Section 49(2AB) — the law in short
What the courts have decided on section 49(2AB), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.
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Statutory position — s.49(2AA) and s.2(42A) Explanation 1(i)(hb): stage two of the employee share charge, the cost of acquisition on sale and the holding period that runs from allotment
CBDT Circulars & InstructionsCuts both ways
I paid tax on my ESOP perquisite when I exercised. Now I have sold the shares. What is my cost of acquisition, and from what date does my holding period run?
This is stage two. When you sell, the capital gain is the sale consideration MINUS the fair market value that was already taxed as your perquisite at stage one: s.49(2AA) fixes the cost of acquisition of a specified security or sweat equity share as "the fair market value which has been taken into account" for the purposes of s.17(2)(vi). The amount you actually paid for the shares is NOT your cost — the statute deliberately links the cost to the value already charged to salary, so that the same appreciation is not taxed twice. For the holding period, s.2(42A) Explanation 1(i)(hb) says it is reckoned from the DATE OF ALLOTMENT OR TRANSFER of the specified security or sweat equity shares, not from the date of grant and not from the date of vesting.
Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.