the same is LTCG and STCG and you may pay tax accordingly.

[MAHENDRA SURANA]

As I feel U can pass JV for transfer of Capital Assets full Amount and credit when you receive installment . In case capital Assets are shares and if not suffered STT, and it is Non listed, than you will not have benefit of exemption of LT

[bedese sasi]

Hello,

More information about our current situation

Capital Asset is equity of un listed pvt ltd company.

My bad, its not Long term, but its short term because we have not finished holding it 3 years but finished holding 1 year

@SANJAY DAVE

100% Equity will be Transferred as 1 chunk at the beginning, money comes to us as 3 chunks over the period of 2 years

@MAHENDRA SURANA

i dont know what JV is

STT is not paid

Thank you very much

[K.S.AIYAR & CO.]

In view of further details provided by you, the liability to pay tax will arise on the date of transfer of shares. It is immaterial whether you have received entire/part payment or not.

[MAHENDRA SURANA]

1. I agree with Mr. Sanjay you have to pay tax at normal rate of tax ( since you are not covered u/s 111A of Incometax Act,1961 ) at the time of transfer of shares or entered in contract of sales whichever is earlier.It is not important to get payment at once or in installment .If it is less than 3 years it is STCG only.

AI Summary

Capital gains tax arises on the date of transfer; installments do not defer tax liability on share sales.
Tax liability arises on the date of transfer or on entering a binding sale contract regardless of installment payments. If the entire equity is transferred in one conveyance, the whole capital gain is taxable then; if transfers occur in parts tied to installments, each part is a separate transfer and its holding period determines whether it is short term or long term. For the facts given-unlisted private company shares held about one year and STT unpaid-the gains are short term and taxed at normal rates.