When a shareholder sells Rights Entitlement instead of applying, the amount received is treated as capital gains.

• Cost of acquisition: NIL
• Holding period: Short-term
• Tax treatment: Entire sale value is taxable as short-term capital gains

The tax rate depends on whether the entitlement is sold through the stock exchange and applicable STT rules.

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Tax if Rights Issue Is Not Applied

If a shareholder does not apply for the Rights Issue and also does not sell the entitlement, then:

• No income arises
• No capital gains tax is applicable
• Entitlement simply lapses after the closing date

There is no tax liability in such cases.

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Tax on Rights Issue Discount

The discount offered in a Rights Issue (difference between market price and issue price):

• Is not taxed at the time of allotment
• Is not treated as income
• Becomes relevant only at the time of sale

Tax is applicable only when the shares are sold.

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Capital Gains Tax on Rights Issue Shares

Tax on sale of Rights Issue shares depends on the holding period:

• Short-term capital gains:
  If shares are sold within 12 months of allotment
• Long-term capital gains:
  If shares are sold after 12 months of allotment

Cost of acquisition = Rights Issue price actually paid by the investor.

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Holding Period for Rights Issue Shares

• Holding period starts from the date of allotment, not from record date
• Each Rights Issue allotment is treated as a fresh acquisition
• Tax classification depends strictly on the holding duration from allotment date