Section 55(2)(ac)

Section 55(2)(ac) — the law in short

What the courts have decided on section 55(2)(ac), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Ramesh Jaisinghani v DCIT ITATHelps taxpayerSuperseded by amendment
  The officer has taken the cost of my bonus shares as nil and taxed the whole sale price under s.112A. Does the grandfathered value as on 31 January 2018 not apply to bonus shares?
  The Mumbai Tribunal held that it does. Bonus shares on which securities transaction tax has been paid fall within s.55(2)(ac), which is a special computation code for shares eligible under s.112A, and it prevails over the general rule in s.55(2)(aa) that takes the cost of bonus shares as nil. Taking the cost as nil inside the s.112A regime would tax appreciation up to 31 January 2018 and defeat the grandfathering the section was enacted to preserve. On the facts the fair market value as on 31 January 2018, taken at Rs. 500 per share from the assessee's valuation report, was adopted as the cost of acquisition. Read all of this against the amendment the order turns on: the Finance (No. 2) Act, 2024 inserted clause (AA) into Explanation (a)(iii) of s.55(2)(ac), supplying a fair market value for exactly this class of shares - equity shares not listed on 31 January 2018 but listed afterwards, on a sale of unlisted shares under an offer for sale in an initial public offering - and Parliament expressed it to take effect from 1 April 2018, that is retrospectively, from assessment year 2018-19 onwards, which covers the assessment year decided here. Parliament has therefore already legislated over the gap the principal ground relies on. The Tribunal held that insertion substantive rather than clarificatory and so incapable of reaching a transaction already completed; if that characterisation is wrong, the principal ground does not survive. This is a Tribunal decision from October 2025 on a very large sum and its final fate is not known.
• Statutory position — section 112A: the long-term rate and the exempt slice, before and after 23 July 2024 CBDT Circulars & InstructionsCuts both ways
  My client sold listed equity shares twice in FY 2024-25 — once in June 2024 and once in September 2024. What rate and what exempt threshold apply to each lot?
  Two different rates apply inside the same previous year, but only ONE exempt slice. For a transfer BEFORE 23 July 2024 the section 112A rate is ten per cent; for a transfer ON OR AFTER 23 July 2024 it is twelve and a half per cent. The exempt slice is one lakh twenty-five thousand rupees for the whole of the previous year — the proviso to section 112A(2)(i) says in terms that the limit applies on the AGGREGATE of the long-term capital gains under both sub-clauses — so it is not split between the two rate blocks and the pre-23-July lot does not get a separate one lakh rupee slice. The one lakh rupee figure governs transfers up to 31 March 2024 only. Both changes were made by the Finance (No. 2) Act 2024 with effect from 23 July 2024.
• Statutory position — section 55(2)(ac): the 31 January 2018 grandfathered cost, limb by limb CBDT Circulars & InstructionsCuts both ways
  My client bought listed shares in 2012 and sold them last year. How exactly do I work out the cost of acquisition under the grandfathering rule, and does the 31 January 2018 price simply replace the cost?
  No — the 31 January 2018 price does not replace the cost, and it is not a straight 'higher of cost or market' either. The cost is the HIGHER of (i) the actual cost of acquisition and (ii) the LOWER of (A) the fair market value and (B) the full value of consideration; fair market value for a share listed on 31 January 2018 is the highest price quoted on a recognised stock exchange on that date.
• Statutory position — section 10(38): the third proviso, Notification 43/2017 and the 1 April 2018 sunset CBDT Circulars & InstructionsCuts both waysSuperseded by amendment
  The assessing officer says my client's long-term gains on listed shares are not exempt under section 10(38) because no STT was paid when the shares were bought. Is that right, and does section 10(38) even apply to my year?
  First check the year: section 10(38) does not apply at all to a transfer made on or after 1 April 2018, because the Finance Act 2018 inserted a fourth proviso switching the clause off from that date — so for AY 2019-20 onwards the question is section 112A, not section 10(38). For a transfer up to 31 March 2018, the third proviso (inserted by the Finance Act 2017) does require STT to have been paid on ACQUISITION as well, but only in the cases carved out by the Central Government's Notification No. 43/2017 (S.O. 1789(E)) dated 5 June 2017 — the notification's main part covers all acquisitions of equity shares from 1 October 2004 that were not chargeable to STT, and only its three listed clauses take an acquisition out of the exemption.

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.