TaxTMI 
TaxTMI 
Transactions in securities—Determination of date of transfer and the period of holding of securities held in materialized form under section 45(2A) of the Income-tax Act, 1961
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....-tax Act, 1961. Sir, At present trading in securities is done through the physical movement of the scrips. Transactions are settled through the endorsement and delivery of the certificates which are also the proof of ownership of the security mentioned therein. This system is fraught with many difficulties caused due to bad deliveries and loss of share certificates. In order to remove these difficulties faced by the investors, a system of holding securities in the electronic mode at the option of an investor has now been introduced in India. The object of this system is to eliminate problems which are normally associated with settlement through physical certificates, like tearing/mutilation of share certificates due to careless handli....
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....existing system of holding securities in physical form. Where an investor opts to hold a security with a depository, i.e., not in physical possession of a certificate, the depository shall be intimated of the details of allotment of securities and accordingly the depository shall enter in its records the name of the allottee as the beneficial owner of that security. Under this system physical share certificates are surrendered to the issuing agency and the account maintained with the depository is the only evidence of the ownership of the securities. This conversion of physical certificates into electronic holdings at the request of an investor is called dematerialisation. Whenever purchase/sale, i.e., any transfer of such securities held i....
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....oard had earlier issued Circular No. 704, dated 28th April, 1995, which explains the manner in which the "date of transfer" and "period of holding" may be determined. This primary position as regards the "date of transfer" and "period of holding" does not change even when the securities are held in the dematerialized form. The only problem when securities are held in dematerialized form is that the distinct trail linking every share to a certificate and its unique distinctive number linking it with its subsequent sale is not available. 5. Section 45(2A) stipulates that in the case of securities held in dematerialized form, for determining "date of transfer" and "period of holding", the FIFO method would be applicable. The FIFO method is ....
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....sion of the investor and are identified separately. (b) In the depository system, the investor can open and hold multiple accounts. In such a case, where an investor has more than one-security account, the FIFO method will be applied accountwise. This is because in case where a particular account of an investor is debited for sale of securities, the securities lying in his other account cannot be construed to have been sold as they continue to remain in that account. (c) If in an existing account of dematerialized stock, old physical stock is dematerialized and entered at a later date, under the FIFO method, the basis for determining the movement out of the account is the date of entry into the account. This is illustrated by the foll....